#jumptap

“Jumptap just sold for $200 million!”

The breaking news about Jumptap, a mobile advertising company, came to me by email.  It made me smile. It’s not every day that an early-stage company sells for 9 figures.

And with a $200 million sale, the investors must have made a fortune!

I mean, surely the people who put in the first dollars of risk capital would make out like bandits, right?

Actually, the answer is this: “It depends.”

Don’t Believe The Hype

It’s easy to get sucked into all the hype surrounding start-ups.

Companies getting acquired for hundreds of millions of dollars, or going public for billions – it’s definitely an exciting time.

But don’t let the headlines get to you. All that bold print doesn’t necessarily mean the investors made money on a deal – especially the earliest investors.

Let’s take Jumptap as an example…

By The Numbers

One of the best resources for digging into the details of a start-up is Crunchbase. It’s a database powered by the prominent technology blog, TechCrunch, and it outlines the key people, milestones and financials of early-stage companies in the tech sector.

If you visit Jumptap’s page, you’ll see they’ve raised multiple rounds of financing over the years.

$4 million in 2005, $17 million later that year, $22 million the next -- and the list goes on.

That’s normal. When a company continues to grow, even when things are going really well, they typically need to raise additional rounds of capital. And for every new round they raise, they have to issue new shares.

The thing is, when they issue new shares, the percentage of the company owned by early investors becomes proportionately smaller.  This is known as “dilution.”

On top of that, as new professional investors come onboard, they often demand preferential payout rights.  Basically, if and when the company gets sold, they insist on getting paid first. Their shares are “preferred” shares.

There’s nothing wrong with that… unless YOU own “common” shares.

Let’s go through a hypothetical scenario with Jumptap to make the point more clear.

Splitting Up the Pie

Let’s assume in this scenario that the first investors in Jumptap were individual investors (not the Venture Capital firms that actually invested in the round).  Let’s say they received 20% of the company for their $4 million investment.

Let’s also assume that each subsequent round of funding entitled investors to 20% of the company.

Jumptap had 5 more rounds of financing, totaling roughly $118 million.

This would have left the first round investors with roughly 7% of the company at the time of sale.

If everyone were splitting up the pie evenly, the early guys would receive roughly $14 million.  $14 million for a $4 million investment over 8 years isn’t half bad – that’s a 17% return per year, even with all the dilution.

But that’s usually not how it works.

Common vs. Preferred Stock

You see, the earliest investors in the company are generally given common stock instead of preferred stock, especially if they don’t have a lot of experience with early-stage investing. And in some cases, the guys that own preferred stock - specifically, "participating preferred stock" - not only get their percentage of the profits when the company is sold, they also get to take their initial investment off the table before splitting up the pie.

So if Jumptap were sold for $200 million, $118 million would get paid back to the later stage investors first.

This would leave $82 million on the table for everyone to split up.

The early investors would receive 7% of that, or $5.74 million.

While a profitable return, it’s only 5% per year when averaged out over the 8-year holding period.

You can get a return like that in the stock market, even the bond market. From a risk-reward perspective this would’ve been a lousy investment for Jumptap’s earliest investors.

And what if there were even more dilution?  What if the early investor group was diluted down to 4% or 5%? They would have LOST MONEY on a $200 million sale!

Prefer Preferred

Don’t get me wrong: there’s nothing wrong with a 5% return.  But with early-stage investing – where so many companies you invest in won’t succeed – when you get a winner, you need to get a big winner.

So do your homework before you invest in an equity crowdfunding deal. Make sure you’re getting preferred stock.

Sometimes, it’s easy to see what type of stock you’re getting, other times you have to dig a bit deeper.

For example, when my co-founder, Matt, invested in GameCo. last month, he actually had to call the crowdfunding platform and speak to their general counsel to find out whether or not the deal was for preferred or common!

So dig deep.  Explore the deal terms. Look closely to see if you’re receiving preferred stock or common stock. Whenever possible, you want preferred!

Two of the oldest and still independent mobile ad networks plan to become one. Millennial Media has acquired its older and smaller competitor, Jumptap, for as much as $225 million.

Paul Palmieri, president and chief executive at Millennial Media, cited several strategic and complementary benefits from the combination by highlighting Jumptap's strengths. "Where Millennial is known as the leader in mobile brand advertising, Jumptap has more of a focus on the performance advertising side of the business," he says on the company's earnings call following the announcement.

"Jumptap is the leader in mobile real-time bidding, or RTB, capabilities, reporting that they are seeing over two billion impressions per day to deliver app, download, and other performance campaigns. We're excited and look forward to adding Jumptap's performance advertising and programmatic capabilities to the mix at Millennial Media," Palmieri adds.

