1Mby1M Virtual Accelerator Investor Forum: With Ashu Garg of Foundation Capital (Part 2)

Sramana Mitra: You spoke with me a year back about marketing technologies. It was a core area of interest at least a year ago. Help us understand what drives that interest.

Ashu Garg: That is absolutely a core area of interest for us. I would say it is one of the trends in the broad bucket of the transformation of software using machine learning. Marketing technology is probably, by far, the first category where that happened. We definitely made significant investments and have big bets on that.

What is driving that is a fundamental shift in changing consumer behavior. Consumers are increasingly consuming content online. They’re consuming content across fragmented devices. Media is fragmented. Where we had 25 TV channels, now we have an infinite number of media choices. Humans changed in terms of how we purchase product. The roles of the left brain and the right brain have changed.

More and more consumers want informational needs to be satisfied in addition to their emotional needs. Increasingly, every consumer has an individual path to purchase. There’s an infinite path to purchase for the same item. That is very true these days. Every one of us can start a purchase on the net. Those consumer trends is what’s driving the transformation of marketing itself.

As part of that transformation, technology is playing an increasing role in that industry. We believe that marketing technology, which today represents probably 1% or so of all spend in marketing, will grow more than ten fold and will represent more than 10% of all spend in marketing. That is a $100 billion plus opportunity.

Sramana Mitra: Can you double-click on that segment? Talk about investments that you’ve made. How do you analyze those investments and what was particularly interesting about those companies that led you to invest in those?

Ashu Garg: Let me pick two very different investments. One is called CUBE Mobile. This is an investment I made almost six years ago. They’re the leading media buying platform for large brand-oriented enterprises. If you’re a large brand advertiser, CUBE Mobile is the platform you’re using to buy video advertising across the internet. You’re now using it, in fact, to also buy TV and other forms of media.

The core trend the we identified at that time was that online video was taking over from traditional linear TV. More and more consumers were spending time online watching videos and we were making the bet that marketers will follow. That bet has played out very well. We were just early in the curve.

The second wave that the company then rode was the idea that media will no longer be bought over martinis. Media will increasingly be bought using software akin to how stocks are bought on a stock exchange. It really became one of the first buy-side brokers for media buying on exchanges.

The third trend was that the fragmentation of exchanges would require the buy-side platform that could integrate media from different exchanges. The company is now a public company. It is, by far, the market leader in this category. It’s still very small. In the grand scheme of things, it’s a very nascent market. I expect this market to grow ten fold over the next five years.

A second example is Localytics. Localytics is the leading provider for mobile marketing. If you have a mobile app and you’re trying to drive mobile engagement through notifications and messaging, Localytics is a leading provider of technology in that space. They combine very deep analytics with personalization through machine learning with tight integration into a variety of execution channels so that you can send personalized notifications to consumers that will drive engagement. That’s an investment we made two and a half years ago. It has a SaaS business model.

Sramana Mitra: Am I right to say that within marketing technology, what you are looking to do is invest in companies that have machine learning as the core enabling technology?

Ashu Garg: Within marketing technology, machine learning is almost always a part of the core enabling technology. At some level, that is table steaks. It has been now for 10 years. What we really look for is evidence that you have a technology platform that can scale. It’s very easy in marketing technology to find a widget that works for some small segment of marketers or that solves a small piece of the problem for all marketers.

The question we ask ourselves is, “How does this company have a billion in revenues? What evidence is there to suggest that the product they’re selling can achieve that kind of scale?”

Sramana Mitra: And at a pace that is venture-scale.

Ashu Garg: Yes.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Ashu Garg of Foundation Capital
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