Based in the heart of the world’s advertising industry (NYC) and having backed numerous advertising businesses (i.e., Massive (sold to Microsoft), Ingenio (sold to AT&T), ContextWeb, IZEA, and Searchandise), DFJ Gotham is sought out by founders of the newest and most innovative advertising companies.  As a result, I have had the opportunity to learn from many of the brilliant entrepreneurs that have entered this space.  Through those numerous meetings I have developed a framework for evaluating the strategic positioning of ad networks.

The framework is relatively straight forward. Aside from all of the usual considerations associated with an investment, ad networks are generally differentiated in three ways:  inventory, product and targeting.

• Inventory: Ad companies can be differentiated by where they place their advertisements.  As an investor I am always interested in companies that pursue non-traditional inventory – meaning inventory that is not currently considered a location where advertisements should be integrated.
  
  As one entrepreneur informed me, radio, magazines and the Internet where at one point places where pundits believed advertisements should not be placed – clearly our culture has evolved.  Where will ads be next?


• Product:  By offering unique products that are technically difficult to create, ad companies can offer advertisers a differentiated value proposition.  New products are constantly being invented to meet the changing media landscape of the web.


• Targeting:  Ad companies can differentiate themselves by the manner in which they pair their advertisements with available inventory.  Within the worlds of contextual, behavioral and other more nascent types of targeting there is room for lots of differentiation, as strategies within these categories may vary by types of media and device.

While this isn’t a complicated framework, it does help me:

• determine what I am ultimately betting on by investing in a given ad network, and
• advise entrepreneurs on how to further differentiate their business.

If you’re starting an ad company be sure to figure out which of these three characteristics is really your secret sauce, then think about how you can differentiate your company in the other categories.