Media For Equity

Article byKhalid Ahmed
Edited byAlfina
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Media For Equity?

Media for equity refers to an unconventional venture capital model where startups and emerging businesses swap their trade equities for advertising space from media companies. It aims to help startups and emerging firms with extensive media coverage, funding needs, and expertise.

Media for equity

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Media firms get equity shares, adding to their future revenues. The startup may have to give up a significant amount of equity. Media houses offer advertising instead of money to the startup for trading equities. Media gets a certain percentage of company shares in exchange for advertisement spaces.

Key Takeaways

  • Media for equity is an unconventional venture capital model where startups and emerging businesses exchange their trade equities for extensive media coverage, funding support, and expertise to help them grow.
  • It serves companies with products, expanding startups, clear marketing plans, B2C focus, and growth objectives, benefiting through enhanced visibility, ad access, budget optimization, partnership alignment, exposure, funding, and expanded reach.
  • Startups and small firms benefit from equity in exchange for media, offering revenue diversification, lower investor risk, and easy access to advertising resources.
  • It benefits startups by increasing visibility, providing resources, aligning goals, attracting customers, and broadening reach through targeted media for specific audiences.

Media For Equity Explained

Media For equity enables a startup to bridge the funding, marketing, and knowledge gaps by exchanging startup equities with the advertising space of media companies. It is a groundbreaking investment concept addressing startup challenges. In the early 2000s, the startup, Firebox, pioneered media for equity and it developed into a dynamic marketing and investment strategy with time.

The strategy comprises various corporate involvement and media funds propagated and expanded by successful startups like About You. It begins when a startup seeking to address its lack of marketing funds collaborates with a media company. It offers to give its equities to media firms to get ad space and marketing expertise to compensate for its lack of funds.

Media companies get around five to fifteen percent of the equity in a swap of media plan actions and advertising. Here, a proper collaboration has to be done amongst agencies, venture funds, media companies, and startups. Thus, the startup successfully overcomes the financial hurdle in marketing its products, creating its brand, and targeting audiences to convert them into buyers.

This method has the potential to bridge the limited resources and huge marketing needs of startups. Hence, the startups can advertise on platforms they could not have due to lack of funds. Nevertheless, it cannot be applied universally to all industries. But, business-to-consumer (B2C) startups have the characteristic to use it fully. Furthermore, its efficiency lies in share exchange for amplifying visibility and aligning interest.

It has helped the financial world progress into a new collaboration, equity trading, and business model. Consequently, many startups have been using it to establish themselves in the market, become profitable, and expand their business.

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When To Use?

Collective wisdom and a sense of justice in co-creating media for equity drive the essence of such deals. The collaborative approach fosters innovation and shared value within the media for the equity model. This cooperation extends to the media for equity funds, where resources align with purpose, amplifying the impact of ventures aiming for profitability and societal good. Hence, one must know when to use it in the following situations:

  1. If a firm is a startup or emerging business, one uses it to increase its visibility and establish its presence. It allows access to valuable media ad space, which may not have been possible in their limited budget.
  2. If an entity has a limited advertising budget, one can use it as a plausible strategy. It will help entities leverage vast advertising resources without any investment. Thus, they make easier inroads to their large base of targeted audience.
  3. If one seeks strategic partnershipsmedia companies dealing in the startup industry can align their organizational goals through the partnership.
  4. If a firm seeks exposure and funding, then using it, firms may create product awareness and attract new customers. It also paves the way for getting funding without losing control over the company.
  5. If a particular audience has to be targetedmedia companies active in the fields of startups can boost their ability to reach a wider target audience.

Who Can Use?

Media for equity is a financing method deployed by startups, scale-ups, and business-to-business companies. Hence, only certain entities use it, as listed below:

  1. Companies with set products: A business with tangible products or market-ready services and having operational stability leverages the model to the fullest.
  2. Startups seeking expansion: Firms in the phase of expansion require funding. Hence, it serves as the best model for doing so. It happens because the media house buying its share helps magnify its marketing reach and potential customers.
  3. Have a marketing strategic plan: It should be used mostly by startups with well-defined marketing strategy plans. It is so because their clear-cut identification of optimal customer-centric channels increases the addition of new customers.
  4. Business-to-Consumer (B2C): Such a financing model suits firms into business-to-customer operations. With its help, they successfully reach new customers and increase the targeted customer base.
  5. Scale-ups: A growing company can rummage into it to expand its marketing attempts.
  6. Venture Capital Firms: These firms utilize the model as an alternative investment approach. Thus, they get a good scope of business growth.
  7. Media Conglomerates and Advertising Agencies: These companies have a set market and need to grow. Hence, they can assimilate such a strategy into their business growth.

