The Digital Signage Insider
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Digital Signage Investment Advisors Will Show You the Money

Author: Christie Liu on 2009-09-14 18:07:41

Believe it or not, there is institutional and angel money available for digital signage companies and networks right now. Unfortunately, the general consensus is that nobody is dying to invest -- in our market or anywhere else -- at the moment. Given this difficult economic climate, investors have become much more cautious about evaluating not just individual opportunities, but the space as a whole. In the course of preparing for our Digital Signage Investor Conference in New York next month, I had the opportunity to catch up with several equity fund managers and investment advisors who are all tracking the digital out-of-home market right now. Here are some of the more interesting themes and thoughts that have emerged.

Picking winning networks

"In general, across sectors, there is more scrutiny at the proposed ROI model and testing of the cost and revenue assumptions," said Jeff Milkie, a director at Challenger Capital, an investment bank with offices in Dallas and Chicago. The firm was most recently engaged as an advisor to Indoor Direct's series B funding which totaled $22.5 million. While excitement about the digital signage and digital out of home space remains high, it's a matter of "picking the winners and losers" right now.

But what makes for a winning network? A big driver for investors right now is having manageable capital expenditures, given that building out a network is critical. Then it's back to the basics of rolling out the right venue and DMA so the network would be attractive to advertisers. The investment community -- be it venture capital or private equity -- requires that companies seeking funds be able to "hit it up front" and cover all the hot buttons to them, said Milkie.

A guide to success

Even winning companies can have a hard time raising money. Often, the difficulty lies with the amount of time and effort required to first find the right investors, and then close a deal with them. Hiring an investment advisor is an increasingly common way of accelerating the process. Lon Otremba, CEO of Access 360 Media, successfully completed a series B fundraising in 2008. While the network did not retain an advisor, he does see the benefits in doing so. "Fundraising always takes longer than you plan. It just does. One of the dynamics in any venture backed industry is you're going to have to see a lot of people. It's a very time consuming process. We chose not to retain an advisor to help us through the process mostly because we were introduced to funds through Bessemer (their round A investor). If you have an advisor that can help shoulder the load and help through the process, through time consumption, that's a great thing."

While an investment advisor does typically charge a retainer as well as collect a percentage of the funds raised, the upside to working with one is similar to working with a real estate agent. The firm is largely compensated based on their success. There is therefore a high incentive to ensure a successful placement. "Having the right advisor will help the company tell the story and connect with the right investors," Challenger's Milkie noted. A good firm can get the introductions made, will know specifically what the investors are looking for and be able to tailor the investment thesis to address the points investors are looking for.

Bill's thoughts

Fundraising is a hot topic for many companies in our industry, and I've previously written about how to raise venture capital for a digital signage business and raising money during an economic crisis. While not every firm will want to hire an investment advisor to assist in the process, having a "winning" business model is something that all companies -- whether they're looking for outside funding or not -- should strive for. That's actually one more thing that a digital signage investment advisor can be a gauge of. Taking a step back, it's no surprise that pitching an individual or angel investor group before chasing after larger, more established equity investor groups can help you refine your elevator pitch and determine which points are most important to articulate. Similarly, the act of pitching an investment advisor can give you a quick snapshot of how far away from a successful raise you may be. After all, these firms are largely compensated based on successfully raising money for you. If they shy away from working with your company, they might be telling you that your organization lacks the attributes that their investors are looking for. Of course, there may be plenty of other reasons why one particular group or another might not be a good fit: a digital signage investment might fall outside their target industries, or perhaps they prefer to work within a particular geographic area. But testing your pitch against a few groups can potentially provide some valuable insight. I'm aware of at least three different companies that decided to substantially change their business models (almost certainly for the better) after having little success talking to such advisors.

So if you're going to be in the New York area during the first week of October and are interested in raising money for your digital signage firm, you might want to stop by the Strategy Institute's Digital Signage Investor Conference, which takes place on October 6-7. In addition to lots of other entrepreneurs and business owners, you'll find a number of angels, institutional VCs and investment advisors that are already tuned in to our industry, and might be able to lend a helping hand.

Have the capital markets opened up since last year? Are investors tired of hearing about the recession? Leave a comment and let us know!

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