Scaleup Mediafund investing in digital

Media-for-equity fund soon to launch initial Hey You marketing campaign

Michael Lamont

As investment groups go, it would be hard to improve on the credentials of the Scaleup Mediafund, which launched last year. The fund backers are News Corp Australia, Nova Entertainment, Fox Sports Australia and Ten Network.

The fund invests, via advertising airtime and space, in successful applicants and has looked at well over 300 potential partners in the past 12 months. However, the media companies are rigorous when it comes to selecting a partner. This week the fund revealed only its second investment since launch – Hey You.

Hey You is a partnership of two startups – the social media app developer, Posse, and the mobile ordering and payment platform, Beat the Q. The platform connects food, bar and café outlets through personalised online relationships, offering the ability to beat the café queues by ordering and paying online, with the added benefit of providing users access to loyalty benefits and the discovery of new outlets.

The fund was developed after an idea from Michael Lamont when he was working in the strategy digital team at News Corp Australia. Lamont, the fund manager, spent a decade working at Foxtel as head of strategy before moving across to News Corp to fill a similar role in 2012.

“Innovation is important at News Corp and it was very much on our agenda,” Lamont told Mediaweek.

“We wanted to try to find a solution that would let us create relationships with smaller companies that bring the benefit of our combined reach for businesses that needed customers and profile.

“Quite quickly we realised there was a number of successful models overseas. One of the biggest is SevenVentures backed by ProSiebenSat.1 Group, the German broadcaster. They have about €1 billion in assets in their media-for-equity fund. They are a much bigger player with a reach of about 200m people across Europe. They have created a pipeline of investments in verticals they are interested in. When they decide they can work with one of the businesses, they can increase funding to take a majority ownership position.”

Scaleup Mediafund takes an initial equity position under 10% in the companies it partners with.

“Media is great at some things but not necessarily good at other things. Media is good at creating large audiences and brands and marketing. What media isn’t necessarily fantastic at is taking a control of the asset and then growing it within their portfolio.

“Our fund has a deliberate set of actions to concentrate on what we are awesome at. We don’t take board seats and we don’t look to influence the business other than to develop marketing outcomes.”

The first investment in February this year was in BetterCaring.com.au and the second just in May.

With only two investments after looking at over 300 potential partners, does the fund seem very fussy?

“News Corp has had a strong history of investing in smaller businesses to try to grow them. Among the real success stories is REA Group.

“For our fund to make sense a business has to be at the right point in its development.” Lamont said conversations with businesses that don’t attract investment initially aren’t wasted. “It just means they are not ready now for a transaction. A lot of them will come and visit again later.”

The business world can be brutal. Lamont noted some of the businesses he was initially attracted to have folded.

One of the requirements of a business is pretty obvious – they need to be great advertisers for the partners offering the media time. “The business has to be a marketplace or looking to consumers. It might also be a small to medium enterprise.”

The four businesses that supply ad inventory – News Corp Australia, Nova Entertainment, Fox Sports Australia and Ten Network – each has a board seat at Scaleup Mediafund. “They act in the interests of Scaleup Mediafund, they are not representing their employer, but making decisions that are best for the fund. The fund has an independent media strategist who builds out the first ad campaign for a new partner.”

Hey You investment

What did this startup have that more than 300 other potential partners didn’t have?

Lamont: “The business recently announced it had conducted its 18th million transaction. It is a substantial business that is turning over more than $10m annually across the platform and it has a large network of merchants. They hadn’t spent any money on marketing except stickers in stores. We saw it as a business that media could have a very large impact on. It could quite quickly start making a substantial amount of money.”

Once Scaleup Mediafund goes public with an investment, things move quickly.

“We are booking ads for Hey You now,” said Lamont. “They will be on air in June.” The media partner treats the ads bookings just as if they were for a cash client.

Scaleup Mediafund will help their partner with the creative for ad campaigns, but it doesn’t fund costs for things like TV commercials or creating graphics. “The company we invest in has to be prepared to spend $1m in advertising and we need to see that intent during our due diligence.”

Where will media ads be offered next?

In addition to revisiting some of the initial applicants, Lamont revealed they have a number of investments they hope to make in the short term. “There are several we are doing due diligence on and we looking at proposed marketing campaigns.

“We hope to finish the year with three or four more deals closed.”

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