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AppNexus on Ad Tech IPOs, and Why It’s Not Yet Public

New York-based AppNexus has been having a very good run. The six-year-old ad platform, which oversees the real-time buying and selling of online display advertising, has grown to 600 employees. The company, which had nine offices at the start of the year, has since opened two others. And so many billions of ads are being processed on AppNexus’s platform each day that it’s now the “largest [ad tech] company outside of Google,” says AppNexus President Michael Rubenstein.

So when is AppNexus going to follow in the footsteps of other ad tech companies to go public? On Friday, I asked Rubenstein, who was director of Google Ad Exchange before joining AppNexus in 2009 (and who spent a decade at DoubleClick before that). Our conversation has been edited for length.

When we last talked much earlier this year, you’d just closed on $75 million in funding. What are some of the highlights since?

It’s been an amazing growth year. We’ve just about doubled our revenue [since 2012]. We decided to accelerate our international expansion and just recently opened offices and a data center in Sydney and Singapore. The other major investment we’ve made this year was mobile. Because it’s such an explosive trend in the digital media industry, we dedicated a team of dozens of people inside the company to building the best mobile ad technology in the world based on our existing capabilities.

You recently partnered with the mobile ad network Millennial Media. Why do you think its stock hasn’t performed better?

They went public at a very high valuation and the stock has come down a lot since then, but I’m not an expert on [why]. What’s clear is that Millennial is building a leading business in what’s likely to be the fastest-growing and most exciting area of the ad market for a long time to come.

Any thoughts on why another ad tech company, the automated ad buying startup Rocket Fuel, has received a warmer reception by public investors?

Rocket Fuel is doing a really great job of serving its customers and building a very strong ad business. Whether that means its stock price is justified or over- or undervalued, it’s hard to say with valuations all over the place.

Why are ad tech valuations so seemingly schizophrenic?

I don’t know if the market really knows how to value these businesses. It could be the market is trying to sort out which are the great companies and which aren’t.

Can you share anything about your revenue and whether or not you’ve ever been profitable? The standard for going public still seems to be revenue of more than $100 million.

We’ll do significantly more than that [in 2013]. We’re not profitable because we continue to invest very heavily in the long term. We’ve invested massively in mobile advertising and had very little revenue from [it], for example, but that will change next year. And by 2017, the [Internet Advertising Bureau] is forecasting that mobile advertising will [represent a slight majority of U.S. online ad spending].

It is safe to say you’re thinking about an IPO?

We had some thoughts about it and decided to do that big round at the beginning of the year instead because we felt like we’d be best off building value rather than going public. An IPO is something that we’d like to do in the future, but it would be more of a financing event than anything else.

Will we see AppNexus make an acquisition any time soon?

We always look. But acquisitions are a big deal, and, having been involved in a number at DoubleClick and Google, I can tell you that an acquisition can be a terrific catalyst for growth if done right. But often, they are not done right. So you have to pick your pitch.

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Don Dodge on Indoor Marketing: VCs Missing a “Huge” Opportunity

Don Dodge – a Google Ventures advisor who helps developers build new applications on Google platforms and technologies – says VCs are still outsiders when it comes to indoor mobile location services. He likens the moment to the earliest days of maps and GPS, which are now integrated into just about every application on the Web, but that few investors knew what to do with initially.

Here’s an excerpt from a conversation we had last week:

You’re very focused on indoor marketing. Why?

At a very high level, we spend 90 percent of our time indoors, and indoors is where commerce happens.

What’s one of the most interesting things you’re seeing?

There are a bunch of companies that can create [digital] floor plans of stores like Toys”R”Us, Office Depot and Walgreens. Stores then give them SKU [stock keeping unit] maps that tell them where products are located on the shelves for inventory purposes and so forth, then [the apps] use indoor location technology to recognize in what aisle a consumer is standing, and by what products. It isn’t too far of a leap to imagine that as you’re looking at the Gucci bags at a department store, you receive a coupon from Coach.

