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.
What do we mean by digital media?
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.
Are there differences in the approach to funding digital media on the east coast and west coast?
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.
How has the potential for finding investment dollars (both seed and post-seed) changed over recent time?
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.