Where top VCs are investing in fintech

Over the past several years, ‘fintech’ has quietly become the unsung darling of venture.

A rapidly swelling pool of new startups is taking aim at the large incumbent institutions, complex processes and outdated unfriendly interfaces that mar billion dollar financial services verticals, such as insurtech, consumer lending, personal finance, or otherwise.  

In just the past summer, the startup community saw a multitude of hundred-million dollar fintech fundraises. In 2018, fintech companies were the source of close to 1,300 venture deals worth over $15 billion in North America and Europe alone according to data from Pitchbook. Over the same period, KPMG estimates that over $52 billion in investment pour into fintech initiatives globally. 

With the non-stop stream of venture capital flowing into the never-ending list of spaces that fall under the ‘fintech’ umbrella, we asked 12 leading fintech VCs who work at firms that span early to growth stages to share where they see the most opportunity and how they see the market evolving over the long-term.

The participants touched on a number of key trends in the space, including rapid innovation in fintech infrastructure, fintech companies embedding themselves in specific verticals and platforms, rebundling and unbundling of financial services offerings, the rise of challenger banks and the state of fintech valuations into 2020.

Charles Birnbaum, Partner, Bessemer Venture Partners

The great ‘rebundling’ of fintech innovation is in full swing. The emerging consumer leaders in fintech — Chime, SoFi, Robinhood, Credit Karma, and Bessemer portfolio company Betterment — are moving quickly to increase their share of wallet with their valuable customers and become a one-stop-shop for people’s financial lives.

In 2020, we anticipate continued entrepreneurial activity and investor enthusiasm around the infrastructure and middleware layers within the fintech ecosystem that are enabling further rebundling and a rapid convergence of product themes and business models across the consumer fintech landscape.

Many players now look like potential challenger bank models more akin to what we have seen unfold in Europe the past few years. Within consumer fintech, we at Bessemer are more focused on demographically-specific product offerings that tap into underserved themes, whether that be the financial problems facing the aging population in the US or new models to serve the underbanked or underserved population of consumers and small businesses.

Ian Sigalow, Co-founder & Partner, Greycroft

What trends are you most excited in fintech from an investing perspective? 

I suspect that many enterprise software companies become fintech companies over time — collecting payments on behalf of customers and growing revenues as your customers grow. We have seen this trend in many industries over the past few years. Business owners generally prefer a model that moves IT expenditures from Operating Expenses into Cost of Goods Sold, because they can increase prices and pass their entire budget onto the customer.

On the consumer side, we have already made investments in branchless banking, insurance (auto, home, health, workers comp), cross-border payments, alternative investments, loyalty cards/services, and roboadvisor services. The companies we funded are already a few years old, and I think we will have some interesting follow-on activity there over the next few years. We have been picking spots where we think we have an unfair competitive advantage.

Our fintech portfolio is also more global than other sectors we invest in. This is because there are opportunities to achieve billion dollar outcomes in fintech, even in countries that are much smaller than the United States. That is not true in many other sectors.

We have also seen trends emerge in the US and move abroad. As an example we seeded Flutterwave, which is similar to Stripe, and they have expanded across Africa. We were also the lead investor in Yeahka, which is similar to Square in China. These products are heavily localized —tin for instance Yeahka is the largest processor of QR code payments in the world, but QR code payments are not popular in the US yet.

How much time are you spending on fintech right now? Is the market under-heated, over-heated, or just right?

Fintech is about a quarter of my time right now. We continue to see interesting new ideas and the valuations have been more or less consistent over time. The broader market doesn’t impact us very much because we tend to have a 10 year holding period.

Are there startups that you wish you would see in the industry but don’t?

Labor leaders and startup founders talk how to build a sustainable gig economy

Over the past few years, gig economy companies and the treatment of their labor force has become a hot button issue for public and private sector debate.

At our recent annual Disrupt event in San Francisco, we dug into how founders, companies and the broader community can play a positive role in the gig economy, with help from Derecka Mehrens, an executive director at Working Partnerships USA and co-founder of Silicon Valley Rising — an advocacy campaign focused on fighting for tech worker rights and creating an inclusive tech economy — and Amanda de Cadenet, founder of Girlgaze, a platform that connects advertisers with a network of 200,000 female-identifying and non-binary creatives.

Derecka and Amanda dove deep into where incumbent gig companies have fallen short, what they’re doing to right the ship, whether VC and hyper-growth mentalities fit into a sustainable gig economy, as well as thoughts on Uber’s new ‘Uber Works’ platform and CA AB-5. The following has been lightly edited for length and clarity.

Where current gig companies are failing

Arman Tabatabai: What was the original promise and value proposition of the gig economy? What went wrong?

Derecka Mehrens: The gig economy exists in a larger context, which is one in which neoliberalism is failing, trickle-down economics is proven wrong, and every day working people aren’t surviving and are looking for something more.

And so you have a situation in which the system we put together to create employment, to create our communities, to build our housing, to give us jobs is dysfunctional. And within that, folks are going to come up with disruptive solutions to pieces of it with a promise in mind to solve a problem. But without a larger solution, that will end up, in our view, exacerbating existing inequalities.

