No one is investing in online advertising technology – at least that’s what people in the industry are quick to lament.
But System1 of Venice proves the exception to the rule: Executives at the ad tech outfit said the company sold a majority stake last month for $270 million to private equity firm Court Square Capital Partners of New York.
“The Court Square deal was perfect for us – our founders and employees still own almost half of System1, (and) Court Square has a multibillion-dollar fund we can use for acquisitions if we want,” System1 Chief Executive Chuck Ursini said in an email.
System1’s sale comes as the number of venture financing deals lag in global ad tech. Funding rounds last year in the sector dropped 17 percent to 343 compared with 2015, according to New York venture capital research firm CB Insights.
The reason many investors shy away from the advertising technology field: Facebook Inc., and Alphabet Inc. subsidiary Google Inc. No upstart seems able to challenge the dueling giants, who together gobbled up more than 60 percent of online ad revenue in the United States last year.
Court Square’s bet on System1 indicates that as venture capital shies away from ad tech, private equity could be looking to step in and take advantage of more reasonable valuations. Data from acquisition advisory firm Results International of New York shows mergers and acquisitions of ad and marketing tech firms in the first half of this year reached 216 deals, a 12.4 percent increase for the same period in 2016.
System1, for its part, isn’t shy about taking on the online ad titans. The company intends to compete with Google’s AdWords product, which allows advertisers to bid on ads that appear in front of users when they search certain words or phrases. System1, in comparison, uses statistical and machine-learning models to group consumers into thousands of audience profiles, which then are used to match those consumers with relevant advertising, said Ursini in an email.
“A search engine typically determines consumer intent when a consumer enters a search term into a search box,” he said. “However, less than 5 percent of time online is spent searching at a search engine. Our pretargeting algorithms work by identifying consumer intent the other 95 percent of the time online.”
System1, founded in 2013, was formerly known as OpenMail. The company advertises itself as the world’s largest independent marketplace for keyword pay-per-click advertising, which is also known as intent-based marketing. The startup plans to accelerate product development and finance hiring in Southern California with the infusion of cash from Court Square. It has about 190 employees, according to the company’s website.
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