The past few year have been tough for adtech companies. With growth and profits squeezed by the duopoly of Google-Facebook, and disappointing IPOs such as RocketFuel, Rubicon or Tremor Video, adtech fell out of VCs’ good books. On a similar trajectory, the VR industry has been in a trough of disillusionment since 2016, two years after Facebook purchased Oculus for $2 billion. Despite strong hardware progress, and a vibrant developer ecosystem, the adoption numbers have not grown fast enough for VCs to pile in. In Q3 2017, VR/AR investments were at a all-time low since 2015.
So it is fair to say that when knocking on VCs doors in 2017 trying to raise money for Admix, our adtech company for VR, did not have an easy sell. This is what we learnt through 60 pitches, before we eventually met the right investors.
Get the timing right
Ask any early stage VC about their investment criteria, and they will likely say: team, market, product. Although all are important, market is the most critical of the four for fundraising. Carried by a strong market wave, you’ll probably do fine with an okay product.
VCs have strong opinions about the “hotness” of a market, so much so that facts and data are often not enough to change their minds. From Q1 to Q3 2017, we saw a 300 percent increase of inbound requests for our service, both on the developer and advertiser side. That didn’t matter — we had a VR (and adtech) black cloud hanging over our heads. Before even talking to us, VCs were convinced that the VR market was on the decline and it wasn’t the right time to invest.
Fundraising when the market is against you is an uphill battle. Instead, we decided to bootstrap longer and wait it out. Having a unshakable belief in the VR/AR market, it was a no-brainer for us that the market would eventually turn around. Indeed, the market started picking up end of Q3 2017 when ARKit got released, created new opportunities to put AR in the hands of millions.
Shortly after, Magic Leap, the AR hardware manufacturer announced a massive $500 million investment round, and revealed their long awaited product. At the same time, Pokemon Go developer Niantic raised $200 million to build new AR experiences. None of these news pieces affected the immediate adoption of VR/AR, but they were lights at the end of the tunnel, giving the market a breath of fresh air. We used that momentum to start actively pitching to VCs.
An aura of positivity around the market is key to de-risk the proposition, so try to align your fund-raising campaign with these. To be able to do so, make sure you have enough runway when you start raising — at least 6 months, but ideally with the ability to extend to 9 months.
Make your value proposition obvious
Once the market timing is right, your pitch will be received differently. Your job now is to show that you can grow quicker than the market and are the right startup to back.
Founders can be excited about many things in the business: the growth of the team, new clients, new product features; and they try to emphasize all of these to the investors. These are a lot of factors to balance, and it can sometimes be overwhelming for VCs to really understand the value proposition that makes your company special.
I’ve always tried to simplify the pitch as much as possible, and make it about one underlying belief that is so obvious that investors almost can’t say no. For Admix, the pitch went like this:
I know you believe that VR and AR are the next media revolution, therefore it must have a sustainable business model to fuel it. If you look at 150 years of media evolution, you cannot deny that advertising is this business model, and that huge opportunities are created for every new media. Therefore, the only thing that you need to decide on, is if Admix is the best ad solution for VR/AR to invest in.
And then goes the more detailed pitch about team, traction and strategy.
This is a pretty direct way to put it, but doing so, we ticked multiple boxes. We knew investors we talked to believed in VR/AR, and to the previous point, our timing was right. The second point about advertising is a fact that investors couldn’t argue. That way, they had to agree that a massive opportunity existed. That’s 80 percent of the work done — the “only” thing to decide on, was if we were the right company to capitalize on the opportunity.
As a founder, you should be convinced that a massive opportunity exists — which is why you started the business in the first place. Try to demonstrate it clearly to the investors in a way that they almost can’t disagree.
Find benchmarks for success
In new markets, like VR and AR, there have been very little exits, making it difficult for investors to assess potential returns. In the adtech space, it was even worse — most exits after 2015 were disappointing IPOs or asset sales to other adtech businesses for a fraction of their previous valuations. Many VCs we spoke to had lost money on those deals. Knowing that, positioning Admix as an adtech company was not a good idea: we had to find other references.
Benchmarks are key for investors because they de-risk the proposition, proof that at least a similar business has found massive success in the past. This is why investors look for “Uber for X” or “Airbnb for Y.”
Instead of trying to compare Admix to recent successes, we took a long term approach. Looking at the past 20 years, there has been massive successes for companies building advertising solution for emerging media: DoubleClick, Yahoo, and Google on the web, Admob on mobile, Facebook on social. Where attention goes, media dollars eventually go. That is how we structured our pitch: we are approaching the dawn of a new media (VR/AR) which will create a huge opportunity for monetization and this is what Admix aims to solve.
Nothing groundbreaking there, but notice the subtlety. We positioned Admix as a VR/AR company first to take advantage of the market uptrend, but we later positioned it as an adtech company because benchmarks are obvious. Having a company sitting across industries helps, but I believe this can be done for every business. Try to show that history is repeating itself — just in a different context.
Make it look big
VCs like big opportunities — and by big, I mean billion-dollar opportunities. A $100 million exit would be disappointing to most. That is not greed, but simply the mechanics of the fund. VCs know that some of their investments will flop, therefore, the successful ones need to be successful enough to cover for these losses. Peter Thiel, early investor in Facebook, goes as far as saying that the best investment outperforms the entire rest of the fund.
So, you have to show a big vision behind your product. In our case, we could have positioned our pitch as advertising in VR/AR, but this doesn’t reveal the scale of the opportunity. Instead, we pitched the vision of building a sustainable business model in VR/AR, to empower VR/AR developers to become successful. The fact that it is advertising is secondary to that big, bold mission. Doing so also gave us lot of room to grow our product and services as the company progresses. Recently, we acquired VRFocus, which would have seemed weird for an advertising company. However, it makes perfect sense given our broader mission — empowering VR/AR developers to be successful.
Pitching big also helps to distance yourself from other players in a difficult space. In adtech for example, differentiation has been very difficult lately: many demand side platforms seem to be proposing the same services to advertisers, and many supply side platforms seem to be proposing the same services to publishers. This is partly why the investment has dried up. The last thing you want to do it being seen as another of them – instead, your big vision almost sets you apart from the pack. We have investors that would never invest in adtech — but Admix’s much larger vision appealed to them. Adtech almost became a means to an end, not a core element of the pitch.
Fundraising is tough: we hit about 50 “NO GO” before we found the right investors. The advice above does not guarantee investment by any means, but should help you position your company in a better light — especially if you’re raising in a tough market. Happy fundraising!
Samuel Huber currently serves as the CEO of Admix.in, the first monetization platform for VR/AR, that has raised a total of $2.4M from top European VCs.