Jumptap's partnerships with third-party data providers will also complement Millennial's first-party data assets, he says. "We believe that the combination and integration of our first-party data and Jumptap's aggregation strategy around third-party data, will quickly give us a much better data asset and will drive even better audiences and results for both brand and performance advertisers, while continuing to respect and protect consumers' privacy."

Citing data from IDC, Palmieri says "Millennial and Jumptap combined would have accounted for 28.7 percent of the industry last year, about on par with Google's share."

The acquisition of Jumptap comes 15 months after Millennial Media went public, and follows Jumptap's rumored plans to make an initial public offering of its own last year as well. Founded two years before Millennial Media in 2004, Jumptap raised a total of $122 million in funding, including $27.5 million last month.

The all-stock deal includes 24.6 million shares of Millennial Media, which translates to a 22.5 percent stake in the company based on last Friday's closing price of $9.11. Wall Street hasn't taken too kindly to the consolidation however, as Millennial's stock is down more than 17 percent today, hovering around $7 per share. Overall, the acquisition price reflects more than four times Jumptap's $53 million in advertising revenue last year, which falls in line for the average revenue multiple that mobile firms command at the time of acquisition over the last decade.

"There are too many mobile advertising companies. I think it's a sign of healthy consolidation," says John Fletcher, senior analyst at SNL Kagan.

"The publishers are growing revenue a lot faster than the networks," he tells ClickZ. "There's one-stop shops you can make now on Facebook or Twitter or elsewhere. When you're a big media company buying a mobile spot, chances are that big media company executive doesn't know about Millennial Media and Jumptap, but chances are they know about Facebook and Twitter. So it's just an easier way for them to go mobile."

Jumptap Chief Executive George Bell joined Millennial's earnings call to share his thoughts on the deal and reflect on the company's deliberately alternative strategy over the last 18 months. "Where Millennial became strong in SDK (software development kit) penetration to app developers, we went after real-time bidding to expand our access to inventory. Where Millennial was strong in brand, we went after performance. Where Millennial was strong in first-party data, we built out third-party data through technology and partnerships," he says.

"As Millennial expanded internationally, we focused more at home on innovations such as targeting audiences across screens. And seeing that our IP was potentially a differentiator, we pressed our advantage by aggressively adding to our portfolio," he says. "Now we bring all of this together, bringing solutions that had been born as competition, but more importantly, tested by the market."

Where MediaPost

When Feb 22nd, 2012

"As retailers increasingly embrace mobile to boost foot traffic and drive m-commerce, mobile advertising is expanding as well. To capitalize on that trend, mobile ad network Jumptap has partnered with hyperlocal data provider PlaceIQ and appointed a director of retail to oversee ad efforts in the category."

Amplify’d from techcrunch.com

Do You Live In An Android State Or An iPhone State?

It is clear by now that Android is winning the overall mobile market share battle in the U.S. among smart phones. But how does the battle break down by state? Mobile ad network Jumptap  put out a report  this morning (embedded below) with a map showing which states have more Android activity versus iOS activity across its network that reaches 83 million mobile users.

According to Jumptap, Southern and Western states like Florida, Texas, California, and Oregon over-index for Android. Whereas the Midwest and New England states are dominated by Apple devices. Strangely, New York state is neither. It is one of the few remaining Blackberry strongholds. (I’m sorry, that’s just embarrassing, and I live in New York).

Overall Android market share is 38 percent versus 33 percent for Apple’s iOS, as of June. By comparison, comScore just released market share estimates on U.S. mobile subscribers yesterday that puts Android at 40 percent and Apple at 26.6 percent. The Android numbers are close, and the large difference in iOS share could be because Jumptap is counting iPod touches while comScore is not. (Jumptap is concerned with ad impressions in mobile apps, comScore looks at smartphones only).

What is clear is that there are more Android phones in the U.S. than iPhones. But more is not necessarily better. If you drill down to JumpTap’s click-through rates, iOS still performs better for adevrtisers. Mobile ads on iPhones, iPads, and iPod Touches are clicked on 0.78 percent of the time compared to 0.47 percent for Android (and 0.36 percent for Blackberry). Remember, this data is only based on the activity on Jumptap’s own network, which could be skewed one way or another, but it sounds about right. The sad thing is that a 0.78 percent click-through is the best the mobile ad industry can do right now. Forget Android versus Apple for a moment. What that data says is that mobile ads are failing across the board.

See more at techcrunch.com