Lately there has been some good discussions about other companies acting like Venture Capitalists, especially ad agencies. Personally I have major concerns if an agency starts acting like a VC, especially if they are investing in New Media companies. The potential for conflicts of interest are huge. First, theses agencies need to be media-neutral. I need to trust my agency is making a recommendation that is best for my brand…not because their agency stands to profit through my support of a business they have invested in. Second, they are funding those investments based on fees I paid them and then potentially profiting off media buys I make. That makes me really uneasy.
However, I do think the future of the agency model could be in Shared IP and equity. I have no problem with an agency working with a new/small brand and taking an equity stake instead of normal fees. I think this is a great win/win since the brand saves money and the agency gets tremendous upside based on their work. But if this new brand is a media property that the agency can then pitch to other clients, I get concerned, My agency’s neutrality goes out the window and I end up feeling like my agency pimped me out. Not a good place to be.
Now the people I do think have the right be investing in new media companies are the brands themselves. A media buy from an established company like P&G can end up making a company. I think back to the small buy I did with Secret on MySpace.com back in 2004. My counterpart at MySpace said that because of that deal and the media coverage we generated from it, he ended up getting over 50 calls from major brands who before wouldnt even return his call. Think if instead of a media buy, P&G had made an equity investment in MySpace? We would have ended up with a major return on our money when MySpace sold out to News Corp. Plus, many start-ups could benefit tremendously from the brand building knowledge that a major CPG could bring to the table. Plus it has an employee benefit because marketers could take a “broadening assignment” to go work at the start-up for a year or two. They would get a chance to scratch their entreprenuerial itch without leaving the CPG company. That is a major HR win to keep top talent happy.
Now obviously there are drawbacks here. First, CPG companies aren’t experts in the world of VC investing but that could be solved by partnering with a leading VC. Second, a company like P&G investing in a company could potentially keep competitors from buying media on that site. Third, almost all major CPG’s are publicly traded companies and VC is a hit or miss industry. But then again, technology companies like Dell are publicly traded but they have been investing in start-ups for years now (though Dell Ventures did close after a few years).
The way I see it, there is tremendous upside for a major CPG company to partner with VC’s in the start-up game….but tons of downside if our agencies are acting as the VC’s instead.