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When VC Meets MarketingTech

Earlier this month, David Pring-Mill took a deep dive into BlueRun Venture’s VC view of marketing tech, in conversation with general partner Cheryl Cheng. But David also heard from other voices in the space. Here’s a smörgåsbord of insights.

Not every business is scalable and not every business should be venture-funded. Some startups in the mar-tech space have focused on building customer relationships and better products, slowly, strategically, and sustainably. Venture money is all about leverage and scale. If a business is capable of rapid growth and big returns, venture dollars can get it to where it needs to go, on an ambitious timeline.

As CMOs increasingly devote their budgets to technology, there is an opportunity for mar-tech startups to go big or go home. So, what happens when VC meets mar-tech? DMN interviewed several venture capitalists to find out their thoughts on mar-tech.

Product/market fit comes first

Cheryl Cheng, General Partner at BlueRun Ventures, invests in seed and series A opportunities.

“I tell my founders to focus on product-market fit first. You must be able to delight your customer, whether it’s B2B or B2C. And you need to become mission-critical to your user. Without that, the value proposition isn’t there. It doesn’t matter how much money I give you or anyone else gives you.”

Then, startups can turn to growth metrics. To build a scalable business, they need to efficiently acquire and retain users. The customer acquisition cost and retention rate should indicate that the business is scalable, and these numbers should be backed up by a strong, legitimate value proposition. Consumers may give a startup a little bit of flexibility if they see that a product is still evolving. For enterprise software and mar-tech, it’s essential to nail the product-market fit before scaling.

The category has changed over the years

New technologies and forms of AI are allowing businesses to achieve their marketing goals and objectives in ways that weren’t previously possible.

David Ellis, Managing Director for EGL Holdings and an early investor in The Pedowitz Group (TPG), said that Eloqua and Marketo pioneered and revolutionized a marketplace. The ability to target email efforts, capture user information, generate activity without human involvement, and drive a customer down a decision path was once considered novel. Ellis said that marketing technologies have made unbelievable progress. Although this progress may result in some degree of technological unemployment, Ellis said that it’s a necessary evil and investors expect companies to utilize the latest platforms and strategies.

AI introduces big, new value

Rudina Seseri, Founder and Managing Partner, Glasswing Ventures, said that intelligent customer data platforms and cross-platform delivery platforms are two key opportunities within the space. She views AI as an exciting value-add. In an ideal scenario, mar-tech solutions will be able to attain a holistic view, gathering a deep understanding of customers and then seamlessly reaching them across platforms.

“In essence, with AI, the potential is there to build a marketing brain that leverages all available customer data to understand the target and pushes contextual, personalized recommendations within the marketer’s mar-tech platforms of choice,” she said.

The competition is intense

Bruce Cleveland, a founding partner at Wildcat Venture Partners, said that with thousands of mar-tech products on the market, many startups quickly become obsolete in their quests to produce more qualified prospects, more satisfying customer engagements, and more effective lead-to-cash conversion rates. Applications that use machine learning can optimize the entire revenue cycle, across marketing and sales, but startups that don’t utilize machine learning can still be extremely useful.

“For example, over the past several years, account-based marketing has emerged as a new subcategory within the mar-tech landscape,” said Cleveland. “These applications enable B2B marketing and sales teams to better target and close prospective customers. Startups such as Engagio, Terminus, DiscoverOrg and many others have emerged to address this sector. None really leverage machine learning today, but could easily incorporate this technology into their platforms over time.”

ABM has been described as fishing with spears instead of nets.

Cleveland also said that the best mar-tech solutions complement a company’s existing technology stack through programmatic APIs and current business processes and diminish the need for humans to serve as data entry clerks or data analysts. Instead, optimal technology empowers a shift in focus towards creative and strategic tasks.

Matt Abrams, a partner at Seven Peaks Ventures, said that his firm is especially interested in marketing solutions that bridge physical journeys with digital identities, build out the necessary ecosystem components for augmented experiences, and focus on data trust and integrity.

Dave Parker, also at Seven Peaks, commented, “A company that can deliver a high ROI and demonstrate market growth with penetration into big brands across industries is the type of mar-tech company we are seeking.”

Quantitative metrics matter

When evaluating startups, Wildcat Venture Partners utilizes an early-stage playbook titled “The Traction Gap Framework.” They apply quantitative metrics around product, revenue, team and systems from Ideation through a point called Minimum Viable Traction (MVT).

“The result is that in an industry that experiences more than an 80% failure rate, our own startups and our investment portfolio of startups have achieved nearly a 70% success rate and have gone on to scale,” said Cleveland.

For marketing technology startups specifically, Wildcat looks for teams that include subject matter experts in the function of marketing and revenue generation. Additionally, suitable startups should have identified key areas that have been underserved by the first generation of marketing technology.

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