Founder’s guide to the pre-IPO secondary market

The increase in activity in the pre-IPO secondary market means that founders, early employees, and investors are receiving liquidity much sooner in a company’s lifecycle than ever before. For most startups and privately-held companies, liquidity is often an issue for stockholders, as no market exists for selling shares and/or transfer restrictions can prevent their sale. Secondary stock transactions, however, are a way to work around this problem.

Here’s a quick look at how they work and what to keep in mind, especially if you’re going through the process for the first time. (If you’re not familiar, secondaries are transactions in which an existing stockholder sells their stock for cash to third parties or back to the company itself before the company undergoes an exit; traditionally, an exit refers to an M&A or an IPO.)

Offering secondary transactions to founders is a tool VCs have been using to win deals. For example, if a VC promises that the founders will receive $1,000,000 in cash through a secondary sale from a $15,000,000 venture financing round, the founders will likely prefer that VC’s term sheet to a term sheet from a VC that does not offer that deal.

Why would a founder consider a secondary sale of their equity?

Brad Feld: what founders need to know about recent changes in VC deal terms

Extra Crunch offers members the opportunity to tune into conference calls led and moderated by the TechCrunch writers you read every day. This week, TechCrunch’s Connie Loizos hopped on the line with prominent investor, entrepreneur, thought leader, and Techstars co-founder Brad Feld to discuss the latest edition of his book “Venture Deals”, his advice to founders and investors, and his take on hot button issues of the day (including dual-class shares, direct listings, and what happened at WeWork).

In their conversation, Brad and Connie discuss the need to know information when it comes to preparing for, structuring and executing venture deals, and how that information has changed over the past several decades. Feld walks through the major topics that have been added in the latest edition of the book, such as how to handle venture debt, as well as tactical attributes that aren’t currently in the book, such as secondary market trading.

Brad also gives his take on the most effective fundraising tactics for founders, and what common pieces of advice might be overblown.

Brad Feld: “I think the approach to the amount of money that you’re raising is both nuanced and evolves based on what financing round you’re at. So if you’re in an early round, some of the characteristics are different than if you’re in a later round. But I think the general truism… that I like to use when people say, “Well, how much money should I raise?”

I start with two variables and you the entrepreneur get to define those two variables. The two variables are: the amount of money you raise and what getting to the next level means. The amount of money you should raise is the amount of money that you need to get your business to the next level. There are lots of different ways to define what next level is and by forcing yourself internally to define next level and then define what you need in terms of capital to get to that next level… when you’re raising that first round of financing or even the second or third round of financing, it helps you size rationally what you need versus reactively to whatever the market characteristics are.

I actually encourage entrepreneurs to raise the least amount of money they need to get to the next level, or at least that’s the number that they go out to market with. Not a range, not a big number because you’re trying to drive some kind of valuation characteristic off a big number, but the amount of money that you actually think you need to get to the next level. Then if you can be oversubscribed, that’s an awesome situation.”

Feld and Connie dive deeper into current issues in the startup and venture landscape, including Brad’s take on the impact of the SoftBank Vision Fund, what went down at internally and externally at both WeWork and Uber, as well as how boards, executives and founders can manage cult of personality and static company cultures.

For access to the full transcription and the call audio, and for the opportunity to participate in future conference calls, become a member of Extra Crunch. Learn more and try it for free. 

Connie Loizos: I think the last time I saw you in person was out here in San Francisco at an event I was hosting and that was maybe two years ago?

Brad Feld: Yup, that’s right. That was at the Autodesk Lab if I remember correctly.

Loizos: Yes. It’s good to hear your voice, and thank you for joining us on this call. We have a lot of readers who are big fans of yours that are on the line and are eager to learn about your book “Venture Deals” and your broader thoughts about the current state of the market. And that said, I know you only have so much time, so let’s dive first into the book. So ‘Wiley’, your publisher has just put out the fourth edition of this book “Venture Deals”, and it’s really easy to appreciate why. I was looking through it and it’s so incredibly useful about how venture deals come together and possible pitfalls to avoid. And given there are always new entrepreneurs emerging, it continues to be highly relevant.

Can I ask you, so how do you go about updating a book like this, given that some things change and some things stay the same?

Silicon Valley’s competing philosophies on tech ethics with The New Yorker’s Andrew Marantz

“If Silicon Valley is going to keep telling itself the story that the only uses of their technology will be the most optimistic, the most hopeful, the most salubrious, the most prosocial,” New Yorker staff writer Andrew Marantz told me in Part 1 of this recent conversation for Extra Crunch, “you can try to rebut that logically, or you can just disprove it by showing a very glaring counterexample. If somebody is going around and saying, ‘all swans are white,’ you can argue against that logically, or you can just show them a black swan.”

Author Photo Andrew Marantz credit Luke Marantz fix

Image via Penguin Random House

Marantz, a brilliant and eclectic writer, has in recent years trained his attention on the tech world and its contribution to social unrest in the United States and beyond. He has just published a new book, “Antisocial: Online Extremists, Techno-Utopians, and the Hijacking of the American Conversation“, which, along with recent New Yorker essays expanding on the book’s themes, is sure to provoke debate.

