Investment in ad-tech is booming, but new innovation is still vulnerable

By James Robinson , written on June 4, 2014

From The News Desk

Ad-tech start ups -- the dowdy, boring uncles of the startup world that sit lifelessly in the corner of the room but still help pay for the whole party -- are humming.

According to new data from CB Insights, $518 million in venture capital was poured into ad networks and exchanges in the past 12 months, representing the most lucrative four quarter stretch for the sector in the last five years. Despite persistent talk of a slump, the data shows an 89 percent bump in year-over-year investment and a 20 percent increase in the number of deals closed.

Looking at the industry closely, it is not surprising to see a marked uptick in deals like this. The raw opportunity in ad-tech is getting steadily bigger. Ad spend is steadily going digital -- and by proxy mobile -- with double digit increases in spending in each category anually. Desktop is a more mature space, but we’re seeing more companies look to improve supply side platforms and help publishers better sell their own ad inventory. We’re seeing more sophisticated targeting of users by interests. On mobile, video and native exchanges are all the rage, cross device attribution and ads that deep link between apps have potential, and there’s also a raw push just to open up more inventory.

It’s all very new action. According to CB Insights, almost half of these deals were angel or Series A deals. Nearly sixty percent were concentrated in Silicon Valley, Southern California, and New York City. Massachusetts saw its deal numbers fall by 20 percent (as did Silicon Valley) as its status as an ad tech hub continues to erode.

Ad-tech is an active space. The caveat for all of these deals is that small startups are hugely vulnerable to the movements and power plays of giants within the industry. A lot of these companies are affixed like barnacles onto the underside of their bigger competitors, er "partners."

Facebook’s Audience Network will bring its ivory tower data to sell advertising on mobile and it is moving into the app linking space too. Google’s sneak move to log you into all your apps on all devices moved it closer to having superpowers around tracking user behavior across all ads on all screens. And Apple has to start doing something meaningful with iAd someday, one would guess.

Digital ad spend is forecast to increase by 15 percent in 2014. That jump alone would bring in $18 billion in new business. CB Insights data isn’t a surprise, it is an inevitability. But as these smaller companies taste some success, they’d be wise to remain wary of the upstream competitors none too happy to cede control of this massive market.

[Illustration by Brad Jonas for Pando]