Part 1: The History of Media-for-Equity

Happy Tuesday Friends,

The BBC pioneered live television broadcasting in the early 1930s. Although consumer adoption was initially slow, by 1960, nearly 87% of US households owned a television set. It was at this time where many businesses saw an opportunity to advertise their products and services to millions of people at the same time. This resulted in a new model called, “spot advertising,” where breaks occurred during television shows and multiple advertisers showcased their products - aka commercials 🙂. This was the beginning of a multi-decade period where television became the primary advertising medium and the media-for-equity model was born.

What is Media-for-Equity? 📺️ 👑 

Media-for-equity is an alternative investment model that provides start-ups with advertising space, such as television, print, radio, and online, in exchange for equity. The media provider, ‘invests’ in the company with media vs a cash investment.

Media-for-equity investments enable emerging companies to tap into more traditional advertising mediums to market their products and build their brands. This is most often done after a company has been successful marketing their products through social and search and they want to accelerate their growth through different channels. Media-for-equity allows the start-up to tap into significant marketing budgets they often can’t afford in cash. When done effectively, media-for-equity can create substantial value for cash-constrained companies so they can avoid bridge financing from investors at unattractive terms.

Media-for-equity investments are interesting for media providers as they allow them to own small equity stakes in fast-growing startups without investing cash or taking much risk. Many media companies simply use their unused media inventory for these investments so it can be a no-brainer for them.

For media companies, media-for-equity is a vehicle to diversify their revenue, create a new pool of advertisers for the future, be part owners of high-growth startups, monetize their inventory, and be prepared for uncertain economic headwinds.

The Media-for-Equity Market 📈 

Swedish Aggregate Media was the first to coin the term and introduce the concept of media-for-equity in 1990. As the model proved to be successful, media firms in other countries in Germany, Austria, Switzerland, France, UK, and India, started to copy it. Many media companies have developed their own dedicated arms to make media-for-equity investments. These types of deals have become the most prominent across Europe and India and are done either through an investment fund or as a direct investment with the media company.

Some estimates show that the total volume of media-for-equity deals have increased by 950% over the past decade compared to the previous ten-year period (Source: The rise of Media for Equity as an alternative investment model, 2021, Grai Ventures). Below is a chart showing how the industry has formed over the last 30-40 years and the increase in the number of media-for-equity funds that have launched. It’s estimated that there are currently more than 30 active funds.

The early days of media-for-equity mainly consisted of TV advertisements. But, over the last 30 years media companies have started to offer new mediums and online ad formats as traditional advertising has clearly become less effective.

Anecdote: Neither of us watch live TV other than the occasional sporting event. We can’t tell you the last time we saw a TV ad from a major brand like Coca-Cola, McDonald’s, or Nestle. It’s been years.

Several well known consumer-focused companies have used media-for-equity to help propel their growth. Some household names include Pinterest, Zalando, and About You. Zalando, a German-based online retailer focused on the European market, is probably the most well-known recent media-for-equity success.

Enter the Creator Economy 👨‍🎨 👩‍🎨 

The creator economy has given birth to a new media-for-equity model where a startup offers a piece of equity or profit share to a creator(s) in exchange for pre-agreed deliverables and longer-term involvement with the company. Creator equity can be compelling for the following reasons:

• For businesses - they can get in front of millions of consumers, get invaluable advice and feedback during product development, and gain leverage with traditional retailers without spending meaningful cash upfront.

• For creators - equity allows them to diversify income streams, continue to build their own brand in a natural way, and have substantial upside by owning a piece of fast-growing startups. It creates an opportunity for creators to build long-term wealth well after their days of content creation are over.

Although this model is young and relatively niche, we have already seen some very successful outcomes. A recent example was Roger Federer’s equity deal with footwear brand On in 2019. He received a 3% equity stake in exchange for helping them design their pro tennis shoes, create fan experiences, and participate in select marketing campaigns. Federer’s 3% equity stake is currently valued at $300 million, almost 3x as much as he earned during his 23-year career playing professional tennis.

There is Something Much Bigger at Play 🙋 

We think creator equity will become much more than a niche alternative investment model for the following reason:

We believe this new form of media-for-equity will be much bigger than it is today, but it will look different than the current form. Media-for-equity deals have historically been between startups and traditional media companies. This is because traditional media like TV, radio, and print had the eyeballs and consumer trust. This is no longer the case. Our eyeballs and attention have moved online and we have lost our trust in corporations and institutions. We now trust creators where individuals are the media network, not a handful of large companies.

Next week we will dig deeper into what the future of media-for-equity may look like as we enter this new world order.

Have good week and remember to Go Direct!

Jordan & Scott