What strikes you promising beyond retail applications?

Think about mobile games that could take of advantage of location, like Risk or Monopoly or Capture the Flag, and how they might incorporate the store that you’re in or the university dorm that you’re in.

There are social aspects, too. Say you’re at a concert and know that five friends are there amid 50,000 other people. Indoor location technologies can tell you exactly where those five friends are. And there are probably 400 more examples of market applications that no one has thought about yet.

There are numerous technical approaches to all of these things. How different are they?

One is Wi-Fi, where you phone accepts signals and triangulates where you are. WifiSLAM, an indoor GPS company that Apple recently acquired, was one example, but there are about 15 other companies that are doing things with Wi-Fi triangulation.

Another area is Bluetooth beacons. Every smartphone has Bluetooth to connect to other devices. Well, the same Bluetooth channel can be used to bounce off known locations to determine where you are.

Other companies are using sound waves, while others still, like Bytelight, are using LED lights in the ceiling. They pulse at a rate of a hundred times a second, which is faster than the human eye can see, but the front-facing camera of a phone can pick up the pulse and know by which light you’re standing.

Apple reportedly paid $20 million for WiFiSLAM. A number of other companies, including Cisco, Ruckus Wireless, and Aruba Networks, have recently acquired indoor technologies for undisclosed amounts. Is there going to be a big breakout story here?

It won’t be like social, where there are one or two leaders and everyone else is an also-ran. Instead, there will be hundreds of winners because there are so many different market applications and vertical applications.

And you think VCs are missing all the action. Why?

There have been at least three major acquisitions over the past four months, so now they’re saying, “Hey, there’s something going here.” But by and large, it’s a new, emerging area, with probably 50 small, unknown startups with angel investment or a little VC money that [other] VCs aren’t paying attention to.

When you see more stories about companies being acquired by big companies, then there will be a land grab.

Photo courtesy of Google Ventures.

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The Case for Embracing General Solicitation: VC Edition

Ask VCs whether top venture firms are liable to take advantage of the new general solicitation rules, and the answer is often a barely suppressed laugh.

It’s easy to understand why some might look down their noses at the changes. VCs have been operating like a private club for a long time, and they tend to see their publicity-seeking brethren as trendy and desperate.

But all it takes is a quick skip down memory lane to see how fast some of the most mocked innovations to the VC game have become standard operating procedure for today’s Midas List.

Take secondary investments. As recently as 2004, selling a stake to a secondary buyer was an admission of defeat. But along came SecondMarket followed by a long string of savvy secondary transactions — like those Groupon shares that NEA offloaded to later investors, or Accel’s partial sale of its Facebook stake to Technology Crossover Ventures and Andreessen Horowitz — and suddenly, you were a dummy if you didn’t take some money off the table.

And what about marketing? If you’ve been in the industry for more than a decade, you know that many of the most august firms used to avoid reporters like the plague. Then some prescient venture capitalists like Fred Wilson began to build huge followings, and before you knew it, blogs became de rigueur. Andreessen Horowitz took things to another level when it began aggressively courting press attention in 2009. A lot of the firm’s peers privately complained that the firm was sucking all the air out of Silicon Valley, but today, every top firm has an executive or a team of people focused on communications and content strategy.

The list goes on and on. Seed-stage investing used to be a niche strategy as recently as 2005. Today, there’s a glut of seed-stage investors and seed-funded companies.

Investment documents used to 100 pages long and cost a fortune. Now, many startups use standardized Web templates that they can tweak to their heart’s content.

Successful entrepreneurs were outsiders in VC circles; now many have an easier time raising new venture funds than traditional firms.

Do you see where this is going? Yes, the prospect of advertising may seem outlandish right now, but so did a lot of these other trends.

On the plus side, if advertising can speed up a team’s fundraising process, VCs should have more time to make more money for their partnerships.

And themselves.

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