In part 2 of our conversation below, we discuss the Alt-Right and White Nationalists in tech and politics; Silicon Valley spirituality today; competing philosophies of tech ethics; and more.

Greg Epstein: If you look at the alt-right later that year and in 2017, I myself spent a lot of time poring over these figures like Richard Spencer and Gavin McInnes, and their videos, and their writings, and whatever thinking, ‘These guys are really taking over our society right now.

Dig into the key issues in venture today with investor and Techstars co-founder Brad Feld

Few can hold a candle to Brad Feld’s list of accolades in the startup, tech and venture world. As a multi-time founder of both startups and venture firms alike, Feld is widely known for having co-founded the Techstars accelerator — now a Silicon Valley and startup institution — as well as Foundry Group, the early and growth-stage venture fund that has raised nearly $2.5 billion over seven funds, in just over a decade.

Feld is equally, if not more, recognized outside of the investing world as a thought leader through both his widely followed blog “Feld Thoughts” and through authoring a number of books and guides to the startup and venture worlds. Feld recently published the fourth edition of his acclaimed and seemingly timeless book “Venture Deals: Be Smarter Than Your Lawyer And Venture Capitalist” (which he co-authored with Foundry Group co-founder Jason Mendelson), which acts as a manual to raising venture capital by walking through tactical advice around negotiating a term sheet, what to consider when selling your business, arguments for and against convertible debt and much more.

TechCrunch’s Silicon Valley editor Connie Loizos will be sitting down with Brad for an exclusive conversation this Thursday, October 10th at 11:00 am PT on Extra Crunch. Brad, Connie and Extra Crunch members will be digging into the latest edition of “Venture Deals,” Brad’s advice to founders and investors and his take on hot-button issues of the day (including dual-class shares, direct listings and what happened at WeWork).

Extra Crunch members will also have the opportunity to ask questions! We will pause during the call to take questions from Extra Crunch subscribers. Alternatively, you can email questions to [email protected].

Tune in to join the conversation and for the opportunity to ask Brad and Connie any and all things venture.

To listen to this and all future conference calls, become a member of Extra Crunch. Learn more and try it for free.

How ‘the Internet broke America’ with The New Yorker’s Andrew Marantz

When Elizabeth Warren took on Mark Zuckerberg and Facebook earlier this week, it was a low moment for what New Yorker writer Andrew Marantz calls “techno-utopianism.”

That the progressive, populist Massachusetts Senator and leading Democratic Presidential candidate wants to #BreakUpBigTech is not surprising. But Warren’s choice to spotlight regulating and trust-busting Facebook was nonetheless noteworthy, because of what it represents on a philosophical level. Warren, along with like-minded political leaders, social activists, and tech critics, has begun to offer the first massively popular alternative to the massively popular wave of aggressive optimism and “genius” ambition that characterized tech culture for the past decade or two.

“No,” Warren and others seem to say, “your vision is not necessarily making the world a better place.” This is a major buzzkill for tech leaders who have made (positive) world-changing their number one calling card — more than profits, popularity, skyscrapers like San Francisco’s striking Salesforce Tower, or any other measure.

Enter Marantz, a longtime New Yorker staff writer and Brooklyn, N.Y. resident who has recently trained his attention on tech culture, following around iconic figures on both sides of what he sees as the divide of our time — not between tech greats whose successes make us all better and those who would stop them, but between the alternative figures on the “new right” and the self-understood liberals of Silicon Valley who, according to Marantz, have both contributed to “hijacking the American conversation.”

Author Photo Andrew Marantz credit Luke Marantz fix

Image via Penguin Random House

Marantz’s first book, “Antisocial: Online Extremists, Techno-Utopians, and the Hijacking of the American Conversation,” will be released next week, and I recently had a chance to talk with him for this series the ethics of technology.

Greg Epstein: Congratulations on your absolutely fascinating new book Antisocial, and on everything you’ve been up to.

First mover advantage: Does it matter in startup fundraising?

We know the world of startup funding is competitive. In fact, I’m speaking at TechCrunch Disrupt on this very topic alongside pre-seed investor Charles Hudson of Precursor Ventures, early-stage investor Annie Kadavy of Redpoint Ventures. I’ve also written extensively for TechCrunch and ExtraCrunch about how founders can optimize their pitch decks to make the most of the 3 minutes and 44 seconds the average VC will spend looking at their deck. We’ve also analyzed the best time of year founders can fundraise to get the most attention from potential investors.

But what can VCs do to make sure they’re getting the biggest piece of the most promising looking companies? We dug into how founders choose their lead investor to gain some insight into how a VC can become more competitive in a rapidly growing market.

Before we dig into the numbers

The data included in this research came from companies that explicitly opted in to participate by responding to an automated email sent to them. We are incredibly appreciative to these founders for making this research possible. You can read more about our startup opt-in process and other aspects of our methodology here.

