News, Insights and Stories from the Australian and New Zealand tech ecosystem.

I get the advantages behind the Scaleup Mediafund, I just think it’s a selfish way to support the startup ecosystem

Yesterday News Corp Australia, FOX SPORTS, and NOVA Entertainment announced the launch of their new initiative, the Scaleup Mediafund.

The group claim to be establishing the country’s first media-for-equity fund in Australi,a aimed at boosting Australian startups by allowing them to become a household brand. The fund will do this by giving the emerging young companies access to ‘an unrivalled advertising and marketing inventory to take their message to Australia’s biggest media audience’.

Media-for-equity in the startup world is not a new concept and although I tend to agree that this is the first established “fund” of its kind in Australia, the participating entities most definitely are not the first large media companies to give away advertising space in exchange for equity.

Seven West Media, Yahoo!7, Southern Cross Austereo, NineMSN, and Channel Nine have all constructed adhoc deals with startups in the education, group buying and influencer marketing spaces over the past few years that gave the startups access to available advertising inventory.

Some of those deals worked and some of those deals ended up being bad decisions for either one party or both. News Corp has also seen success in doing these types of deals before with companies like REA Group and HiPages, to give just a couple of examples, so it makes sense to them to try and repeat that pattern – a lot of money was made for both parties involved in those deals.

“Many companies that could be great spend years of hard work refining products and taking risks, only to stall at a certain point. This fund had been established to help such businesses achieve critical mass by taking their services and products to millions of people,” said News Corp Australasia’s Executive Chairman, Michael Miller.

“There is a tipping point for all growing companies when they need to spread their message more widely to take the next step in their success. We believe in Australian ingenuity and we are delighted to be able to offer Australian innovators the opportunity to take their business to the next level.”

The way that the Scaleup Mediafund will work is by treating the company it invests in as advertising clients rather that investments or equity partners. It will provide chosen startups with advertising inventory, advertising campaign executions and real-time reporting at a more competitive value than they could access elsewhere in exchange for the equity that they will ask for.

The Scaleup Mediafund also claims that it will particpate in finance rounds under a set of standardised terms and processes, making it easy for businesses to engage with.

While both FOX SPORTS Chief Executive Patrick Delaney and NOVA Entertainment CEO Cathy O’Conner echo the sentiments of News Corp’s Miller, I think that initiatives like this aim to serve the interests of the corporates first and foremost – which is fine, but what isn’t fine is when it is dressed up as a helping hand to the startup space.

Let’s be clear: it is not. Advertising is a risk and losing equity on a bad advertising decision is more expensive than losing cash as an advertising customer.

I also think that companies seeking Series A investment and beyond are far better served with cash as opposed to ‘services’, as the value of services – particularly in media – scale up and down depending on a number of different factors, including available inventory and how close sales teams are to hitting budgets on any given month.

Advertising is also automated for the bulk of campaigns, and although many leading figures in the media industry say the rhetoric about the increasing use of adblockers is overstated, the fact is they still exist and their usage is rapidly increasing each week, thus decreasing the value that inventory adspots like leaderboards, MRECs and towers etc have in the industry.

Content, on the other hand, does work and would be a much fairer exchange. However, content creation requires manpower and effort, and in this particular instance makes such an exchange risky for the ‘investing’ media parties.

Although I am sure at their core the creators behind the Scaleup Mediafund hold genuine intentions for the startups that become part of the portfolio to succeed, they have assumed next to no risk themselves, putting their brands and companies first.

That is not what investment is. That is not what genuinely backing a startup looks like. So let’s not pretend this is a fund at all – how about we call it what it is: a clever way of building a sales pipeline. If the advertising works, big wins are imminent.

If it doesn’t work out, however, founders lose equity and the corporate media companies get to escape relatively unscathed with equity in tow.

The Scaleup Mediafund states it will do a limited number of deals each year. Interested startups can apply by visiting the website www.scaleupmediafund.com.





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