Are VCs turning their backs on companies that present a pure advertising-based revenue model? In response to my last post, someone left this comment:
"....We raised our first round about a year ago and are now talking to potential investors about another round. After 10+ investor meetings over the past month, mainly east coast, it seems there is also a transition on the investor side away from advertising-based revenue models, and even in some cases away from freemium models. Much more than I saw even a year ago. Is that accurate in general or is my sample size too small? If it is accurate, a post from your perspective about the reasons behind it would likely be welcomed by many. From my much more limited perspective, it does seem like there is a saturation of companies offering candy, and not enough selling medicine."
I totally agree that there is still a saturation of companies with a pure advertising-based revenue model. The number of companies that have popped up trying to dominate a niche and then trying to build a $100m business around it seems endless. Pick it - we see sports related web sites, ones around pets, etc. Unfortunately, it goes on and on. Many of the features they offer are already covered by other sites. And some of them get funding mostly by angel investors though.
Negagtively impacting some of these models is that ad spending growth continues to slow down. The ad models that have the best chance of success is when the spend is connected to a measurable ROI (results include new sales, a new sales lead, etc.)
So for our firm, ads are ok, but we like to see a model with other potential revenue streams as well. What is the backup plan if the ad model doesn't work out?
Btw, there are a lot of other VCs talking about this right now and they go into it a lot deeper so hopefully this helps as well. Here is one that shares my opinion and another.