In this article, I’ll talk about how founders choose their VCs, both in oversubscribed rounds and non-oversubscribed rounds, and how investors can use that information to beat out their competitors.

For VCs, competition is getting harder

Getting a startup funded is a massive hurdle. The good news is there’s actually far more money available now than just a few years ago. In fact, in the first half of 2019 there was $20.6 billion in new capital introduced into the startup market.

Larger funds typically known for investing in later stages have introduced seed funds so they can invest with promising businesses earlier.  Kleiner Perkins announced a $600 million early-stage fund in January, GGV raised a second $460 million “Discovery Fund” last year, even Sequoia Capital operates a scout program with a $180 million fund.

This means smaller funds or those who only invest in earlier rounds might get overlooked when founders are looking for investors.

Investor meetings are a two-way street

In addition to having to compete for the best deals, VCs don’t get it right every time. For every Uber, there are hundreds of Juiceros. The reason they only spend a few minutes looking at a pitch deck is because they’re constantly looking at pitches in hopes they’ll come across another unicorn.

But while it seems like the investors are holding all the cards, if founders optimize their pitch deck and book their meetings in a short window, they can actually create a sense of urgency for the VCs. We’ve seen this recently with the amount of founders reporting oversubscribed rounds.

When looking at how founders chose their lead investors, we discovered that there was a massive difference between those that raised oversubscribed rounds and those that didn’t.

Being the first to move means a lot, until it doesn’t

What was the number one factor in founders deciding on who to choose as their lead investor? We found that nearly 48% of founders chose their lead investor because they were the first one to make the offer.

Anecdotally this makes sense. When DocSend was raising we received a lot of “maybes” during our first few meetings. However, once we had a term sheet most of those “maybes” flipped to a firm “yes.” In fact, many investors that had originally promised a $25k or $50k investment if we found other backers were suddenly asking for $300k or $500k.

We had so many investors interested that our round was oversubscribed and we had to make some choices about who we wanted as an investor. That could have been avoided if any of those VCs had simply acted first.

But when you look at the data a different way, we found that moving first was significantly more important in oversubscribed rounds than those that weren’t. And the more oversubscribed they were, the more valuable moving first becomes.

For founders whose rounds were more than 20 percent oversubscribed, 60 percent of them chose their VC because they came in first with a term sheet. But that dropped to 50 percent for founders that were only slightly oversubscribed and all the way to 38 percent for those founders that weren’t oversubscribed at all.

While we would have thought name-brand VCs might move first, and that top tier interest may cause an oversubscribed round, we found that not to be the case. In both oversubscribed and non-oversubscribed rounds 28 percent of founders reported that a name brand factored into their decision. And for those who chose a name brand investor, only 33 percent of those founders reported that their lead VC moved first. 

The more oversubscribed a round is, the more likely it is that some VCs aren’t going to make the cut. To avoid being the firm that didn’t get the deal it’s best to move quickly when you see a company you like.

A fast round isn’t always an oversubscribed one

Another surprising thing that came up in our research was the amount of time founders spent raising and how that affected their decision making. While we assumed oversubscribed rounds happened significantly faster than the average of 11-15 weeks, we found that oversubscribed rounds only came in slightly under, at 8.6 weeks. However, there was a lot of variability in that number.

We saw some oversubscribed rounds close in as little as 3 weeks and some take as long as 20. So there’s no way to tell whether a round will be oversubscribed based on the time spent fundraising. This means that even if you meet a founder who’s been raising for 10 weeks, it’s still smart to move quickly if you want to be the lead investor.

We would have also thought longer rounds would have benefited the first term sheet more, but there was virtually no difference in the impact of the first acting VC when looking at time. When looking at founders that spent less than 12 weeks raising and those that spent more than 12 weeks, there was virtually no difference in the percent that chose their lead investor based on the first term sheet (at 47 percent and 48 percent respectively).

Terms only matter in oversubscribed rounds

When choosing your lead investor, you would think the terms would be a significant reason to choose one VC over another. But we found that it was barely a factor for most people. In fact, only 4 percent of founders who weren’t oversubscribed cited terms as a major factor.

They instead focused on VCs that had experience in their industry (at 42 percent). But for oversubscribed rounds the percentage of founders who chose their lead investor based on terms shot up to 38. Meaning when the round gets competitive, so do the terms. But they still gave an edge to that first term sheet they received.

Interestingly, a potential deciding factor in oversubscribed rounds could be how well the VC and the founder get along. In those rounds that were significantly oversubscribed, over 46% of respondents said how well they got along with their VC was a factor in choosing them to be the lead. Compare that to only 19% of founders in non-oversubscribed rounds who cited rapport as a key factor in choosing a lead investor.

For many smaller firms getting edged out by bigger players boasting multi-stage funds, it may be as simple as being decisive and personable when it comes to landing the most competitive investments.

Cracking the code on podcast advertising for customer acquisition

Of the various channels available to growth marketers, podcast is among the most misunderstood.

Brands like Dollar Shave Club, Squarespace, and ZipRecruiter have deployed podcast advertising for user acquisition for years, but it’s still a channel that flies under the radar. We have managed tens of millions of dollars in podcast ad spend for challenger brands and market leaders alike, and are eager to share some tricks of the trade.

