MediaMath and Undertone Ad Tech Veterans Launch Venture Capital Fund

Source: Wall Street Journal

By: Lara O’Reilly

As funding and exits in the ad-tech sector has become harder to secure, two high-profile figures have joined forces to launch a venture capital fund with an aim to accelerate the next generation of digital advertising businesses.

Joe Zawadzki, chief executive of digital ad-buying technology firm MediaMath, and Eric Franchi, a co-founder and former executive at Undertone, will lead the ad-tech focused fund they have named MathCapital, alongside three other MediaMath executives.

MathCapital is hoping it can act as a shot in the arm for a once-buoyant sector where funding has dried up as many firms struggle to convince investors of their long-term potential within a digital advertising market dominated by Google and Facebook.

The fund’s initial fundraising target is $5 million, with a goal of eventually expanding to $25 million.

MathCapital plans to initially make investments in the $150,000 to $250,000 range, mostly focused on the seed stage, with some funds held in reserve to extend that to as much as $500,000 over the lifetime of certain investments.

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While MathCapital will operate as a separate entity from MediaMath, startups receiving investment from the fund will also have access to support from the ad tech company, including office space at its headquarters in New York City’s 4 World Trade Center and integration with its technology and clients.

Ad tech companies secured about $3 billion in equity funding in 2017, compared with the industry’s peak of $4.4 billion in 2015, according to data from research firm CBInsights. There was a slight uptick in the number of deals and dollars last year compared with 2016, which CBInsights analyst William Altman says was due in part “to the increased efficacy of artificial intelligence technologies in advertising” and rising investor interest in backing those specialized companies.

While there has been a wave of consolidation in the industry, ad tech investors haven’t all seen the exits they once envisioned. Some deals have been in more distressed situations, like Rocket Fuel’s recent $125.5 million sale to Sizmek, a fraction of its once $2 billion market valuation.

The public markets may also be somewhat responsible for investors’ reluctance to pour money into the space. Ad tech stocks fell 4% in 2017, according to investment bank LUMA Partners.

Mr. Zawadzki believes the venture community is under-investing in ad tech and sees data points like these as an opportunity, recalling the often-quoted Warren Buffett line, “Be greedy when others are fearful.”

Mr. Zawadzki said there is an “explosion” of new digital advertising capabilities that still need to be built to help marketers achieve their business goals, from core infrastructure to using artificial intelligence and working on new formats such as virtual reality.

“The list of things un-done is longer than the list of things done in terms of finishing this journey,” Mr. Zawadzki said.

MathCapital formalizes a lot of the work the two ad tech veterans and MediaMath’s corporate development team had been doing in the background for some time.

Mr. Zawadzki has been a prolific ad tech investor for a number of years, having invested in firms including AppNexus, Accordant, Integral Ad Science and Moat. Messrs. Zawadzki and Franchi are both investors in marketing data startup mParticle. Meanwhile, MediaMath had also been involved in incubating some small ad tech startups.

Undertone, where Mr. Franchi previously worked, sold to publicly traded marketing software company Perion in 2015.

In addition to investing in companies itself, MathCapital is also willing to provide expertise to help more generalist venture investors—who can potentially offer more significant capital—navigate the ad tech space, according to Mr. Zawadzki.

MediaMath’s general counsel, Peter Piazza, and chief investment officer, Dan Bisgeier, are also partners in MathCapital, while executive assistant to the CEO, Larisa Bravette, will be an associate in the firm.

Corrections & Amplifications
MediaMath’s headquarters is located at 4 World Trade Center in New York. An earlier version of this article incorrectly stated the location as One World Trade Center.

Write to Lara O’Reilly at lara.o’reilly@wsj.com