A New Europe-wide study conducted by Grai Group reveals the evolution of “Media for Equity” as an effective investment model to finance “direct-to-consumer” startups and a promising revenue solution for TV broadcasters facing digital disruption. Media for Equity is an alternative business model where companies trade equity to media groups in exchange for advertising space. Simply put, it's an exchange of advertising for a share in the capital.

• The total volume of “media for equity” deals has increased by 950% in the last decade compared to the same previous period 

• The most active broadcasters in Europe include Channel 4, German Media Pool, ProSieben, and Mediaset

• Grai is hosting a global online event on April 27th to discuss Media for Equity as an untapped financial model in Eastern Europe 

The growing prevalence of Media for Equity in Europe

34% of startups fail because they lack a product-market fit whilst a further 22% do so because of little understanding of marketing strategies and how the media works*. To advertise their business, founders often rely on digital marketing, as an affordable and accessible medium. 

However most “Direct to Consumer” startups need to reach out further to get new customers, and traditional advertising such as TV is too expensive for a young company. The average TV ad for a 30-second commercial on a national network was priced at €100,000 in 2020 excluding production costs, according to a study by Ad Age. A recent Invest Europe report shows that the average VC investment per startup in CEE reached €0.9 million in 2019 but still remained far below the European level of €2.3 million**. 

As a result, a new financial model called “Media for Equity” has started gaining prominence. The study reveals that since 2010, 149 startups have adopted M4E as a cost-effective way to gain broader visibility and reach mass markets via TV, Out-of-Home, print, and radio advertising.

The research showcases examples such as Zalando, a German fashion retailer startup, that has made a Media for Equity deal with investment fund SevenVentures. SevenVentures invested in the company in the form of advertising in 2009. Zalando’s sales skyrocketed from $6 million to $1.8 billion by 2013, a 29,900% increase in revenue in a matter of just four years.

Can startups grow without venture capital?

Grai’s report shows that a media for equity deal can yield the best results for both the startup and the media group if done as a complementary financing option to traditional VC. The research reveals that a staggering 87% of the startups founded after 2010 that have traded equity in exchange for “airtime” are still active today. 

Some of these companies have received a cash injection alongside advertising space and international exposure due to strategic alliances between various media funds such as the European Media Alliance. Zalando and About You, two German retail companies benefited from advertising in Germany, Czech Republic, Switzerland, France, and Austria.

But this alternative financial model is not for every startup. The sectors most drawn to Media for Equity include software and e-commerce businesses that develop consumer-facing products. All of them have completed at least a seed round of funding before benefitting from traditional advertising and 90% of them were post-revenue when they signed media for equity deals. 

A Media for Equity deal involves the relocation of media resources to startups in return for equity. Instead of investing our cash, we invest in media space in return for equity in fast-going scalable consumer products. What the media groups do with the media for equity deals is to monetize media inventory that otherwise would have not been used or monetized in an efficient way, adds Dennis Ahrling, German Media Pool

Does Media for Equity provide positive returns for investors?

Investors who formed their fund within the past ten years have also started to see the first returns, while big media companies have also recognised the value of M4E – as a new business opportunity in times of ever-decreasing ad spends due to digital disruption. Channel 4 Ventures, Channel 4’s Media fund arm have registered four exits since the launch of the fund in 2016, where two were IPOs. This represents 25% of the total investments ever made by Channel 4 Ventures.

The component to success is to have both VC funds and media for equity funds at your company’s disposal, shares Ramiro Iglesias, Media Digital Ventures.

Media for Equity - an untapped opportunity in Eastern Europe

Grai’s research concludes that the Media for Equity investment model retains untapped potential in Eastern Europe. So far, according to their research, companies in only Russia and Poland have adopted the model, and the latter is no longer active.

“Eastern European television groups are missing out on the opportunity to demonstrate that they are essential partners for building digital brands and diversifying revenue. Throughout Europe, TV still draws huge audiences. Consumer startups are now considering TV far more seriously than a decade ago. It’s not too late for Romanian television to start providing digital newcomers with advertising deals early on”, adds Diana Florescu, CMO and Managing Partner at Grai Group.

The “Rise of Media for Equity as an alternative investment model” whitepaper is available to download here.

For further information, interviews, or comment please contact diana@graigroup.com

*StartupGenome Report (2020) Startup Genome

**According to InvestEurope report’s Central and Eastern Europe Private Equity Statistics (June 2020)

***Adage (2020)

Methodology

Grai has analysed over 414 financing rounds made by 149 companies with data sets compiled from dealroom, Crunchbase, Europe Venture Capital Review and Statista to identify and profile the total number of European startups that benefitted from Media for Equity since 2000, total number of investments, and total funding raised; as well the key media investment funds within this region and their top investments. This desk research was complemented by 1-2-1 interviews with experts conducted between 1st and 15th of March from various European Media for Equity investment funds.

About Grai Group

Grai was established in 2017 as a digital media studio to help ambitious founders scale their products to market. Its work spans web, mobile, retail, and e-commerce, product innovation, brand development, and business transformation. Today, they are using their entrepreneurial and marketing experience to validate, build, and scale new products and businesses together with large corporations. Founded in 2020, Grai Ventures co-invests and co-create new startups alongside large organisations and founders. They have 5 ventures in the pipeline within the Sustainability, FinTech, e-Commerce, Software and Human Resources sectors.

Grai is also a proud member of some of the world’s leading startup organisations including StartupGrind and ProductTank. For more information please visit www.graigroup.com and @graigroup.