2015 was another record year for VC investment in Marketing Technology (a sector we track closely), continuing a multi-year trend of setting new high watermarks.
According to Pitchbook Data, marketing and ad tech companies pulled in approximately $6B in venture funding across ~800 deals last year. This represents a 46% year-over-year increase in invested capital and a 23% compound annual growth (“CAGR”) rate since 2009. For reference, total VC funding increased ~25% year-over-year at a CAGR of ~20% over the same period.
VB Insights’ figures are even more striking (albeit more liberal on data inclusion, surely). Their recent report asserts that companies in the MarTech space garnered ~$11B in 2015, which if accurate would equal nearly half of the cumulative venture capital investment that has gone into MarTech in all prior years (~$25B).
While we are seeing a cooling off in overall VC investment and in late stage deals in particular, there are some early indicators which suggest MarTech investment is off to a good start in 2016.
So what’s driving these numbers? A few things:
- Demand for MarTech is growing rapidly – The combination of the rise of mobile, social, cloud tech, data proliferation and the CMO’s budget (just to name a few) is driving the need for a wide spectrum of smart marketing technology solutions to address a myriad of new situations. Enterprise spend directed toward MarTech has already increased substantially over the past few years and yet it appears the ceiling is still far from sight. According to Ashu Garg of Foundation Capital, tech spend as a percentage of total marketing spend still represents only one percent! In his 2015 Whitepaper he projects the market to grow 10x over the next 10 years.
- The scope of MarTech is expanding – Marketing technology has expanded its reach to the point where the border seems increasingly nebulous. It exists at the nexus of a growing number of stakeholders within any given organization and impacts many functional areas beyond what has traditionally been considered marketing. Many have been asking: What exactly is marketing technology? In fact, the better question might be: what isn’t marketing technology? As the overlap increases, more and more companies are getting lumped into the MarTech bucket, which could also contribute to the increasingly large figures shown at the top of this.
- Acquirers are increasingly active – Successful exits in MarTech have become bigger and more frequent, catching the attention of many among the venture capital universe. In 2015, acquirers paid roughly $10B to acquire hundreds of MarTech companies, representing a meaningful portion of all tech M&A activity. The most acquisitive of which include the likes of Adobe, Facebook, Google and Oracle. These dollar amounts and logos are certainly contributing to the fact that VCs are opening their checkbook for MarTech companies with increasing alacrity.
In one sense, this deluge of capital inflow serves to validate the potential of the market. But in another sense, does this start to smell of overheating? How many winners can there really be? Where are we on the maturation curve? These are questions we discuss amongst ourselves and out in the market every day. But ultimately, we always come back to the same fundamental conclusion: the sector continues to provide enormous opportunity (and rewards) to entrepreneurs who are bringing truly differentiated and sustainable products to the market.