Media-for-equity: Outside the box

For Singapore-based GP Hera Capital, French cosmetics firm Crème Simon was a great prospect. Though neglected by its previous owner, the company, founded in 1860 and known for its all-natural products, was a venerable brand and ripe for expansion. But a re-launch in Southeast Asia would require heavy investment in advertising, and Hera was eager for a way to cut costs and streamline this process.

MediaCorp, a Singapore-based media conglomerate that recently expanded its venture capital operations, offered a novel solution. It had learned of the media-for-equity model, an increasingly popular option in Europe whereby a company trades equity directly for advertising. MediaCorp was looking for a partner to introduce the model into Asia.

"We were looking at start-ups who had needs in mass media, and who could be interested, but at the same time didn't have the cash to invest in media entry," says Guillaume Sachet, head of media planning at MediaCorp. "We had the mandate to push this model into the market, so my goal was to find suitable companies."

Conceptually it's a very straightforward model. We are running a media campaign for you. This campaign has a certain value. Once we agree on the value, we convert this into equity in the company - Guillaume Sachet

Crème Simon took MediaCorp up on its offer and agreed to part with a stake of undisclosed size. With the French newcomer on board, MediaCorp hopes to see more interest in media-for-equity. However, the model's specialized nature means it will be hard to attract attention. Industry professionals say it will take careful calibration for such ventures to find a niche.

European origins

The media-for-equity model originated in Europe in the late 1990s, among media companies that were looking for new customers. Smaller companies that were short on funds could barter shares for badly-needed media exposure.

It did not take long for media companies in Asia to take note. These include India's Brand Capital, a branch of the Times of India Group that started providing media-for-equity services in 2005. The firm saw an opportunity in the expected wave of entrepreneurs who would need advertising but not have funds to pay for it.

"The beauty of the Indian environment was that a lot of unorganized players were getting into the organized space," says Brand Capital CEO Sivakumar Sundaram. "People were demanding more and more value-added products and services. At this point in time, the communication, branding and marketing of the value-added model was a huge challenge for the new generation of entrepreneurs."

Media companies continue to be a significant provider of media-for-equity services in Europe, but the model's head start in the region has allowed some developments that have not yet appeared in Asia. One of these is the media-for-equity fund approach, typified by German Media Pool Venture Capital (GMPVC).

Founded in 2011, this firm characterizes its approach as similar to a venture capital fund. However, GMPVC's LPs are media companies, who commit advertising services rather than capital. This allows smaller media providers access to a market they could not otherwise tap.

"They're not really big enough to set up an overall program themselves," says Aljoscha Kaplan, managing director at GMPVC. "They wouldn't have the resources, the knowhow, the access to the start-up and VC scene, and that's where an external provider like us comes in."

The specialized services offered by media-for-equity providers mean that the model will not fit every company. Professionals identify two main groups that can benefit from this type of transaction. The first and most common is a fresh start-up without enough funds to buy media for itself. 9flats, a German apartment-sharing start-up backed by GMP, represents this group.

The other, perhaps less intuitive option, is a large company starting a new venture or operating overseas. Though the parent companies might have the resources to purchase advertising themselves, management may feel that an ownership stake gives the media provider more interest in the venture's success. Crème Simon's new Asia venture fits in this category.

Though the media-for-equity approach has yet to achieve widespread success in Asia, proponents feel it is not difficult for clients to grasp. "Conceptually it's a very straightforward model," says MediaCorp's Sachet. "We are running a media campaign for you. This campaign has a certain value. Once we agree on the value, we convert this into equity in the company."

Momentum killer?

However, while the model might be easy to explain, there are a number of factors that could limit its effectiveness in the region. First is the specialist nature of the services on offer - only a media company, or a firm set up for the purpose, can trade media for equity directly. The closest a traditional GP can come is to set up media services through its portfolio network.

Media providers also have to guard against the perception of conflict of interest. Investors tend to downplay this risk, since in many ways it is not new; media companies traditionally limit the effect of advertisers on their news coverage. In addition, GMPVC's experience in Europe seems to indicate that audiences do not factor a media company's investments into its trustworthiness.

Another challenge is the difficulty of follow-on investments. Whereas traditional VC investors can easily commit more cash in follow-on rounds to maintain their stake, investees may not welcome additional media investments.

"They may not want the same type of media, they may not need any type of media anymore," says GMPVC's Kaplan. "They may be interested in simply acquiring cash, because they're now at a stage where they've exited the funding gap."

Nevertheless, proponents of media-for-equity say it may be better viewed as an enticement to potential advertisers, rather than an investment. If a media provider can bring customers success, they will be more willing to return in the future.

"Once we have shown that the efficacy is strong and the client has seen success, there comes the inflection point that the equity becomes more precious than the cash in hand," says Brand Capital's Sundaram. "When that point comes, then he'll become a cash customer."

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• Topics
• Southeast Asia
• Media
• Expansion
• South Asia
• Europe
• Growth capital
• Southeast Asia
• Singapore
• India
• Europe
• Media
• Hera Capital