If you want to test in a channel where early adopters are being rewarded with both attractive CAC and scale, here’s what you need to know:

  1. Podcast advertising is used very successfully as a direct-response channel with CAC on par with other consideration-stage activities. It is not just for awareness.
  2. Podcast reach is very good, reaching 51% of US audiences aged 12+ monthly.
  3. Ads read by hosts outperform canned “programmatic” ads.
  4. Tracking is harder than most digital channels and the cost to test the channel is higher than most digital channels.

Dive deeper on podcast ads and other growth marketing tips with Extra Crunch’s ongoing coverage of growth marketing, where Right Side Up was recently featured as a Verified Expert Growth Marketer. 

Who listens, who advertises, and why bother?

Podcast listeners are a sought after group – the audience trends towards educated, early adopters with a high household income. You can find this profile elsewhere, but what makes podcasts unique is that they are choosing to consume that particular content time and time again. The host becomes a trusted voice to deliver them not only interesting stories and banter, but information on companies as well.

Often podcast advertisers are newcomers or start-ups, and the podcast ad might be the first time the listener has heard about that company. Having the first touch with consumers be from a thorough, personal, and often funny host-read interaction is incredibly valuable and helps brands jump over the credibility hurdle. Compare that to an impersonal banner ad, and I’d choose a podcast ad every time. image2 1

Even though the term ‘podcast’ was coined in 2004, advertising in the medium has exploded in the last ~5 years. The IAB has been tracking podcast ad revenue since 2015, when the entire medium generated #105.7 million in ad sales. It recently released its third study of podcast ad revenue, which estimated the US market at $479 million in 2018, with growth accelerating to a projected  $1 billion+ by 2021.

image1 5

Andreesen Horowitz did a great investor profile on the space earlier this year, with a helpful rundown of the holistic ecosystem, from hosting mechanisms and platforms to the pace of podcast monetization.

Historically, the medium has been dominated by a mix of comedians doing their own thing, radio entities simulcasting sports shows, and otherwise popular shows that had a devoted niche following relative to other mediums. Most advertisers bought podcast ads as an extension of their other audio acquisition campaigns.

Podcasts go mainstream

Then Serial came along, in 2014, exploding into popularity and pop culture. They ran a MailChimp ad that had someone mispronouncing the name of the company as “MailKimp”, which was a funny inside joke for those in the know. Nina Cwik and David Raphael, co-founders of Public Media Marketing, explain the initial conversation around this now iconic spot.

“While discussing a launch sponsorship with sponsors there wasn’t a huge amount of interest in taking a risk on a new show even with the amazing This American Life provenance. MailChimp was committed to supporting Serial. The talented production team at Serial and This American Life created MailKimp and the sponsor was rewarded for believing in the show.”

Not only were they rewarded by being a launch sponsor of one of the most successful podcasts in history, but once Serial and the medium itself expanded, a loving impersonation of Serial host Sarah Koenig and the MailKimp joke eventually made its way into a Saturday Night Live skit. Serial also appealed to a female audience, helping to bring new listeners into the channel, and podcasters and advertisers followed.

Over the past 5 years, the space has diversified. We now see so many different shows with all flavors of true crime, news and politics takes that you don’t hear in the broader media picture, women talking to other women about literally everything, comedy and pop culture pods as diverse as Bodega Boys, Who? Weekly, and RuPaul: What’s the Tee with Michelle Visage, and a podcast to go with every reality and television show you can think of. There are too many shows to talk about; there are over 750,000 shows indexed by iTunes.

How to engage for growth advertising

So how do companies start testing in podcasts? And how do they do so successfully?

Start with a strong (but doable budget) and take your time

We advise companies to start with a test spend that you consider meaningful in the context of your other customer acquisition efforts. Initial tests in the channel that are properly diversified typically vary from $50,000 to $150,000 in media cost. If the idea of a testing budget in the high five figures makes you gasp, don’t rush it. If you under-invest, you run the risk of a false negative, i.e. you didn’t spend enough to validate performance, or a false positive; when you buy tiny shows, one or two sales may pay back. If you make media decisions at scale based on that data, you may find yourself in deep water. If the risk of testing a new channel and having a dip in your CAC is too great, we recommend you exhaust other channels, like Facebook, before jumping into the podcast space.

Podcast offers advertisers a low barrier to entry. Creative production is limited to producing copy points for hosts to use as they record their ad reads. However, it is quite manual relative to digital channels, and can take weeks to put into place. Most purchasing is done through a show’s sales representation or network, via calls and emails, and set in advance (sometimes way in advance depending on inventory levels). It entails RFPing multiple network partners, doing research and outreach to independent shows, gathering rates and evaluating content, and finally making decisions based on budget and inventory availability. We often describe this as the media puzzle – making sure that the ideal shows, with favorable pricing are available when you want them to be. This can take time and some back and forth with your network rep to set in stone, so give yourself room to plan ahead.

What’s the media landscape look like and how do you pick shows? 

