Foley Partner Beth Felder gathered a group of digital media investor experts – Don Dodge, Developer Advocate for Google, James Geshwiler, Managing Director of CommonAngels and Eric Hjerpe, Partner at Kepha Partners – at our 2014 FOLEYTech Summit for a discussion on digital media investing. We’ve compiled their top insights below.
Digital media has a broad definition; one way to think about digital media is to compare it with software. A party pays for an end product in software, whereas in digital media a user pays for access to the platform. However it is not uncommon in the industry for a company to pivot from being software-based to digital media-based. It is important to note that digital media also frequently includes business-to-business (B2B) solutions.
The east coast investors tend to favor infrastructure companies, and like B2B solutions better than consumer-facing solutions. This is primarily because a B2B solution has a clear path to revenue, whereas a consumer-facing solution may rely on advertising revenue with unproven models to monetization outside of revenue. Investors on the east coast tend to want recurring revenue streams before a post-seed (typically Series A Preferred) financing round. Investors on the west coast are on the whole more willing to roll the dice on companies that may not have a proven revenue model but otherwise have intriguing technology solutions.
The metrics companies are expected to hit have ramped up significantly. It is the easiest time possible to start a company and find seed funding because many investors are writing small checks. However, since institutional investors want to see revenue it is the hardest time to find significant capital for a post-seed round. Entrepreneurs should consider the key metrics that they need to hit to achieve significant financial milestones (for example, to earn $1M in revenue in a year, month, week, etc.). As post-seed capital has become restricted, more institutional investors are pushing the risk of investment down to the seed investors, so it isn’t uncommon for follow-up seed rounds in a syndicate that precede institutional investment in a Series A Preferred round. In short, entrepreneurship is as healthy as it has ever been and there are lots of exciting companies in the market – those that survive and are able to cut through the noise to find capital will be healthier as a result of the competition.
Check back soon for Part II: Advice for Digital Media Companies.