Media for Equity - An untapped investment model for the CEE

Media for Equity is an alternative business model where companies are trading equities to media conglomerates in exchange for advertising space. This business model is recommended to startups and scale-ups who have a limited budget to develop their infrastructure, as well as internet-based startups.

Article by
Flavius Floare
Article Date
June 21, 2021

Media for Equity has long been an alternative investment model that managed to thrive and bring out the best in B2C startups in Western Europe.

Spanning over two decades, the Media for Equity investment model has started to shape the business world. Despite being a nascent financing model in the CEE region, there've been numerous success stories in the West that prove the validity of the model.  Our research looked at  cases such as Zalando and About You, whose sales skyrocketed from millions to billions of dollars within just three years.

Zalando and About You are no longer exceptions. Our study shows that startups that have traded equity in exchange for advertising in the last decade register 87% survival rate compared to 10% industry average. This is a 9x higher survival rate than the industry average. However, Media for Equity is only starting to gain prominence among startups and investors, and there’s little information about this subject matter.

  • Media for Equity is still an under researched topic, even if the model has proved itself to be effective and profitable.
  • Media for Equity is still considered an “alternative” investment model compared to the more “traditional” venture capital investment model, even if, again, the model has proved that it can increase the revenue of a startup by the rate of thousands (Zalando, in this case, had a 29900% increase in revenue following the Media for Equity deal).
  • Media for Equity is still an investment model confined within  the European space.
  • Despite its presence in the Nordic and Western countries, the Media for Equity investment model remains an untapped potential for players in Central Eastern Europe.

As a corporate venture building studio, we make it our business to use proven startup techniques, the vast resources and expertise of large organisations, and our network of investors and founders to create a more efficient, systematic, and profitable model for building startups and de-risking the chances of failure.

At their core, startup studios and media for equity funds are trying to address one fundamental issue - decreasing startups’ failure rate whilst maximising the chances of revenue growth and international expansion.

With that in mind, Grai Group has conducted a research study
on Media for Equity looking at the following key areas:

  • What is Media for Equity?
  • The evolution of this model across different European hubs
  • How media for equity emerged as a solution to combat startup failures and diversify revenue for media holdings
  • Media funds structures, challenges and opportunities for broadcasters and media agencie
  • A 5-step guide for CEOs to get started with Media for Equity investments
  • Tapping into new opportunity spaces - Media for Equity in Central Eastern Europe

The research contains a deep analysis with over 40 pages of actionable insights, case studies and expert interviews on media for equity. If you are interested in reading more about Media for Equity and the paper that we have written about the subject, you can here and download it.

Media for Equity - An untapped investment model for the CEE

With the research now completed, Grai Group brought together experts from all over Europe to discuss the Media for Equity investment model in an online panel discussion. The panel took place on the 27th of April and the topics of discussion were informed by some of the research findings.

The speakers have talked about Media for Equity from the perspective of both the Media for Equity funds and the startups that benefited from such a deal.

We welcomed some of Europe's most forward-thinking media leaders and startups as our speakers. They are truly at the forefront of this new investment model - "Media for Equity":

  • Vinay Solanski - Head of Channel 4 Ventures
  • Marta Zuska - Head at Business Development at NexTechNow and Publicis Media Group
  • Dennis Ahrling - Principal at German Media Pool
  • Chris Sheldrick - Co-founder and CEO at what3words

And it was moderated by:

  • Volker Moser - Co-founder at Romania Insider

The event brought together over 160 attendees from 19 countries. We had a diverse range of participants - from startups to TV stations and investors, as well as journalists and other tech enthusiasts.

The panelists discussed the concept of Media for Equity, its benefits and challenges, the stories of success, the methods of implementations and, most importantly, the untapped potential it represents for Central Eastern Europe.

If you missed out on our event and webinar, rest assured that we’ve got you covered. You can watch the recording of the panel here to find out more about it.

What is Media for Equity?

Media for Equity is an alternative business model where companies are trading equities to media conglomerates in exchange for advertising space.

This business model is recommended to startups and scale ups who have a limited budget to develop their infrastructure, as well as internet-based startups.

In shorter terms, in a media for equity deal, advertising is offered instead of money. It is handled by the media conglomerate in such a way that it should reach the widest possible audience for the startup to succeed and attract customers.

Ideally, in order for media for equity to work, the media houses, let's say the TV channels need to have some degree of spare inventory that they can allocate better through the media for equity deals. And when I say spare inventory, I don't mean like leftover slots. In the end, media for equity is very similar to booking optimization of airplanes. You have different price points for different customers, opportunity costs, says Dennis Ahrling, Principal at German Media Pool.

Which startup ecosystems have adopted media for equity?

Media for Equity has started in the Nordics and according to our research Aggregate Media has been one of the first investment funds to close such deals with startups.

