Media-for-Equity – The key to reach, trust and growth for start-ups?
Media-for-equity (M4E) - a term that you come across time and again when researching investors. But what is behind it? An opaque deal without measurable success or a smart form of financing that generates reach and trust?
Florian Hirschberger and Maximilian Jochim, Managing Directors of SevenVentures, explain how the model works and dispel preconceptions.
What is media-for-equity?
Media-for-equity is an investment model in which media services are exchanged for company shares. Start-ups in the growth phase in particular can benefit from this model, as they receive valuable reach while conserving capital. This is because the partnership between a media company and a start-up opens up the possibility of increasing the brand awareness of a young company through TV and digital advertising without the company having to raise capital directly. In a classic media-for-equity deal, the investor receives shares in the company and the partner receives advertising on the relevant TV and digital channels in return. If a deal is made, the media investor often not only helps by providing the reach, but also supports with advice and expertise, for example during the development of the commercial. At SevenVentures, the partners receive support from the internal media agency through spot testing with a group of test subjects or tracking on the homepage. The running times and program environments of the TV spots are also individually designed, from three months of intensive campaign control to permanent “background noise” over a longer period of time, from premium formats in ProSieben’s prime time to more special programs that precisely meet the relevant target groups of the advertisers.
For whom media-for-equity is suitable for
A media investment, however, is not necessarily the perfect deal for every start-up. Just as the campaigns are planned individually, the investment process must examine whether a media-for-equity deal is the right one for a company at the moment. The first criterion is the product and the focus of the start-up. “It is important for us that it is a scalable B2C model,” explains Maximilian Jochim. As a rule, start-ups must offer a product that appeals to a broad consumer group in order to make optimum use of the reach of the mass medium of television. But that is not the only criterion. The stage of growth and the technical infrastructure must also fit. “With mass advertising, many people suddenly go to the website at the same time and want to order the product – it has to be a smooth experience for the customer without technical errors,” adds Jochim. A start-up must therefore also be able to handle the increased demand in terms of logistics and processes.
The structure of the campaign
Once a partnership has been arranged, the next step is campaign planning. Traditional TV is still an important component in almost all campaigns. While digital campaigns are effective in helping start-ups reach their core target groups, a wide reach is needed to establish their brands in the mass market. TV not only reaches an enormous number of people, but also creates particular trust in the advertised products and services. TV advertising can be a game changer for consumer awareness, especially for topics that require explanation or are taboo, such as innovations in the food or health sector. SevenVentures’ investments in the Sanity Group, Wellster, Formo, TiNDLE and Greenforce, among others, underline this effect. However, the reach and the trust gained not only help to get into the minds of end consumers, but also onto the shelves of retailers. TV can be a door opener on the way to the food retail trade, as the case of nucao shows. The fair and vegan chocolate brand has managed to obtain nationwide listings at Rewe as a result of SevenVentures’ media investment. A high-reach TV campaign can help to persuade food retailers which brands can be found in stationary points of sale and which cannot. Contrary to what is often assumed, M4E is much more than just TV advertising. In addition to advertising on traditional TV channels, a deal with SevenVentures can also include spots on the streaming platform Joyn, for example, or native podcast advertising as well as marketing via influencers with a wide reach. The focus is on target group-specific advertising measures that provide each partner with an ideal program environment for their commercials. In linear television, for example, this could be spots for start-ups with beauty products during GNTM on ProSieben or advertising on sixx, or a particularly authentic native ad in a suitable podcast format for a health tech start-up. Hirschberger adds: “We give young companies the opportunity to present themselves on our various TV and digital channels. We can implement a whole range of target group-specific advertising measures. In partnership with the start-ups, we provide holistic advice and can support everything from the spot concept to campaign optimization.”
Flexibility and interest alignment
Despite the obvious advantages, there is also criticism of the M4E model. The most persistent prejudice is probably that the value of the investment cannot be clearly calculated or measured. This point is not entirely unfounded. Especially since several campaigns – TV, digital and OOH as well as directly at the point of sale – often run simultaneously, it is difficult to say exactly what proportion is attributable to the TV spot, for example. However, the influence of the enormous reach is undeniable. Above all, studies show the interaction with other channels and how TV advertising boosts their reach and subsequent conversion. M4E also enables start-ups to advertise in the mass market without using cash, thereby limiting their entrepreneurial risk. The young companies have a genuine interest alignment with the media investor after the deal has been concluded, as the latter is also interested in their long-term growth as a shareholder. Another key advantage of the M4E model is the flexibility it offers start-ups. Many start-ups have benefited from this approach, especially in times of crisis: “Some of our partners have already noticed during the Covid pandemic that our model works very well because many competitors cannot afford advertising in times of crisis and with us, start-ups have the opportunity to generate attention even without capital expenditure – this creates a competitive advantage,” explains Maximilian Jochim. SevenVentures is also flexible when it comes to campaign periods: for example, a realtainment company such as ArtNight, which specializes in physical art events with customers, was able to postpone its campaign until after coronavirus. Otherwise, the effect would have fizzled out.
Conclusion: a win-win model
Media-for-equity must therefore fit the company, the stage of growth and the respective target group and a campaign must be planned individually. If the conditions are right, it is an absolute win-win situation for the start-up and the media investor. The model enables young companies with limited liquidity to increase their visibility and build trust in their products among the masses. At the same time, the risk is shared by both sides and the common interests result in a long-term and often successful partnership.
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