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Wednesday, Jun 29, 2022

Ad Tech Firm Restocks Brass, Jumps to Nasdaq

A sign at the entrance of ad tech firm Social Reality Inc. warns pedestrians that its Arts District headquarters – featuring a colorful mural and outdoor seating – is not a retail shop.

But like the lunchtime crowd flocking to its neighbor Urth Caffe, Social Reality has also seen a flurry of activity. Just this month, the company uplisted to the Nasdaq stock exchange, hired a new chief financial officer, and brought on supermodel-turned-fashion entrepreneur Kathy Ireland as its chief branding adviser. The business began trading on the Nasdaq on Oct. 17, opening at $6.50 a share, after a reverse stock split last month. It closed at $6.12 on Oct. 26. (See page 20.)

Christopher Miglino, Social Reality’s co-founder and chief executive, said the company had been aiming to join Nasdaq since it launched six years ago.

“We started out small and listed on the OTC instead of raising venture capital,” Miglino said. “Our goal was to stay quiet as long as we could and then uplist to Nasdaq and show people the accelerated growth.”

The company hit $30 million in revenue last year, compared with $5 million in 2014.

Social Reality offers three core services, including a real-time bidding (RTB) platform for advertisers and publishers to buy and sell online ads, a health care-focused real-time ad exchange, and a social media management platform.

While smaller companies in the programmatic ad sector face an uphill battle in an industry dominated by Google, Rubicon Project, RocketFuel, and OpenX, Social Reality and similar firms have been able to push for growth by adding marketing services that fall outside the traditional role of an advertising exchange.

Gabe Gottlieb, co-founder and chief executive of Santa Monica online ad-tracking software developer Pathmatics, said it’s a good move for any small to midsize ad exchange to branch out and offer additional services that create higher margins.

“There’s a ton of big players,” Gottlieb said. “As an exchange you want to unite the most buyers and sellers. … But if you’re a small company trying to bootstrap, it’s a hard proposition.”

Placing bid

Social Reality was co-founded in 2010 by Miglino, former chief executive of Lime Ad Network, and Erin Deruggiero, who serves as chief innovations officer. Deruggiero had worked at Facebook, where she helped brands create sponsored, charity-driven content.

Starting out in Miglino’s garage, the company has since grown to 120 employees with offices in New York, Minneapolis, Mexico, and Italy. Miglino said he expects revenue to reach $40 million this year.

The ad firm expanded its product offerings through several acquisitions in 2014. Two of those pickups were digital marketing and media relations firm Social Spotlight Media and social media software firm Five Delta, both acquired for less than $2 million apiece. A third business, Steel Media, which sells online and mobile ad inventory to advertisers, was heftier: $9 million plus additional payouts totaling $11 million to founder Richard Steel, according to Securities and Exchange Commission filings.

Social Reality secured $25 million in financing to acquire the three firms, including a $20 million credit line from Chicago asset management firm Victory Park Capital and $5 million from Siskey Capital and other investors.

But the Steel acquisition has presented a few problems. For example, 62 percent of Social Reality’s revenue is now dependent on one customer inherited from Steel, according to its earnings statement for the quarter ended June 30, though it did not disclose which one. Some of the firm’s customers include Walt Disney Co. and Procter & Gamble Co.

In addition, while bringing Steel into the fold allowed Social Reality to grow its ad sales team, the company was not able to grow its client roster, meaning the division’s sales actually tapered off – a development that forced Social Reality to refinance the Victory Park loan in order to meet payment obligations.

The refinancing, coupled with the company’s equity raise on the Nasdaq, has helped Social Reality reduce its remaining debt obligation to about $4 million, according to Miglino.

Former model Ireland, who was named chief branding adviser this month, has been tasked with helping to build Social Reality’s advisory board and recruiting clients in the retail and brand marketing space. She was introduced to Miglino through a member of the firm’s board. Miglino said he was impressed with Ireland’s team at Kathy Ireland Worldwide, which produces a diverse range of products including apparel, furniture, and jewelry. So he offered her a job.

“They’re doing $2.5 billion in sales across all their products,” he said. “She knows a lot about branding and marketing so we were lucky to be able to convince her to come and join us.”

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