Eventually, Germany picked up the model and has established it very well within the country. Other countries soon followed: Spain, Italy, France, the UK, Belgium, Russia, Poland and so on.

Two well known companies, Zalando and About You, have implemented the deal and they have become the most famous cases of Media for Equity deals, due to their success.

Alongside the UK, and Sweden, and maybe Spain and Italy, Germany is definitely the country in Europe where Media for Equity is the most established. Other countries, like for example France, they didn't really have such a success case yet, and there media for equity is not that established. But in Germany, for example Zalando, also ABOUT YOU, you really see that media for equity can actually help startups reach the next level, continued Dennis Ahrling.

What are the benefits of implementing a Media for Equity deal?

There are numerous benefits when it comes to implementing a Media for Equity deal.

From Media Group’s perspective, a Media for Equity deal means:
  • Getting revenue and equities for unused media inventory that otherwise would have not been efficiently monetised.
  • Diversifying revenue and creating a cash pipeline.
  • Innovating media resources by creating investing in media related startups.
We do a lot of evangelism with media groups to have them understand how startups work, how they track media, how they think about media, how they want everything to be KPI driven, because the startups of today, or at least some of them may become the customers of tomorrow, says Dennis.

He went on to say, for the media groups, this media for equity deals, also have a financial return but I think it's also the strategic return that they have in having a closer relationship with the startups, really understanding how they think about media and how they book media, how they track it, how they optimize it, etc.
From startup’s perspective, a Media for Equity deal could lead to:
  • Discounted prices for media resources and advertising
  • Expert media planning
  • Adjustable media according to certain target audience
  • Quality advertising
  • Brand awareness and credibility through TV advertising

On this note, Chris Sheldrick, the co-founder and CEO of what3words, an app that have changed the way police can handle the searching of missing persons in the UK, points out that a Media for Equity deal made with Channel 4  and ITV are credited with bringing their startup to national awareness and credibility.

We were doing a lot of digital advertising, which, you know now that the tools are so sophisticated, you know what your costs are and how your campaign is performing. But after you do that for a while, you exhaust that channel and it starts to become less effective.  We'd started thinking about other channels, like TV. And I think that the fact that it was “media for equity” was a really nice softener for us to go in, so that you're not spending the cash that you've raised as such.

Just because the way these deals are structured, you generally get the startup better rates than you would do if you were just coming in totally cold, as a new sort of player in this field, without much negotiating leverage.

TV advertising is very different from digital, in the sense that you can only really measure it right at the end of the month; so you do a month as a minimum campaign, but you get this huge credibility that people still associate from TV advertising. Let's say they might see you on Facebook or Instagram advertising which is download and try the app. What you get on TV is a whole bunch of people's time: 30-40 seconds to be able to tell them a much, much deeper story where often on social people are watching 2-3 seconds of your video before deciding to install.

Once you are on TV, you get this wave of national awareness about what you're doing, and it strengthens your brand recognition and recall.

What are the Media Stations saying?

Channel 4 Ventures

Vinay Solanski of Channel 4 Ventures says that the Media for Equity investment model works similar to the Venture Capital investment model.

There is a lot of work to complete a Media for Equity deal; Channel 4 Ventures has made 4 investments so far since its inception in 2014. Amongst the companies interested for such a deal was also Pinterest, the well known picture based platform.

I find a lot of companies that don't invest in awareness marketing, even though the company has capital. There’s a preconception (and a fear) of being expensive and difficult to measure. It's an underlying culture that suggests it may not work.

One of Channel 4 Ventures’s main differentiators is to find companies that can really benefit from awareness marketing and debunk these advertising myths, says Vinay Solanski of Channel 4 Ventures.

Publicis Group and NextTECHnow

Publicis Groupe’s NextTECHnow shows that media agencies and media broadcasters can also partner with startups to create new solutions and generate revenue growth. NextTECHnow (NTN), is a startup pilot programme that pairs Publicis’ clients with mobile, social, data and content startups to create new value.

For us, startups are like a technological business partner. Our media clients - broadcasters or radio stations, engage with startups in open innovation - running pilots to develop new products and solutions. Sometimes, the startup also receives media inventory as part of the commercial deal.

At NextTECHnow, we are not your typical accelerator programme. We are not offering funding, but something that could be even more impactful to a startup on the verge of scaling and expanding its customer base: putting them in front of specific clients and our network of media experts.

At Publicis, we are taking a collaborative approach to innovation. So if we do have a startup, which we know that has succeeded in the UK or in Tel Aviv or here in Warsaw, then we are just sharing the examples around the whole Publicis Group, so that best practices  can be further implemented into the other markets, says Marta Zuska of Publicis Group and NexTECHnow.

