Companies need to advertise themselves and their products or services in order to develop their target market. However, advertising costs money, which in turn is not available to the necessary extent for start-ups and is also not always so easy to obtain on the (traditional) capital market. So how can this problem be solved? Media-for-equity is the key!
In recent years, media-for-equity has become a popular form of marketing financing for start-ups and fast-growing companies. This innovative financing model enables companies to raise their profile and at the same time use their financial resources sparingly.
What is media-for-equity?
Media-for-equity is a financing model in which companies exchange media advertising for company shares. Start-ups and young companies can use high-quality advertising opportunities, such as TV commercials, radio spots, print ads or online advertising, without paying for them directly. In return, the media companies receive company shares that they can monetize in the event of a successful exit of the company.
The advantages of media-for-equity
For start-ups and young companies, media-for-equity offers a number of advantages:
- Firstly, it allows them to use their marketing budgets more efficiently, as they do not have to spend all of their limited financial resources on expensive advertising campaigns. Instead, they can use their company shares as currency and thus obtain high-quality advertising space.
- Secondly, media-for-equity gives companies access to a wide audience and enables them to quickly increase their brand awareness. This can lead to faster sales growth and a larger customer base.
- Thirdly, it enables start-ups to build long-term partnerships with media companies and benefit from their expertise and resources.
For media companies, media-for-equity offers the opportunity to market unused advertising space in a meaningful way. The previous solution of discounting the sale of advertising space is unattractive from an economic point of view. Media-for-Equity offers a more pleasant solution. This is because this model provides for performance instead of money in return for the company participation. In this way, the free advertising space is used without the need for a discount. In addition to these advertising spaces and concepts, valuable marketing expertise is also transferred that would otherwise have to be purchased at great expense.
The media services used may not generate direct sales, but the investment means that future sales are likely. In the event of a later exit, lucrative sales proceeds beckon. Media-for-equity is only substantial for both sides if the media company can continue to be “booked” profitably even after its performance. The media company can gain a new customer through the deal. In short: the media company increases the enterprise value of the start-up and the media company covers its (otherwise free) advertising space.
Developments on the German market
Media-for-equity has also become increasingly important on the German market. In recent years, more and more media companies have set up their own media-for-equity funds or investment companies in order to make targeted investments in promising start-ups and expand their advertising portfolio at the same time. This has led to a large number of partnerships between start-ups and media companies that benefit both sides. The most prominent example of this is probably the corresponding media-for-equity arm of the ProSiebenSat.1 Group. It has successfully capitalized on free advertising space and, in particular with Zalando and Trivago, has shown how successful this process can be.
Implementation: Two contracts
Even if the creative possibilities are generally diverse, investments in the context of media-for-equity are generally implemented legally through the following agreements and steps:
- Participation agreement: Regulation of the media company’s participation under company law (e.g. financing, guarantees, information rights and obligations; performance obligations).
- Contract for the provision of media services: Regulation of the provision of the respective media services.
- Capital increase: As a rule, the media company participates by increasing its capital in return for the issue of new shares. In order to avoid valuation difficulties of the media services as a contribution in kind, it is advisable to pay the respective nominal amount of the shares to be acquired in cash. In addition, the media company then undertakes to provide media services from registration of the capital increase instead of making a traditional additional payment into the company’s capital reserves. To calculate the corresponding equivalent value, a discounted net value for the shareholding is generally calculated on the basis of the gross media volume, i.e. the actual advertising volume to be provided, which corresponds to the amount of the other additional payment into the company’s capital reserves.
Challenges and opportunities – a summary
Although media-for-equity offers many advantages, it also poses challenges. One of the biggest is to value the company shares appropriately and to carefully draft the contracts between the companies and the media companies. This requires a thorough analysis of the financial and legal aspects as well as professional advice from experienced experts. In addition, the companies must ensure that the advertising is effective and actually leads to an increase in sales. However, media-for-equity also offers great opportunities for start-ups and media companies. Start-ups can quickly increase their brand awareness and attract the attention of potential customers, while media companies can benefit from the potential profits from their company investments.
Overall, it can therefore be said that media-for-equity is a promising form of marketing financing for start-ups and high-growth companies. By exchanging company shares for high-quality advertising space, companies can raise their profile and accelerate their growth. With careful planning and implementation, companies and media companies can enter into long-term and successful partnerships from which both sides can benefit.
The author and your usual contacts will be happy to answer any questions you may have!
Christian Schon
schon@tigges.legal
+49 211 8687 284