A new report by Crunchbase finds that U.S. adtech startups have seen a dramatic decline in venture funding, with roughly $360 million invested so far this year. That marks the slowest pace in venture funding in over a decade. The report also highlights this as part of a broader trend, where from 2015 on, investment and deal volume in the adtech sector has progressively decreased.
Why This Matters:
According to Crunchbase, the downturn can be attributed to three main factors: market saturation, broader economic uncertainties, and increased regulatory pressure. On the latter, strict privacy regulations like the EU’s GDPR and a growing patchwork of local, state regulations, like California’s CCPA, have caused compliance costs and operational complexity to increase. This can hamstring up-and-coming adtech companies, making them less attractive for investors. (It remains to be seen how the 2024 election might alter the regulatory environment. Both candidates are seen as presenting themselves as more tech and business-friendly than previous administrations.)
Despite the pullback in startup funding, Crunchbase goes on to note that more mature adtech firms have fared relatively well. Public companies like The Trade Desk, DoubleVerify, and Perion have maintained strong valuations and profitability. This reflects a potential disparity between startup and public company performance in adtech.
Experts React:
Jayon Dubin, the CEO and President of Playwire, an ad management platform for publishers and creators, says the data highlights the need for adtech consolidation.
“We need consolidation, along with companies adding real value,” he said. “Companies driving innovation and solving problems will prosper in this new world.”
Jeremy Haft, CRO at Digital Remedy, a digital media execution and performance marketing technology partner, said in a statement, “The adtech market has seen so much change over the last year that investors might be skittish. Cookies are a great example, where one day they were on their way out, and now they’re not.”
He also adds, “Due to stock market volatility and a pivotal political year, investors are being more conservative with their dollars, waiting to see how everything plays out.”
Our Take:
As adtech funding slows, increased consolidation in the industry is expected. In fact, this trend is already in-progress, with Luma Partners telling Adweek it has logged more adtech M&A in the first half of 2024 compared to the previous year. Notable deals include the acquisition of Teads by Outbrain and ongoing sale discussions for companies like JW Player (with Connatix as a potential buyer), Skai (possibly by Criteo), and Alliant.
The slowdown in adtech investment is happening as there is increased funding for AI in other sectors, like healthcare and fintech. In adtech, AI is already widely used but typically works behind the scenes, and without much fanfare. This can make it difficult for AI-driven adtech startups to differentiate themselves and attract investors.
Moreover, the most talked about AI advancements in adtech seem to come from Big Tech companies like Meta, Google, and Amazon, or agencies actively expanding their AI offerings for clients. This intense competition likely makes new investments in the sector less attractive.
However, some players, such as Aperiam Ventures, continue to invest. This suggests a knowledge gap in adtech; insiders who understand the sector’s intricacies see valuable deals and opportunities and remain willing to invest, while generalist venture investors may be more cautious.