German Media Pool

In Germany, German Media Pool is the largest independent Media for Equity venture capital fund in Europe. They have worked with 50 media groups, mainly from Germany but across Europe as well. German Media Pool was founded in 2011 and has carried over 34 successful Media for Equity deals so far.

In Germany, Media for Equity investment funds are structured in the following way:
  • They offer startups a lot of opportunities, from a mix of media to a whole bouquet of advertising.
  • The VC structures the deal and German Media Pool provides the services to their partners.
  • They do not do the planning of the marketing campaigns, they work with media agencies for it.
  • They commoditise the airtime - they give the startup a budget and the flexibility to allocate it to various campaigns.
  • The fund helps startups more on a strategic level rather than the production of the media mix; they help the startup find a media agency and then work on a plan to create a strategy.
German Media Pool as an independent fund has a lot of different LPs, lots of different media partners, that we can work together with. We can offer startups the “luxury” to pick and choose media from different media partners and put together a nice bouquet of TV, radio, other forms of print media, depending on their needs. To a certain degree, we are similar to an agency in the sense that we are more of a broker, than a media owner.

If you invest cash, it's quite simple - a million euros is worth a million euros. And with airtime it's a bit more tricky. You have to commoditize this airtime somehow in order to also make it fair. We give the startup a budget, and then they can use the budget and book, whatever they want with the channels that we partner with. But how exactly they spend it, which exact time slot, they usually work together with a media agency which has the expertise to develop a thorough media plan.

We help our startups more on the strategic level and not so much on the day to day operations, like most investors are doing. We help them find the right media agency, and most of the time they start doing TV or offline media with the media agency, and later some of them actually bring these competencies in house, building their own team, says Dennis Ahrling of German Media Pool.

What are the Startups saying?

Zalando and About You are clearly two startups that benefited greatly from Media for Equity deals. It brought them billions of dollars in revenue as well as recognition in the European Space. Both Zalando and About You operate across different countries in Europe.

what3words, a startup that developed a platform which encodes geographic coordinates into three dictionary words, has gotten to a level of national awareness and credibility, after they closed two media for equity deals with Channel 4 Ventures and most recently, ITV.

Chris Sheldrick thinks that the right time is essential when going for a Media for Equity type of deal. Startups need to be consulting with their media partners in order to choose the right time to air TV advertisement. 

Could “Media for Equity” become the new investment and revenue diversification model for startups and broadcasters in Central Eastern Europe?

According to Grai’s research, traditional media is still consumed at large in Central and Eastern Europe.

The average TV consumption in Eastern Europe in 2021 is 205.4 minutes/daily and so there is a huge opportunity for local startups and scaleups to reach a wider audience and potentially get to a larger customer base.

Whilst there are more active startups in the market than ever before, the VC industry needs to change, especially at the early stage. Venture capitalists don’t invest less than $1–2M. However, many innovative startups don’t need so much money to grow.

This means hundreds of startups that deserve funding don’t get it.

The average VC investment per company in CEE significantly increased from €0.5 million in 2018 to €0.9 million in 2019, but remained far below the European level of €2.3 million.

With Media for Equity, startups would get the exposure needed to “cross the chasm” and be top of mind for the mainstream market. . With a partnership such as the Nucom Group, Media stations could diversify their revenue whilst also supporting ambitious founders scale their business.

On the other hand, Media for Equity investment funds such as German Media Pool have already started expanding their operations beyond Germany’s borders. They offer Media for Equity deals that cover several European countries such as Austria, Czech Republic and Switzerland.

As a startup founder, one of the great things about German Media Pool is that their investment team covers several countries. For a company looking to scale across borders, partnering with them is a big win.

We have users in Romania, some of our dev team is based out of Romania. Doing a media for equity deal with a Romanian TV channel is something we would definitely consider, said Chris Shledrick.

There are definitely intentions for Western European companies such as what3words to advertise themselves into the Eastern European market with the help of local TV channels.

Maybe cases such as Zalando, About You and what3words will make the Eastern European Media stations reconsider their point of view when it comes to Media for Equity.

The model has already proved its worth, but for a lot of traditional businesses squaring business-as-usual with new models such as media for equity requires a change of mindset, incentives and governance.

We believe that Media Groups can benefit greatly from this investment model. On this note, we have developed a guide for Media Groups specifically for this reason. If you are a Media Group, access the 5 Step guide for Media Business Leaders to get started with media for equity.

The startup ecosystem in CEE is rapidly emerging on the European startup map as one of the hottest regional hubs. In the last decade the ecosystem has matured tremendously. We now have a lot more capital, as well are more mature startups and founders.

We believe that Media for Equity could play a crucial role in fueling the growth of the region, especially when it comes to startups and new founded companies.

We have written the research with the intention of helping companies, especially startups and scaleups, understand and implement Media for Equity deals so they can get their products and services out there.