Adtech Startup Funding Faces Significant Slowdown
For years, the adtech sector consistently attracted billions of dollars in venture funding. However, the landscape has shifted dramatically. According to Crunchbase data, U.S. advertising-focused startups have raised only around $360 million so far this year. Projections indicate this could be the slowest year for the industry in over a decade. Looking back to 2015, the decline in funding is striking.
Investors are also backing fewer deals, with round counts on track to hit their lowest point in years. The downturn has raised questions about the causes of the decline.
Anindya Ghose, a professor of technology and marketing at NYU Stern School of Business, attributes the reduced investment to several factors. He cites “market saturation, increased regulatory pressures, and economic uncertainties” as key contributors.
The reality of online advertising is undeniable. Ads saturate nearly every corner of the internet, from micro-targeted promotions to intrusive video ads and interruptions in social media feeds. The pervasive nature of these advertisements has contributed to a lack of enthusiasm for new ad delivery platforms among venture capitalists.
Regulatory pressure, particularly from privacy rules like the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), which were enacted a few years ago, pose additional compliance costs and complexities, especially for startups, as Ghose observes.
Public Markets Not Reflecting Startup Pullback
While startup funding is waning, established adtech companies haven’t fared as poorly. Although many public companies experienced stock declines from the market peak, the losses have not been catastrophic.
The Trade Desk, a marketing automation platform, stands out. This profitable company, with a market cap of $43 billion and nearly $2 billion in annual revenue last year, positions itself as a platform for advertisers that allows them to target messages to customers across the “open internet.” Other notable publicly traded companies that initially received venture backing include DoubleVerify, Magnite, Taboola, and PubMatic.
Of course, the largest tech companies, such as Google and Meta, command significant resources and possess sophisticated advertising technology.
Successful Funding Rounds for Some Startups
Despite the overall decline, several startups have still secured substantial funding rounds this year. The Brandtech Group, a long-standing unicorn, secured $115 million in a March Series C round. The company operates at the intersection of generative AI and advertising. Kevel, a provider of ad-serving software tools based in Durham, North Carolina, raised $23 million in a March Series C. Additionally, Vibe, a platform for advertising on streaming TV apps based in Chicago, secured a $22.5 million Series A round in late February.
Crunchbase data reveals that, in total, there were 10 funding rounds this year of $10 million or more for advertising or marketing-related startups.
Future Outlook for Adtech VC Funding
Ghose is optimistic about the future of adtech startup funding, despite the current sluggishness. He believes funding will eventually rebound, especially for companies that effectively leverage AI technology for compelling use cases. Long-term funding data supports the idea that the recent investment levels are an anomaly. While a return to the highs of 2021 may be unlikely, a reversion to the average of the past decade would represent a substantial increase over current funding levels.
Advertisers can rest assured that the audience is still here, glued to their screens. Digital advertisers know where to find us.
