GSD&M swaps work for equity in Net start-ups

By Published on .

GSD&M has formed a new unit that will barter the Austin, Texas-based ad agency's marketing services for equity stakes in Internet start-ups.

The unit, Idea Ventures, will act as the de facto marketing arm for one or two Internet companies each year, in exchange for an interest in the company. Its first deal is with Supportkids.com, a company that helps custodial parents recover child support (AA, Nov. 1). A second equity-stake client is expected to be announced in a few weeks.

The move is part of a growing trend spreading across media companies and now infiltrating advertising agencies, a tactic that allows traditional companies to ride the Internet economy without giving up cash or equity in their own operations.

`VENTURE CREATIVE'

"The basic premise is we provide venture ideas, venture marketing and venture creative for equity," said Roy Spence, president of GSD&M. "The strategy is you don't do many of them and the ones you do meet stringent criteria."

Mr. Spence said that to qualify, a company needs to be a start-up with managers GSD&M believes in and a "semblance" of an earnings statement.

Only a few other agencies have structured these types of deals, including AG, New York. But they've become commonplace in the broadcast TV business as networks such as CBS and NBC use their advertising inventory and promotional muscle as currency to buy stakes in Internet companies such as SportsLine and CNET.

Several magazine companies are exploring similar strategies. Primedia's new president-CEO, Tom Rogers, oversaw NBC's Internet strategy and has said he wants to cut similar deals in the print world.

A NEW TWIST

Mr. Spence said he mulled the creation of Idea Ventures for about 18 months.

The concept in some ways is a twist on the pay-for-performance compensation structure adopted by some ad shops. For some time now, agencies have experimented with ways to adjust the traditional compensation model to tie pay to results. In this new model, agencies gain when their clients' business grows.

Idea Ventures also harkens back to GSD&M's roots; the agency was created through an entrepreneurial venture among five young people.

Idea Ventures clients will only pay for the agency's out-of-pocket expenses, such as production of a TV spot, Mr. Spence said.

"If it works, two or three years down the road when the company has an IPO or sells to someone, GSD&M could get a substantial amount of money. So that during good or bad times, we would have a bonus pool as a buffer," Mr. Spence said.

In this article:
Most Popular