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What is media for equity?

RDesign - 22 Febbraio 2018 - 0 comments

Photo by Tim Mossholder on Unsplash

By Toni Moreno Planas, Managing Director at Ad4Ventures Spain (Mediaset Group).

Ad4Ventures is the venture capital arm of Mediaset Group (leading free to air television broadcaster in Spain and Italy), focused on television media for equity deals. Ad4ventures has become the largest media for equity player in Southern Europe.

What is it?

Lately the term media for equity became quite fashionable in the venture capital/ start up world. However, not everyone has a clear understanding of what it means. We also need to bear in mind that this concept may be understood in different ways by each media group or geography, although little by little, European media groups are standardizing a common view and a way to structure these deals.

In summary, the concept is simple. A media group provides a communication/advertising campaign in exchange of shares in a growing and promising startup. The most usual approach is to take a minority stake in the Company, co-investing along with other financial sponsors in a financing round.

The first question we are always asked by entrepreneurs is how we value the media effort. To start with, I must say that it is clearly easier to value a media campaign than a participation in a startup, as there is a reference market value. Final media pricing would need to be agreed by the parties, but in general, it tends to be in line or below average market pricing. Once set up the campaign pricing, the media group will obtain a participation in the startup’s equity for a similar value as applied in the financing round to all investors. The media group (or its VC arm) will then become a financial investorlike any other with similar rights.

What are the benefits for the startup?

A rational entrepreneur or a financial investor would wonder why to give up their most precious asset, their equity, if they could buy an advertising campaign in cash, having the flexibility to choose with whom to do it and whether to stop a campaign or not. Our advice is that a media for equity deal should only be pursued if the entrepreneur is convinced that he wants to advertise in that type of media (i.e. television, radio, press) and the related use of capital makes economic sense.

In this respect, the key benefits of a media for equity deal for a startup would be:

1) Access to preferential rates (although it is not always the case with all media groups), with a higher ability to influence the campaign planning.

1) Being accompanied by an experienced team that understands:

· both worlds, the online performance approach and

· the offline branding approach,

· coupled with an overall financial investor’s KPI business understanding

it will help you optimize the impact of the campaign to achieve the strategic goals of the company.

3) Support regarding how to focus the campaign, PR, contacts, know how… A media group can add a lot of value, as any other financial investor.

4) It allows the startup raise larger financing rounds, focusing part of the capital on building long term value (brand awareness, market leadership or sustainable improvement of performance metrics).

In summary, if you are convinced of investing one million euro on a television campaign and you have confidence and trust on the media VC team, you will be better off with a media for equity deal, otherwise we advise you to raise cash instead.

Things/advices to be considered by the entrepreneur?

As mentioned before, different media groups may approach media for equity deals in a different way, more in particular if we change geographies. What should the entrepreneur take into account when pursuing this type of agreements?

– Pricing: there is always certain confusion for offline advertising beginners about what the actual market price is. There is always reference (especially in Northern European markets) to gross media value or listing pricing (precio tarifa). This price is not necessarily representative of the actual value at which companies are advertising in the market, who actually negotiate the campaign price as % of discount versus listing price (net media value). Make sure that you get a good understanding of the real market value and negotiate a good price.

In case of television, watch out when you talk about prices based on cost per GRP (gross rating points), as in order to compare apples with apples, you need to make sure that you are talking about same target groups (we will try to cover this topic in future posts), prime time access or ability to use non-conventional advertising formats (sponsors, telepromotions, etc).

– Ability to influence the campaign planning: oftentimes lower pricing is a trade off of the ability to control or influence the media planning. Certain media groups will treat the startup as a normal customer or in other cases (in those where pricing is far below market) there may be some limitations based on unsold inventories.

– Media mix: we should ask ourselves whether the chosen media is the most efficient way to reach our goals. Should we advertise on TV knowing that I am targeting a niche group? shall I use radio knowing that listeners will have no idea of how to spell your brand name? shall I chase millennials by advertising in newspapers?…

– When: is it the right time to launch a television campaign? In other words, am I sure that the current product is already a winner, or will I need to introduce new features, major changes or even pivot to improve conversion or repetition metrics? If you are planning to launch an app in a couple of months, it may be sensible to wait. We have even faced situations in which a startup is assessing launching a mass media campaign while thinking of rebranding at a later stage…

– Need for cash: a media for equity agreement means large growth, normally requiring the reinforcement of the team, increase in the online marketing effort to extract the maximum value of the effort and the preparation for further expansion. We do not recommend to go for a media for equity alone, as companies need cash.

– Be open to adapt your mindset away from the online performance marketing approach: even when offline campaigns can be optimized based on performance, campaigns are structured based on reach (the amount of people of your target group that you impact) andOTS/frequency (number of times that you impact those people in average), and large changes in the media planning may lead you to overall suboptimal results.

What are the benefits for the media group?

Although it is always difficult to launch an investment activity like this within a large corporation, the benefits have proven to be numerous:

– Ability to generate additional advertising revenues, maximizing the use of available air/inventory capacity (what can be quite attractive at the lower points of the economic cycle).

– Ability to revitalize the advertising markets as, while we are bringing new customers to the market, competitors may feel the need to couple investments to retain market share.

– Marketing know how: we find this as a key point as, having the ability to study the impact of advertising campaigns on digital businesses help you gain a much better understanding of the product you are selling (advertising space) and the appropriateness of your pricing strategy based on the value generated to your customer.


Bringing all of this down to the accounting world and other technical implications, the services rendered (i.e. the advertising campaign) will need to be considered as revenue for the media group and at the same time as a marketing expense for the startup, based on the accrual principle (i.e. recognize the profit and loss impact in the period when the campaign is actually consumed).

Overall there are to main approaches towards a media for equityinvestment:

1) Launch the campaign and capitalization of the related account payablegenerated by the campaign at the end of the period: this has the advantage that there is no cash movement, but the media group does only become a shareholder once the full campaign is finalized (the fact of being a contribution in kind may limit the shareholder rights of the media VC in certain countries).

2) Capital increase with a cash investment made by the media group which is returned right after as an advanced payment for future advertising services.

In any of both cases the biggest pain for everyone is how to treat the VAT payment (which is to be assumed by the startup), as it can result either in a serious working capital issue for the Company or a cash risk for the media group. In most cases, the related VAT is paid by the startup to the media group as the campaign is being aired. Good news is that certain banks are starting to offer a credit facilities to fund this cash requirement at reasonable interest rates using the VAT receivable from the tax authorities as a collateral to guarantee that debt.

Feel free to contact us on and we will be happy to give you our views on the matter.