Every time we speak to founders we get asked the same question: "is media for growth funding a good fit for my business model?” or “how do I know my startup is ready for such an investment?“.
Deciding to use traditional advertising, particularly TV for the first time can be a remarkably emotional decision. It’s often a natural next step for startups needing to reach a much wider audience to take their growth to the next level.
Introducing the Media for Growth Startup Readiness Tool
It is a 5-step process designed to help founders streamline their decision-making process when facing the decision of raising a media for growth deal, including investor types, pricing, negotiations, and resources required to successfully close such deals.
From Channel Business Fit, Investors' Added-value, Investment & Commercial Agreement Terms to Post-Campaign Effect - each of these steps come together with a set of questions designed to help you:
- define your marketing objectives, if you haven’t done it yet;
- understand how new media channels such as television can help you acquire new customers and improve your startup’s retention rate;
- have a better understanding of the added value investors can offer you;
- evaluate your team’s resources and skillset;
- make the right decision to either proceed or not with a Media for Growth deal.
Let’s dig a little deeper into each step.
1. Channel-Business Fit Step
It is the very first of the five stages in the Media for Growth Startup Readiness Tool.
We are breaking down this step into two:
1. The short-term impact of TV on your business
2. The long-term impact of TV on your business
Key aspects to consider when assessing the short-term impact of TV on your business:
- Defining marketing objectives & Target audience
Defining your campaign objectives and target audience should be approached as an exercise similar to that of a segmentation analysis in performance-based customer acquisition campaigns.
Getting this step right will impact the campaign strategy and execution including GRP (Gross-Rating Points) negotiations, and therefore the overall campaign pricing. Different targets have different rates and tariffs.
- Choosing the right channels to acquire new customers
TV still remains the best marketing channel for making companies well known by the general public, and the most effective in the longer term, according to ‘Demand Generation’, a study commissioned by Thinkbox.
It also has by far the highest multiplier effect of any media channel. Meaning TV makes other media work harder by boosting the performance of the other media channels used in a campaign by up to 54%.
- Customer retention rate as a leading performance indicator
Many DTC brands focus on the opportunity to find and acquire new customers. But what about retention? Brands’ retention efforts today are largely focused on direct channels, such as email, direct mail, and social channels. TV can increase brand awareness and trust which can lead to better retention rates.
It’s important to evaluate the effectiveness of TV campaigns beyond customer acquisition costs and the initial revenue generated from a new customer. As stated before, TV remains the most effective channel in the longer term. The key is to back TV spending into an understanding of customer LTV over a longer period. To assess retention/repetition rates is helpful to run your own cohort analysis before er the TV campaign.
Key aspects to consider when assessing the long-term impact of TV on your business includes:
- The importance of trust in your business model
It’s a well-known fact that television inspires trust. A 2021 study from tvScientific found that 46% of consumers said TV and streaming ads are the most memorable, compared to 33% brand recall for social media ads, 12% for ads in mobile games, and just 9% for ads on websites.
Historically disruptive brands in the Fintech sector (Klarna, Monzo, eToro) or e-health (Fintonic) that want to gain customers' confidence have opted for a broader tv campaign.
As for marketplaces, this type of business requires building in parallel both demand and supply, requiring large liquidity to benefit from network effects and can monetize as well as trust. Television can bring all of this in one go.
- "Winner takes it all market"
Companies like Apple, Microsoft, Google, and Amazon hold an enormous competitive advantage in their industry something close to a monopoly. These companies have built capabilities so distinctive and customer propositions so compelling that competitors cannot match them. They also cultivated strategic assets that act as barriers.
But, branding will never make up for poor product execution. Make sure your technology and customer care strategy are sound before you invest in mass advertising.
2. Investors' Added-value
- Investors' Strategic support
Some investors in our network including Brand Capital International act as strategic investors for their portfolio companies offering support with the creatives and media planning and facilitating introductions to VCs and strategic clients.
There are 3 essential questions you should ask when approaching a media for growth investor:
1. Who has the investor cooperated with so far?
2. What are the experiences of other startups they have supported?
3. Are there any companies in their portfolio that may become a competitor?
- The fund’s media portfolio & possibility for follow-on investment
Does the media company only have access to "air time" (TV) or do they manage a broad portfolio of media? Although you don’t have to be on every channel, partnering with a large media house that owns both traditional (TV, Radio, OOH, print), and new media (digital channels, OTT, BVOD, etc.) gives you flexibility and streamlines future funding rounds.
It is very important to do your desk research well. Look for portfolio industries along with industry experience, country experience, and business experience of the investor. But also, take your time and go through the media portfolio of the investor to analyse all the available options. Will they cover your startup’s needs?
3. Investment & Commercial Agreement Terms
- Reasonable Investment Conditions
As with any other venture capital deal, due diligence takes place, a valuation is set (most media for equity deals are structured as convertible notes and therefore a valuation cap is being agreed upon), and an offer is made. Here are a few aspects for you to consider:
1. Remember that you can always negotiate a part cash part equity deal if you have the budget to spare. Some investors in fact require you to structure deals this way. This kind of agreement is much more holistic and built on the benefit of long-term gain.
2. Much like in any other equity investment agreement, you and your team may want to take into account liquidation preferences, anti-dilution terms, etc.
- Quality weighted cost per GRP
From our experience, investors won’t commit to anything less than a 750K-1m EUR deal/TV. However, that doesn’t necessarily determine the number of impacts your campaigns will generate or how many eyeballs will see your commercials. Your CMO should focus on defining the target and negotiating the cost/GRP.
- Campaign freedom
Do you/your CMO have the ability to control/influence various aspects of the media campaign such as channel mix and split of GRPs, prime time %, target definition, recruiting and planning the creatives, day-to-day monitoring of the campaign performance, etc.?
Some companies do not have the right skillset in the team to oversee the campaign and they prefer to rely on the investor and be accompanied by an experienced team that understands both worlds, the online performance approach, and the offline branding approach. Some media companies such as Channel4 Ventures and ITV AdVentures in the UK also provide creative support.
4. Post-Campaign Effect
- Resources and skillset to keep the momentum going
TV advertisements have a stronger impact on implicit long-term memory and brand building. If one just does nothing, the likely outcome would be to simply converge back to pre-TV levels. However, layering in mass reach advertising with digital ads and re-marketing can help your brand achieve a step-change in growth.