AppNexus CEO Brian O'Kelley on his $75 million round, the IPO market, and life after realtime bidding

By Erin Griffith , written on January 24, 2013

From The News Desk

Since I started covering adtech in New York, no company in the sector has been more surrounded by rumor than AppNexus. Not in a bad way -- it just happens to be one of New York's largest companies, with 400 employees, and it also happens to act as an intermediary between two of New York's biggest and gossipiest industries: advertising and media. The company's real time bidding platform (which allows automated buying and selling of digital ads) served $700 million worth of ads last year. It's the big fish, and it's one of New York's biggest success stories.

I've heard speculation that the company is an acquisition target for Facebook, is on the prowl for acqui-hires, is raising money, losing employees -- just about any rumor that could be whispered about AppNexus has been. The most common one, though, is that the company will IPO. After speaking to founder Brian O'Kelley, I now understand why that is in AppNexus' future, though it won't happen this year, he says.

Certainly AppNexus can't sell for a penny less $850 million, the price founder O'Kelley sold his last company, Right Media, to Yahoo for in 2007. It's the whole "once you're lucky, twice you're good phenomenon." As New York's second generation of companies founded by serial entrepreneurs mature, we might see this happen more frequently. "I didn't start AppNexus to do something smaller than I did at RightMedia," he told me. It's not about money this time around -- it's about making an even bigger impact.

Today the company got more runway before the need to IPO with a monster round of funding. AppNexus raised $75 million in a Series D round led by Technology Crossover Ventures with participation from Venrock and Tribeca Ventures Partners. That brings the company's total funding to $140.5 million. I spoke to O'Kelley after the announcement. (Edited for brevity in some parts.)

PandoDaily: Can you provide more details on what sorts of product development we should expect from AppNexus? When I was at RightMedia back in 2004, I invented the ad exchange. Watching the industry evolve over the past eight years has been inredible. It has been an honor to be on the cutting edge of that. In December 2008 we were the first to launch realtime bidding. But the product that is most exciting is still a ways away.

Only 12 percent of ad spend is transacted through programmatic technology. There's another 88 percent to go and RTB is probably going not be the thing that facilitates it all. We have some ideas and have an R&D team making progress toward a first idea of what that might look like. There's going to be a lot of experimentation. We're going to have to collaborate with major partners to figure out what the next thing is. That's how invention works. Yeah, I invented the ad exchange, but I wont say all the stupid things I did before that that didn't work at all.

So, we'll be experimenting and we have the capital to do that. And then in hindsight we'll be telling people how smart we were.

How much of a boost has Facebook's ad exchange, FBX, been to your business? They're clearly a key partner. But its not a huge part of our business from a volume perspective. They're still in early days of figuring out how external advertising will work, so its still fairly small.

And what's the breakdown on mobile vs. desktop for you? We've been supporting mobile RTB since 2010 but its really not significant. Mobile advertising that's not search is something like 3 percent of display. It's tiny. It's inevitable that at some point we'll have to focus on it.

Let's talk IPO prospects. Has the market's reception of Facebook, essentially an advertising company, affected the IPO prospects of AppNexus and other adtech companies? Not really. It's clear that only a few companies have the size and heft and scale to be a viable public company. You have to really want to be public. [...] Theres not a public adtech company now and there hasn't been been since Quantum. The markets will look at a company like AppNexus as an entirely different kind of company (from Facebook).

Do you see an IPO in the near term? It's not an exit. People get confused and they think it's, like, the goal. Just like raising venture capital, it's a means to future expansion. We have no cash needs for any reasonable amout of time right now, so we will not go public in 2013.

We may in the future. It could be opportunistic because it makes financial sense or is the right thing for the business because there's a lot of credibility that comes with being public. But it's certainly not a short term thing.

Have you entertained buyout offers from large players in the space? Microsoft invested in your Series C and has an option to buy, correct? Having sold Right Media to Yahoo, I think there is less of a financial motivation than for some entrepreneurs to sell. We have had some interesting offers in the past. In the last few years, it's clear to everyone we're onto something really big. People know that I am 100 percent focused, as is the rest of the team, on changing online advertising. There are aspects of it that are fundamentally broken and I'm not going to stop until I have achieved that.

Is this one of those "once you're lucky, twice your good" situations where you have to prove you can build something even bigger than the last thing? Um, kinda. But that's not a very quotable answer.

I'm driven to very great change and if you told me that we couldn't create change of the magnitude that Right Media did with the invention of the ad exchange, it wouldn't be as much fun. I didn't start AppNexus to do something smaller than I did at RightMedia. We built it to do something really big and I don't think people understand how big that vision really is. Over the last couple of years I have started to expose some of that. It's not financially driven. It's about the impact much more than the number of zeros.

Kelley would not comment on the round's valuation -- which prior reports have pinned at close to or higher than the $850 million Right Media sold for but I have heard from sources familiar with the situation was closer to $675 million.

[Image via Scribe Media]