Examples

Let us use a few examples to understand the topic.

Example # 1

Suppose TechGlo, a young tech company, is about to launch its groundbreaking product. A well-known media company agrees to invest in TechGlo through a media for equity deal. Instead of giving the company money, the media company will provide advertising space. Hence, TechGlo’s products get an opportunity to have a wider reach.

If the startup is successful, the media company will also benefit. Therefore, this win-win approach shows how media for equity can be a significant change, helping entrepreneurs and media companies succeed together.

Example #2

The latest investment by DMG Ventures in Cazoo serves as a prime example of media for equity. Cazoo progressed from conception in December 2018 to a full-scale launch by December 2019 within an impressively brief timeframe. Cazoo traded its equity for advertisement space with DMG Ventures, which is a media house. Hence, by June 2020, it had attained unicorn status, and by March 2021, it secured a substantial $7 billion SPAC agreement.

Moreover, such a remarkable journey established Cazoo as the quickest British company ever to achieve unicorn status. As a result, the firms underscored the vast potential of blitz-scaling in today’s dynamic business landscape.

Advantages

Let us look at the advantages posed by media for equity:

  1. Revenue diversification: Startups get diverse revenue streams for their unhindered growth.
  2. Lower investor risk: Investors also reduce their risk through the equity model in exchange for media.
  3. Beneficial to media houses: Through this, media houses utilize their unused inventory and prepare for an uncertain future.
  4. Easy access to advertising resources: Startups and small firms do not usually have large budgets to deploy big media houses for advertising. Hence, by this route, they can also access huge advertising resources to reach a large customer base, create brand awareness, and implement customer acquisition.
  5. Affordable advertising option: It significantly reduces the cash outlay related to marketing costs. It positively impacts the revenue and profit of startups and small emerging companies.
  6. Strategic partnership: Small companies and startups get to use the expertise, marketing strategies, and industry connections of well-established media houses.
  7. Enhanced brand value: The larger the collaborating media firm, the greater the exposure of the brand and product of a startup or emerging firm. It builds customer trust, and they become more confident in the product.
  8. Ready to use targeted audience: Media houses have a well-set targeted audience for their clients. So, they can use it to benefit the startup or emerging companies mutually.
  9. Measurable outcomes: These campaigns have built-in performance and tracking measurement tools. Hence, it becomes simple for the startups to measure the effect and impact of their ad campaign. They get a good deal of insights into customer behavior and data. Hence, these factors can then assist in devising the most impactful marketing campaigns to attract and retain customers and brand recognition.

Frequently Asked Questions (FAQs)

1. What are the benefits of media for equity?

Media for equity can provide the necessary exposure for a startup company to expand its business. This approach entails using an advertising campaign to promote the firm’s goods or services, enhancing their visibility and potentially attracting new clients. Moreover, media for equity presents a viable avenue for startup businesses to secure financing without relinquishing ownership of their enterprise.

2. What are the risks of media for equity?

The primary risk associated with media for equity is the potential failure of the startup company. In the unfortunate event of business failure, the media firm would hold shares in a company of no value. Additionally, the media firm might struggle to meet the contractual obligations, which could involve factors like the volume and quality of the advertising campaigns executed.

3. How can I find out more about media for equity?

Numerous resources are readily available for those seeking information about the utilization of media for equity. Online platforms offer a range of materials, such as articles, blog entries, and case studies. Additionally, connecting with media firms and startup businesses provides an opportunity to gain insights into their first-hand experiences with media for equity.

This article has been a guide to what is Media for Equity. Here, we explain the concept along with when to use it, who can use it, examples, and advantages. You may also find some useful articles here –

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