GettyImages 532749101

Image via Getty Images / venimo

We buy with a lot of direct shows, sales representation firms, and ad networks. We’re starting to see the beginnings of programmatic and exchange-based inventory become available, but it’s largely impression-based media, which isn’t yet a proven tactic that direct response-oriented advertisers can consistently use for customer acquisition. There are some managed service-like buying partners in the space, that work to varying degrees of efficiency for customer acquisition.

When it comes to choosing what types of shows to partner with, beyond budget and availability, it’s important to remember the obvious choice may not be the best one.

One of the most consistent, and pleasant, surprises in podcast advertising is how well shows that are seemingly unrelated to a product work well for customer acquisition. We’ve worked on products that had a primary target demographic of suburban moms, but guess what? Gamers want to stay at home and order snacks and food delivery, too; they have disposable income and are harder to reach via traditional channels.

If you’re advertising a product targeted to parents, you shouldn’t just test into parenting shows, you should also consider testing into shows with hosts who are parents, but have content not at all or tangentially related to parenting, like Your Mom’s House, with Tom Segura and Christina Pazsitzky. Sure, it’s a comedy podcast, and it’s NSFW (and hilarious). They’re also human parents who they do amazing reads, and their fans are legion.

Ryan Iyengar, CMO of HealthIQ, notes that “hosts with wildly different backgrounds were able to find a through-line to connect ad reads with their audiences, regardless of product line.” Of course, contextual advertising is worth consideration, and there are sometimes unique opportunities, but most successful shows aren’t a bullseye for content.

We’ve also seen the inverse, on contextual fit; food products can either do amazing or not well at all on food-related podcasts. If you have a food product with mass appeal, but one that (for example) many home cooks may already be familiar with, you may be better off doing just about any other popular genre of shows besides food.

Plus, these hosts are pros; they’ve been doing ad reads for everything from mattresses to meal kits for years. They know how to talk about your product in an engaging way.

Doug Hoggatt, the VP of Marketing at Betabrand, agrees, mentioning he would also coach new advertisers to “take the time to test across genres and hosts, you’ll be surprised at the results.” Iyengar is also the former VP of Marketing at ZipRecruiter; if you’ve ever heard a podcast, you may have heard the company advertised once or twice. He also notes, “[regardless of] content of the show, audiences can be interested in all sorts of topics, and are still potential customers. Yes, even hiring managers listen to comedy podcasts!”

Many business-to-business (B2B) advertisers do well in the channel, in part due to higher allowable CAC and high lifetime value (LTV). And the same point about show selection holds true for those audiences, as well. Visnick noted, “[HoneyBook] originally focused on testing industry-specific podcasts as those seemed to be the most natural way to target our prospective customers. We discovered that by diversifying our podcast mix into non-industry content we could still reach our target audience while also growing our reach and overall program performance.”

If we hear something that we think can help us at work, we’re amenable to that message, especially when it comes from our favorite host. Having an open mind to testing has helped so many advertisers unlock additional shows, and possible customers. You can take those insights back to other channels, too, and begin to integrate your campaigns and establish cross-channel frequency.

Pricing in the channel is unstable, and demand-based because inventory is finite; effective CPMs for host read, embedded mid-roll advertisements — by far, the most consistently performing ad unit for customer acquisition in the space — vary from $10 to $100. Yes, really.

Worrying too much about CPMs could mean that you’re leaving behind some of the best inventory in the space. So while it could make sense to cut higher CPM placements from a media plan, you want to be cautious. You could inadvertently cut out potential volume drivers or otherwise highly effective placements.

Allow for the host’s personality to shine through

GettyImages 521931185

Image via Getty Images / TwilightShow

The listener is there for the hosts. They relate to them, laugh with them, or laugh at them. They come to expect a performance from them, and often that performance bleeds into the ad reads. Whether it’s a semi-NSFW jingle about MeUndies from Bill Burr, or Joe Rogan recommending his mind-blowing NatureBox snack combination, or Levar Burton delivering an oh-so soothing Calm read.

Alan Abdine, Senior Vice President of Business Development for Rooster Teeth, a network with geeky, gamer shows with a hint of irreverence, said “the best ads are the ads that are organic, natural, and originate from the voice of the show talent. When brands allow our hosts to be themselves, there are more opportunities for entertaining side stories and commentary related to the brand.”

He continues to say his “belief is that if an advertiser is willing to spend money to reach out audience, then let us be the experts on that audience and let us use our own voice to share their message and talking points!  They will always get better results in that scenario.”

There is a certain special trust that goes into podcast ads. And to allow hosts to be themselves while also being a positive brand advocate often mean striking a balance between scripting and giving space. The most commonly purchased ad unit for customer acquisition advertisers is a host-read, embedded, mid-roll advertisement, typically :60 in length, but many hosts go over.

