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Funding is drying up for digital ad firms. 2 founders turned investors who weathered the 2008 crash say what adtech companies can do to survive.

Times square coronavirus

  • The COVID-19's impact has dried up an already small amount of funding for advertising and media firms as advertisers cut spending.
  • Business Insider asked Chris Cunningham and Eric Franchi, two former adtech founder-turned-investors how they're advising companies during the pandemic.
  • They said companies should conserve cash and offer discounts to attract new clients.
  • They also see opportunities to invest in non-advertising companies like direct-to-consumer companies and firms providing help for small and midsize businesses.
  • Click here for more BI Prime stories.

Digiday ad firms that depend on ad spending are facing layoffs and furloughs as marketers cut back due to the coronavirus.

Funding for media and advertising companies has increasingly dried up over the past few years, and the pandemic could be the final straw for large adtech firms that are looking to raise money. Investors have paused future investments or are looking for proven companies to invest in, two advertising and marketing-focused investors told Business Insider. 

Chris Cunningham, a former adtech founder who now runs an early-stage venture fund called C2V Ventures, said that he believes the days of big funding for adtech firms that total hundreds of millions of dollars are over.

"Any company that was calling on agencies or brands to hit revenue targets are in trouble. They were in trouble before the pandemic — it's more important now," said Cunningham.

Cunningham said he's down to seeing one or two companies a week that are seeking funding, from as many as 20. His fund invests in marketing tech, wellness, and direct-to-consumer brands, and said that he's interested in investing more into wellness category, recently investing in DTC shoe brand Rens Original that closed during the pandemic.

Marketing firms that sell software should consider offering discounts

Advertising and marketing tech firms are trying to be less dependent on media spend and run software as a service (or SaaS) models that have recurring revenue.

SaaS models have longer sales times and require more investment, though. Cunningham said that adtech and martech companies should consider offering lower rates and perks during the pandemic to clients who have more time to test trial runs of software.

He suggested companies go into areas like video-conferencing technology and virtual real estate companies that consumers are using.

Investors are finding new ways to support their portfolios

Eric Franchi, the former co-founder of adtech firm Undertone who now runs the advertising and media fund MathCapital with MediaMath CEO Joe Zawadzki, said that he's focused on helping its founders manage through the pandemic. Franchi and Zawadzki led advertising firms during the 2008 financial crash, and MathCapital's portfolio includes more than 30 companies.

The questions span everything from how to conserve cash, how to work with clients, and deciding how to raise money. MathCapital set up a Slack channel for CEOs of its portfolio companies to talk with each other.

MathCapital also invested in a startup in its portfolios during the pandemic called Ureeka that helps small businesses in underserved groups like minority and women founders with things like facilitating Facebook and Salesforce's grants for small businesses.

"It's a rare one but there's going to be companies that are going to be a position to come out on the other side stronger," Franchi said.

Franchi said that he plans to spend more time with founders before making investments.

"Getting to know people over Zoom is going to be an art unto itself, and we want to also watch the market to make sure that we're being prudent from a timing standpoint," he said.

SEE ALSO: Amazon's ad business is spiking, but ad buyers say the coronavirus reveals the commerce giant's weaknesses versus Google and Facebook

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