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Can startups grow without venture capital?

Can startups grow without venture capital?

In 2021, VC funding was $620 billion, which was more than double the previous year. Before 2021, the market was averaging 150 unicorn births a year.

By the end of 2021, it started with word spreading through Silicon Valley about the term sheets for startup funding getting pulled. Two months in 2022, Softbank, the biggest lead investor in startup deals in 2021, announced reducing investments by up to 50% (source: SoftBank Cuts Back Spending, Leaving Startups Desperate for Cash). A few weeks later Y Combinator told startup founders that "things don't look good" in public markets right now. The startup incubator gave its alumni ten things to do in a downturn. Among them is to play it safe, "plan for the worst," and just stay alive.

However, in the midst of any crisis lies great opportunity

For startups facing a new reality, a good place to start to reevaluate is their growth rate. Conversations are back to focusing on revenues, products, unit economics, and saving dollars. The new view of growth is not at all costs, but growth at a reasonable cost. Since cash will prove to be the test, startups increasingly look into complementary finance options to VC funding.

The 2000’s dotcom bubble taught us that innovation matters

During the 2000 Super Bowl, 17 dot-com companies had paid $44 million for ad spots according to a Bloomberg article from the following year. At the 2001 Super Bowl, only three dot-com companies ran ads during the game.

The dot-com bubble started growing in the late ’90s, as access to the internet expanded and computing took on an increasingly important part in people’s daily lives. In March of 2000, everything started to change. In less than a month, nearly a trillion dollars worth of stock value had completely evaporated. Companies started folding.

In this environment entrepreneurs and investors sought alternative forms of financing. Lack of VC capital was one of the factors that fuelled the growth of the media for growth investment model, particularly in Europe. For large, established media groups it was imperative at the time to find new ways to diversify their revenue.

Media for growth emerged as a complementary investment option to traditional venture capital offering startups a life-vest till they were able to raise the next round of capital.

The Evolution of Media for Growth Funding

Media for growth (also known as “media for equity” or “airtime for equity”) is a financing option that provides advertising such as television, print, radio, and online, in return for equity in a company. Media for Growth funds are proliferating at an increasing rate. Ten years ago, there were fewer than a handful. Today, there are more than 30 specialised funds.

The evolution of media for growth funding

Whilst singular media for growth deals already took place during the New Economy in Europe, actual MFG growth funds were set up later, when funding dried up. Aggregate Media in Sweden was the pioneer of the media for growth model in Europe, followed by Seven Ventures, Ströer’s Media Ventures and German Media Pool in Germany. With the spread of the fund model, considerable professionalisation took place. As in the venture capital space, pipelines and managed and evaluated, due diligence takes place, a valuation is set, and an offer is made to accelerate the target’s growth through advertising, in exchange for an equity stake in the business.

On the other side of the globe, The Times Group, the largest media group in India was investing media in exchange for equity in some of the most promising brands in the region. Since 2005, the group has made over 1000 investments. A few years ago, The Times Group started to look outside of India, and through their venture capital arm - Brand Capital International they started investing in international brands that want to grow revenue and brand equity in India.

In 2015 we decided to open our first office outside of India in Silicon Valley. Fast forward to 2022, we have built a portfolio of 33 international companies not only from the US but from the UK, Canada, Finland, Singapore, and Hong Kong among others. If seven years ago India was number 10 on the founders’ list of countries to expand to, today we are in the top three. - Neville Taraporewalla, President at The Times Group, North America and Brand Capital International

Whilst media for growth continues to gain popularity in Europe and India, other regions that historically were lagging behind are now starting to catch up. Funds such as FAME Media Global in Southeast Asia and Televisa in LATAM have emerged over the last couple of years pioneering this investment model in their home country.

In the US venture capital is plentiful. Not so elsewhere. Startups usually get their initial seed funding—a few tens or hundreds of thousands of dollars—from family or friends. Although there are a lot more early-stage funds in Europe now than 10 years ago, startups raising Series B or bridge rounds continue to struggle. In America, intermediate sums tend to come from informal “angel investors”, typically entrepreneurs who have made a decent bit of money from their own startups and want to invest some in projects they like.

Why is the media for growth investment model expanding rapidly now?

As with any shifting tide, there’s a series of contributing factors:

  • A vibrant startup community (market maturity): At a grassroots level, there is a need for a range of activities and events which can help the establishment and growth of startups.
  • Active established players: It is crucial that established players in the field of advertising are investing in innovation and the key stakeholders are aligned on a strategy moving forward. Startups alone cannot build a thriving ecosystem.
  • Access to risk capital: Access to risk capital is critical in order to maximise the outputs of media for growth investments and fuel the growth of these innovation frontrunners.
  • Political support and ‘friendly’ regulation: The business environment needs to be accessible and open, with centralised state bodies making public commitments to support these startups. A proactive and collaborative mindset across stakeholders is essential.
  • Size of the total serviceable market: A key factor that can directly impact the adoption of media for growth investments is the size of the consumer market, access to the Internet, and their willingness to embrace new technologies

How does media for growth funding work?

The goal of implementing a media for growth deal is to reach as many potential customers as possible, while having a variety of available media channels at one’s disposal. As in the venture capital space, due diligence takes place, a valuation is set, and an offer is made to accelerate their growth through advertising, in exchange for an equity stake in the business.

Media for Growth Fund Types

MFG funds come in two different variants. The most prevalent fund model are entities owned by media groups, which provide startups with their own owned media. ProSiebenSAT.1, Mediaset, ITV and Channel4 all invest using their own media.

The other fund model, independent MFG funds, are not owned by media groups, but have partnership arrangements with a set of media companies, often covering different media types. Due to the number of partners and media types, this approach is more challenging to set up and manage, but can provide startups with a greater range of media options. The distinction exists in conventional venture capital as well, where corporate VCs are contrasted to partner-owned VC funds. Founded in 2002, Aggregate Media in Sweden is the inventor of this innovative MFG model. 

The reason for entering into a media for growth agreement is much more holistic and built on the benefit of long-term gain.

There are several, less-obvious advantages to pursuing a media for growth funding option:

  1. Access to preferential rates and the ability to influence the campaign planning.
  2. Being accompanied by an experienced team that understands both worlds, the online performance approach, and the offline branding approach.
  3. Support regarding how to focus the campaign, PR, contacts, and know-how. Some investors such as Channel4 Ventures and ITV AdVentures in the UK also provide creative support, which often makes or breaks a campaign.
  4. It allows you to raise larger financing rounds, focusing part of the capital on building long-term value. Layering in mass reach advertising with digital ads can help your brand achieve a step-change in growth.


About mediaforgrowth

mediaforgrowth is a dedicated community of media for growth funds and industry experts specifically designed to align the interests of startups and investors. We partner with founders to grow revenue and scale internationally using media for growth investments. Our mission is to get you funded as efficiently as possible.

  • Prepare. We work with your team to understand your marketing and fundraising objectives and to see if media for growth is a good option for your business.
  • Engage. We provide direct support in finding investors (media and VCs) that are right for your fund size, and sector and are a strategic fit.
  • Negotiate. We can deploy specific media talent to help with the campaign evaluation, planning, creatives, and more.

Tell us more about your company and the round you are raising. We're excited about leveraging our experience and network to help you get you there.

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