Overly scripting the copy can lead to an ad sounding inauthentic and infringe on their creativity. Kate Spencer, the co-host of Forever 35, notes that “often there are a lot of required talking points to hit in a short amount of time. We’re always happy to oblige, but I think it takes away from the organic and conversational nature of the ad, which is what makes podcast advertising especially unique. ”

On the flip side, not scripting enough could lead to a disjointed read where the host is trying to piece value props together on the fly. Nick Freeman, Chief Revenue Officer at Cadence13, explains that “some hosts do like the perfectly written out :60 script, while others like bullets they can riff off of.” Because podcast campaign test across multiple shows and personalities, it’s best to find a starting point in your copy where hosts can be guided, but not stifled. Freeman says “that doesn’t necessarily mean trying to make jokes for comedy hosts, for example, so much as it’s giving the hosts who do well with it the freedom to ad-lib.”

And for those that want to get a little more creative, the space is primed for custom integrations. Recently DoorDash partnered with Rooster Teeth for an ad on a livestream in celebration of a new game their studios were releasing. Since there was a visual element, DoorDash and Rooster Teeth partnered on a creative spin to the ad.

Instead of the typical copy, food would be delivered to the group of hosts while recording. Grant Durando, Senior Marketing Consultant at Right Side Up, works with DoorDash on their podcast campaign and stewarded this unique partnership. “[Rooster Teeth] approached us with the opportunity to engage with the live stream in a deeper way than just a regular podcast ad. It was definitely an unorthodox integration, but exciting to be in front of the right audience for DoorDash, at scale, and in a meaningful, memorable way. Many conversations about chicken nuggets later (which I never thought would be part of my job), Rooster Teeth and Vicious Circle delivered a superb ad experience, [integrating] multiple brand mentions and actually making DoorDash a part of the content itself.”

Zack Boone, Senior Director of Sales at Rooster Teeth, added there is, “nothing better than having clients that understand how impactful utterly stupid things like this can be for a brand.” DoorDash “[offers] industry-leading selection to our customers,” said Micah Moreau, VP of Growth Marketing at DoorDash. “It was incredibly effective to bring the DoorDash experience to life with Rooster Teeth in a highly differentiated, yet relevant way.”

How do you measure response?

Ads almost always end in some sort of call to action, like use the show’s promo code to save money, or visit a URL to get a free trial of a product for listeners of the show. It’s a way for shows to get credit for their listeners taking some sort of action, usually a purchase, related to hearing the ad.

And it’s how advertisers can figure out if their ad investments are paying back, too. Along those lines, Hoggatt was happy to see “how direct response the channel could be. I was surprised at the lift in site visits and follow-on orders that correlate so closely to when our podcasts drop.” Consumers have been conditioned to listen for that call to action at the end of an advertisement so we can measure a direct response in the channel.

That isn’t to say podcast advertising should displace a highly effective channel like paid social or paid search in your paid marketing testing priorities. We often ask advertisers information about their overall CAC or CPA  from other paid marketing efforts like Facebook or Google advertising, and use that data to benchmark target CAC for podcast.

As a general rule of thumb, if you can’t make Facebook or Google work for customer acquisition at meaningful scale, think twice before you engage in testing podcasts at a scale meaningful to your business. But if you’re looking for demand generating channels, podcast is an excellent contender.

“The success we’ve seen from podcast advertising has proven that we can drive sales through paid media outside of “traditional” direct digital response campaigns,” said Visnick. “We’ve significantly grown our podcast budget every quarter since we started testing the channel and it’s now a core part of our overall acquisition strategy and an important part of our media mix.

Don’t under-account for breakage or indirect activity

GettyImages 1160364589

Image via Getty Images / Olivier Le Moal

Another challenge for advertisers that aren’t used to offline channels is managing indirect activity, also sometimes called breakage. It’s imperative to look at indirect activity to help triangulate response, as another way to get a false negative is to only look at direct response, i.e. direct redemptions of a promo code or sales from only users who visited the vanity URL.

A decent analog is like view-through conversions, but without the technology enablement. You can tell, via tracking, what actions site visitors have taken after exposure to ads on Facebook and Google, etc.

However, there isn’t a way for a consumer to tap or click on your podcast ad, so you don’t have a direct action correlated to ad download or exposure, nor can you track indirect activity (view-through) via pixels or other technology enablement. The aforementioned promo code/vanity URL combo is what generates that direct response.

To get around this breakage and triangulate a full response, advertisers commonly use a post-conversion attribution survey, colloquially referred to as a How Did You Hear About Us? or HDYHAU survey. This allows for a crude, but effective, translation of the impact that podcasts had on that user’s activity.

It helps you determine how much of the activity you’re capturing in paid search, for example, may have actually been driven by podcasts, streaming audio, or television. It’s self-reported data from users, sure, and it can feel a little shaky when you’re used to more precise digital measurement, but it’s how virtually every scaled advertiser in the channel has discovered a path to scale.

It also helps you determine benchmarks before you get into other channels, and can provide a solid look at multi-touch attribution if the survey is designed with best practices, and served to enough of the population to achieve stability.

Why can’t we use measurement techniques from other mediums?

We already talked about why, even though podcasts are digital audio, we can’t track conversions digitally (we know, it’s a little crazy). Unlike television, where you can use spot-based attribution, or radio, where you can achieve consistent ad exposure and but according to average quarter-hour (AQH) ratings, there’s a delay in both download of an episode and media consumption.

