Venture Capital

Are Venture Capitalists Bad For The Media Business?

Randall Rothenberg, CEO of the Interactive Advertising Bureau (IAB), was recently quoted in an article saying that venture capitalists were the biggest obstacle to our industry. “Venture capital has supported and financed a bunch of chaos,” Rothenberg said.

Unsurprisingly, the response from the VC industry was swift and harsh. “Randall Rothenberg. What an idiot,” Jerry Neumann, a veteran VC, seethed on Twitter. The venture capitalists argue that they have helped bring tremendous innovation to the media industry, funding startups like Yahoo, Google, Facebook and Twitter.

The problem is that these are not the only startups that VC money has funded. If you have worked at a media agency at any time over the past 10 years, you have experienced the chaos that Rothenberg describes firsthand. The lobbies of the big media agencies are a 21st-century bazaar, filled with an endless supply of salespeople from startups pitching their wares to agency workers.  With hopeful smiles and armfuls of complimentary cupcakes, the reps hustle to get on media plans so they can validate their startup and live to see another day.

When these startups are successful, they often spawn another half dozen just like them — making the workload on agencies that much worse. Like the Greek goddess Atalanta, media planners are constantly given another golden apple to try as they fall further behind in their work. For every truly useful startup, there are dozens of others that lack the kind of reach and relevance that can actually help most marketers.

One reason why Rothenberg can point a finger at the venture capitalists so freely is that they have historically played a limited role in supporting industry trade organizations like the IAB. Other than the IAB membership dues that their startups pay to join the association, there is little VC involvement in the IAB and its activities. This is curious given how dependent investors in ad tech are on favorable government policies for online advertising.

Also, historically, venture capitalists have had a limited understanding of the media buying industry. Many struggle to recall the names of the advertising holding companies and their media buying subsidiaries. At the same time, Manhattan –where 70% of all U.S. media is purchased — remains crucial to most ad-dependent startups.

It is time for venture capitalists to commit to working more closely with the industry it aims to profit from and mitigate the chaos they are creating. Putting agency executives into advisory positions at VC firms — which some forward-thinking firms have begun to do — would be a positive development. Ultimately, what we need is a much deeper partnership between the people creating all of the supply and those managing the demand.

The alternative is even more chaos, which isn’t good for anyone.