Adtech Funding Faces a Downturn
For years, adtech startups were a favorite of venture capitalists, regularly attracting billions in funding. However, that trend has reversed sharply. According to data from Crunchbase, U.S. advertising-focused startups have raised only around $360 million this year. Current projections suggest this will be the slowest funding year for the sector in more than a decade. To put this in perspective, the decline is significant, as shown in data from 2015 to the present. Investors aren’t just putting in less money; they’re also backing fewer deals. The number of funding rounds this year is on pace to be the lowest in years.
What’s Behind the Drop?
Several factors are contributing to the decline. Anindya Ghose, a professor of technology and marketing at NYU Stern School of Business, attributes the slowdown to “market saturation, increased regulatory pressures, and economic uncertainties.”
Market saturation is readily apparent to anyone spending time online, because ads are everywhere. They include highly targeted promotions, disruptive videos, and constant requests for money. With this saturation, it’s not surprising that VCs are hesitant to invest heavily in new ad delivery platforms.
Regulatory pressures are also a significant factor. Stricter privacy regulations, like the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), have increased compliance costs and complexities for adtech companies, especially for startups.
Startup Pullback vs. Public Market Performance
While early-stage funding is down, established adtech companies haven’t been performing as poorly. Although many public companies have seen their share prices decline from their peak, stocks, for the most part, haven’t crashed. A standout performer is The Trade Desk, a marketing automation platform with a market capitalization of $43 billion, is profitable, and generated nearly $2 billion in annual revenue last year. Based in Ventura, California, The Trade Desk appeals to advertisers seeking to target customers across the “open internet.”
Other significant public adtech companies that previously secured venture backing are DoubleVerify, Magnite, Taboola, and PubMatic. Of course, the biggest companies in this space are the tech giants, like Google and Meta, which offer sophisticated advertising technology.
Notable Funding Rounds
Despite the overall slowdown, some adtech startups have still managed to secure substantial funding rounds. The Brandtech Group, a long-time unicorn, received the largest funding round this year, $115 million in a Series C round in March. The company focuses on the intersection of generative AI and advertising.
Kevel, based in Durham, North Carolina, and providing ad-serving software tools, raised $23 million in a March Series C. Vibe, a Chicago-based platform for advertising on streaming TV apps, secured a $22.5 million Series A round in late February.
According to Crunchbase data, there were a total of 10 funding rounds of $10 million or more this year specifically for advertising or marketing-related startups.
The Future of Adtech Funding
While the current year presents a challenging environment, Ghose remains optimistic that adtech startup funding will rebound, particularly for companies that effectively leverage AI technology. Long-term funding data supports the belief that the recent decline is an anomaly. While the investment levels of 2021 are unlikely to return, a reversion to the average of the past decade would still indicate a significant increase in funding compared to the present.