For advertisers, that means performance comes in over time, and it takes a minute to build reach and frequency (R/F). You may see very little activity for the first week or two of a campaign, and then as R/F builds and crescendos, you’ll see conversion activity catch up. That’s when you can start to get a solid picture of return on ad spend (ROAS); you should have structured your tests so you have a good sense of performance by the third or fourth drop with a show.

Looking at results sooner is possible but largely inadvisable. “Give it time,” says Dan Visnick, CMO at HoneyBook, “It can take a few weeks to see the impact from a single podcast, and months to build a strong portfolio.”

One of the biggest mistakes new advertisers in the channel make is getting a false positive, by testing into tiny shows that back out because 2 people bought their product, and then quickly scaling in the same genre only to find out that the content doesn’t scale.

False negatives are also common, when advertisers get cold feet in the first few weeks of an integration, and cancel shows after one ad insertion in a single episode. The channel requires diligence in testing, and if you have other business challenges to navigate, using digital growth channels can help iron out your messaging, landing pages, etc. before you launch offline channels.

Although you may have honed your messaging in other channels, you should expect to be flexible when it comes to podcast creative.

Opportunities to expand to other audio acquisition opportunities

GettyImages 540366190

Image via Getty Images / Anastasiia_New

Positive signals in podcast campaigns can also indicate that other audio channels may be ripe for testing, which can help diversify your marketing mix and minimize the pressure on individuals channels. Hoggatt says his “success in podcast advertising proved that it is possible to invest in offline channels and find measurable success.”

SiriusXM and streaming platforms, whether pureplay like Pandora or Spotify, or aggregators like Westwood One and ESPN, are great next steps for advertisers who see the right signals in podcast. For SiriusXM, it’s a high household income audience that are used to paying for a subscription (any subscription model companies out there?), and streaming audiences are choosing to listen to their content, similarly to how podcast listeners choose their content. The podcast landscape is the perfect arena to play in to learn more about how your brand works in offline media and allows there to be a stepping stone into other mediums.

Be good stewards

We know that podcast advertising can have a powerful impact on the marketing mix for companies of all sizes. As more and more players get involved in the space, it benefits all involved, from advertisers, to networks, to marketers.

It’s rare to have an opportunity to participate in a nascent medium, and be good stewards of one of the last remaining mediums on earth with finite inventory and listeners who actually respond to ads. And along the way, we hope to change the way people think about traditional offline media channels, like how they can be held to high growth performance standards, and where they intersect with popular digital growth tactics like paid social.

You’ll have to get creative, but with some trust and patience, and adherence to best practices, advertisers can reap significant benefits and customer acquisition, at scale, from podcast advertising campaigns.

9 things growth marketers should do when getting started:

  • Create the team (and time!) needed to execute a campaign, whether in-house or via partnership with a subject matter expert like a consultancy or agency
  • Learn the language of podcast advertising, terms like download carry a lot of baggage and understanding them can impact your campaign’s performance
  • Budget your initial test(s) appropriately to avoid a false negative or positive result
  • Have an open mind on show selection; make sure you test across multiple genres and formats
  • Measure direct and indirect activity, to triangulate performance and business impact, and make optimizations and decisions on renewals
  • Support, don’t stifle, the personality of the show hosts
  • Get comfortable getting creative, and take time to onboard hosts
  • Keep an eye out for additional opportunities, not only in podcast, but in other audio channels as well
  • Be a good partner to shows, networks, and others in the space. It’s ours to nurture

Europe shows the way in online privacy

After passively watching for many years as tech giants developed dominant market positions that threaten consumer privacy and stifle competition, American antitrust regulators seem to have finally grasped what’s happening and decided to take action. 

This increasing scrutiny, which tacitly acknowledges that Europe’s more proactive regulators were perhaps right all along, is helping unleash a wave of tech startups at the expense of big tech. By holding industry titans accountable over the privacy and use of our data, regulators are encouraging long overdue disruption of everything from back-end infrastructure to consumer services.

Over the past decade, Facebook, Google, Amazon and others have tightened their grip on their respective domains by buying up hundreds of smaller rivals, with little U.S. government opposition. But as their dominance has grown, and as egregious privacy violations and mishaps proliferate, regulators can no longer look the other way.

In recent months, American regulators have announced a flurry of new antitrust investigations into big technology companies. The Federal Trade Commission has voted to fine Facebook $5 billion for misusing consumer data, the U.S. House Judiciary Committee is probing the tech industry for antitrust violations and 50 attorneys general announced an antitrust probe into Google. U.S. officials are even considering establishing a digital watchdog agency.

It’s hard to understand why it took so long, though perhaps U.S. officials were loath to target domestic companies that were driving huge economic growth and creating millions of new jobs. In contrast, their counterparts across the pond have been on an antitrust tear under the watch of European Union antitrust commissioner (and now also EVP of digital affairs) Margrethe Vestager.

Now that regulators from both Europe and the United States are pursuing antitrust probes, they have exposed areas where startups can innovate. 

Startups take on big tech