Venture-Capital Offerings Latest Tactic Being Used by Agencies
What's the latest offering from several of Madison Avenue's agencies? Venture capital.
In just the past two weeks, two more agencies hung VC shingles on their doors. Bartle Bogle Hegarty announced it will partner with a venture-capital firm to launch a $16 million fund, while design firm Redscout took the wraps off its ventures practice, which advises entrepreneurs and private-equity firms.
Those moves follow earlier ones by Kirshenbaum Bond Senecal & Partners and Rockfish to create venture-investment arms, as well as by Consigliere, a marketing consultancy cum investment fund.
While each agency is positioning the mission of its venture arm a bit differently, in general these new entities are designed to invest in early-stage startups and provide them guidance. MDC Partners-owned Redscout's first two projects are Hapify, an app for "happiness" management, and an established designer's new luxury brand. Publicis Group-backed BBH, through its unit Zag, is launching its fund with established VC firm Spark, whose prior investments include travel site lastminute.com. Called the Black Sheep Fund, BBH and Spark will each provide 5% of the $16 million target .
Agencies say their advantage is they not only have the dollars, they also have the creative capital that can't be found elsewhere.
"Venture capital is just venture capital," said Roo Rogers, president, Redscout Ventures. "What's different is that we're investing in talent and relationships. ... Most early startups can't afford to go to agencies, they're too expensive. And many startups don't have leadership with business acumen that agency execs do."
Still, it's hardly the first time agencies have invested in startups. Last week, at Interpublic Group of Cos.' investor day, CEO Michael Roth reminded the audience of his company's early stake "in a little company called Facebook." Five years ago, Interpublic invested in the then-Foursquare-size social network. When Facebook goes public in the next few years, Interpublic could bring in more than $100 million. Through Mediabrands Labs, Mr. Roth said the holding company will continue to bring startups in to learn about the ad business and to bring clients new opportunities.
For all of the agencies' enthusiasm about the space, at least for now the jury's still out on whether startups are interested in agencies as investors.
"There's certainly a lot of value in working with agencies, but they don't seem like logical investors for us," said Sam Altman, founder and CEO of location-based service Loopt. "We want someone who has a ton of experience building companies and understands what it takes to scale."
Others are less skeptical. "One thing that's challenging is having the relationships to bring your products and services to market. Having relationships with agencies, especially if you're an ad-supported business, could be very important, "said David Levy, cofounder and CEO of social-TV app Philo.
Observers expect we'll see more shops joining the trend. "Agencies are always trying to reinvent themselves and find new offerings for clients," said one agency search consultant. "It's been going on a long time. The difference is that before the agency community, they didn't have professional VCs as part of the offering. It was the new-business team, the agency CFO and CEO evaluating the offering. But now people who speak money as a first language are a part of the coalition, so that's different."
And, he predicts, "We'll see more -- especially if there's success."
~ ~ ~
Contributing: Emma Hall, Rupal Parekh