Companies depend on advertising themselves and their products or services to reach their target market. However, advertising costs money, which may not always be readily available for startups to obtain through traditional capital markets. 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 startups and high-growth companies. This innovative financing model allows companies to increase their visibility while conserving their financial resources.
What is Media-for-Equity?
Media-for-Equity is a financing model where companies exchange media advertising for company shares. Startups and young companies can utilize high-quality advertising opportunities, such as TV commercials, radio spots, print ads, or online advertising, without directly paying for them. In return, media companies receive company shares that they can monetize upon a successful exit of the company.
The Advantages of Media-for-Equity
For startups and young companies, Media-for-Equity offers several advantages:
- Firstly, it enables them to utilize their marketing budgets more efficiently since they don't have to allocate their limited financial resources entirely to expensive advertising campaigns. Instead, they can use their company shares as currency to obtain high-quality advertising space.
- Secondly, Media-for-Equity provides companies with access to a broad audience, allowing them to quickly increase their brand awareness. This can lead to faster revenue growth and a larger customer base.
- Thirdly, it enables startups to build long-term partnerships with media companies and benefit from their expertise and resources.
For media companies, Media-for-Equity provides the opportunity to effectively market unused advertising space. The previous solution of discounting the sale of ad space is economically unattractive. Media-for-Equity offers a more pleasant solution by exchanging performance instead of money for the company's participation. This way, free ad space is utilized without the need for discounts. In addition to these ad spaces and concepts, valuable marketing know-how is transferred, which would otherwise have to be purchased at a high cost.
While the media services deployed may not show direct revenues, future revenues are likely due to the participation. Lucrative proceeds can be expected upon a later exit. Media-for-Equity becomes substantial for both parties only when the media house can continue to "book" profitably after providing the service. Through the deal, the media company can gain a new customer for itself. In short: the media company enhances the startup's company value, and the media house fills its (otherwise remaining) advertising spaces.
Development in the German Market
Media-for-Equity has also gained significance in the German market. In recent years, an increasing number of media companies have launched their own Media-for-Equity funds or investment companies to invest in promising startups and expand their advertising portfolios. This has led to numerous partnerships between startups and media companies, benefiting both sides. The most prominent example here is likely the respective Media-for-Equity arm of the ProSiebenSat.1 Group. It successfully capitalized on free advertising space, demonstrating the success this method can achieve, especially with companies like Zalando or Trivago.
Implementation: Two Contracts
Although the design possibilities are generally diverse, participations within Media-for-Equity are usually implemented legally through the following agreements and steps:
- Participation Agreement: Regulating the corporate participation (e.g., financing, guarantees, information rights and obligations; performance obligations) of the media company.
- Contract for the Provision of Media Services: Regulating the provision of the respective media services.
- Capital Increase: Typically, the participation of the media company is achieved through a capital increase by issuing new shares. To avoid valuation difficulties of media services as contributions in kind, it is advisable to pay the respective nominal amount of the shares to be taken over in cash. Additionally, the media company then commits to providing media services after the capital increase is registered, instead of a classic additional payment into the company's capital reserve. To calculate the corresponding equivalent value, a discounted net value for the participation is usually calculated based on the gross media volume, i.e., the actual advertising volume to be provided, which corresponds in amount to the other additional payment into the company's capital reserve.
Challenges and Opportunities – Conclusion
Although Media-for-Equity offers many advantages, it also poses challenges. One of the biggest challenges is appropriately valuing the company shares and carefully structuring the contracts between the companies and the media companies. This requires a thorough analysis of financial and legal aspects and professional advice from experienced experts. Additionally, companies must ensure that advertising is effective and actually leads to an increase in sales. However, Media-for-Equity also offers significant opportunities for startups and media companies. Startups can quickly increase their brand awareness and attract potential customers, while media companies can benefit from potential profits from their corporate investments.
Overall, it can be said that Media-for-Equity represents a promising form of marketing financing for startups and high-growth companies. By exchanging company shares for high-quality advertising space, companies can increase their visibility and accelerate their growth. With careful planning and implementation, companies and media companies can enter into long-term and successful partnerships that benefit both sides.
THE AUTHOR AS WELL AS YOUR USUAL CONTACT PERSONS ARE HAPPY TO ANSWER ANY QUESTIONS YOU MAY HAVE!
Christian Schon
schon@tigges.legal
+49 211 8687 284
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