Venturing into MadTech: Revolutionizing Marketing Tech

n the television show Mad Men, the advertising industry of the 1960s is depicted as dominated by charismatic individuals with an intuitive creativity that gives them special insight into how to get consumers to buy products. The information technology revolution has completed changed this. Mad no longer refers to Madison Avenue but rather to marketing, advertising and design (MAD); and technological competence, particularly with regards to big data and artificial intelligence, matters far more than charisma and intuitive creativity. 

The hard data to be gathered with technology is more consistently reliable than the occasional insights from a particular individual’s unique form of creativity. Marketing, advertising and design have become a highly sophisticated application milieu for the very latest technologies in the burgeoning field of madtech. Just as we are now able to use technology to understand our physical environment more comprehensively than ever before, so too we can use those same technologies to understand in depth the dynamics that drive human beings to make a purchase or remain loyal to a particular product or brand. In capitalism, the most fundamental activity is the purchasing transaction.  

The entire business model of Google, which is one of the most successful information technology companies in history, is based upon the sale of ads that drive those transactions. The value that we realize from Google’s powerful search engine is delivered to us because the company can monetize that technology through digital advertising. This alone speaks to the enormous economic value of madtech and why venture capitalists are so interested in this space. Most of the top social media companies and search engines make their money through the intelligent application of madtech. Entrepreneurs and VCs know this and are seeking to make enormous financial returns through investment in this lucrative and technologically sophisticated arena.

The Journey to Madtech

Although it is fundamental to modern commerce, madtech as it known is a recent development that has been catalyzed with the maturation of new technologies. Madtech, a term that was coined in 2015 by David Raab, is the integration of the software tools, hardware, platforms, and digital applications designed to streamline and enhance both digital and physical advertising and marketing. According to Raab:

“Even a fully integrated MarTech stack can’t deliver a wholly consistent customer experience…Advertising still plays a major role in a customer’s brand experience. Moreover, advertising itself is becoming increasingly personalized and interactive. Consumers don’t make a distinction between marketing and advertising interactions. And to meet their expectations, neither can marketers….[Madtech will]….deliver a unified, consistent and highly personalized experience across all touchpoints.”

Unlike the traditional advertising and marketing approaches of the Mad Men era which relied upon unidirectional communications channels such as radio, television and print ads, madtech leverages data, behavioral psychology, automation and analytics to more effectively and precisely deliver targeted, personalized, and measurable advertising and marketing campaigns. As such these campaigns are not delivered in a scattershot, shotgun style but rather as precise, well-customized and highly strategic customer experiences for specific demographics and even specific individuals. 

The first stage in this process was the ability to leverage digital tools such as search engines, email, social media platforms, websites and mobile apps to reach out to massive amounts of customers. This led to the rise of the functionalities associated with adtech (advertising technology) and martech (marketing technology). Adtech and martech led to the emergence of an entire generation of software tools such as customer relations management, search engine optimization, and web analytics:

They each use data and enable decisions in complementary ways for the benefit of the stakeholders in the commercial process. Martech is focused on analyzing internal characteristics that drive customer behavior while adtech is focused on external factors such as ad placement that can influence that behavior. But over time those two technology stacks have now been integrated into a new genre of technology known as madtech that leverages the best of both worlds while providing the deepest, most holistic insight into the customer experience and how to induce consumers to make purchases while remaining loyal to the brand and the website:

With madtech, each time one interacts with the customer, one is able to iteratively gather more data so as to learn more about them. These digital footprints are the driving force behind the success of search engines and social media websites. They are treasure troves of the most personal knowledge we have as our online searches and social media posts tell advertisers what our wants and needs are. That data is enormously valuable to venture capitalists as it can be leveraged in myriad ways across the other businesses that they invest in.

The ability to gather enormous amounts of data that can eventually be transformed into actionable knowledge is the core, enduring benefit of madtech. In the Knowledge Economy, consumer data is as essential as water. With the right technology and experienced personnel, this data can enable decision-makers to design better loyalty programs, engineer better e-commerce platforms, improve interactions on social media platforms, and more effectively target advertisements both digitally and physically. 

Critically, the unification of adtech and martech into madtech eliminates the data silos that have prevented the maximization of the value from each discipline. It is now possible to obtain a comprehensive portrait of how consumers engage with products on the myriad digital platforms that we constantly use. In a world in which by 2025, it is projected that the average person will interact with connected devices every 18 seconds that data is enormously valuable.

Of all of the sectors that venture capitalists invest in, there is no industry that is as data centric as madtech which is why it is so strategically significant. Consumer markets and financial markets depend upon the gathering and tracking of massive amounts of accurate data to operate effectively in a capitalist system. 

Through madtech, advertising and marketing have evolved from a general approach into a second phase characterized by radical personalization. The segmentation that used to occur awkwardly through focus groups and limited surveys can now be done with the data gathered from online interactions. Mass marketing has become mass personalization and the value of this to venture capitalists is in the trillions of dollars:

The ability to gather data about what consumers want makes it possible for advertisers and marketers to better understand, analyze, assess and measure their needs so that they can more efficiently buy ads and precisely target their outreach campaigns. The constant in business is that you can’t manage what you can’t measure. But with greater personalization through data derived from madtech, it become possible to make those measurements. It is also possible to reach more consumer, faster and more cost effectively while generating content that is more likely to elicit a response and initiate the enduring relationship with a brand or platform that is the ultimate goal in business.

How powerful is madtech? The vitality of the industry is evident in the growth figures. The global market for digital advertising and marketing which is currently estimated to be $531 billion in 2022 is estimated to triple in size to $1.5 trillion by 2030 which reflects a compound average growth rate (CAGR) of almost 14%. By 2030, it is projected that almost $400 billion of this will be spent in China with a growth rate of 14.2% while Japan will experience almost 8% growth and Germany a surprising 11% growth. 

Aside from the size of the madtech market what makes it attractive to investors is the relatively inelastic nature of demand. Even in a relatively stagnant market, 90% of Chief Marketing Officers have indicated that they are expected to increase or maintain investment in madtech over the next year. This is likely due to the current imperative to implement new technologies that are having a salient impact on madtech. Moreover, ironically, in periods of economic uncertainty, CMOs seem willing to double down on customer experience expenditures as they want to be able to retain their ability to attract and retain customers so that they can emerge stronger after the periodic downturn ends. 

In particular, a number of recent technological advancements have catalyzed this growth. Unexpectedly, geographical information systems (GIS) or proximity and geolocation technologies which are a technology closely associated with urban planning are having a revolutionary impact on madtech. It is now possible to track consumers wherever they go through their mobile devices and this can be very valuable when they are in a store.

For example, it is possible to send consumers a coupon on their mobile phone while they are shopping and this coupon can be informed with data about their purchasing history, demographics, and insights from their social media profile. Again, the goal is radical personalization but targeted not just with data about who the customer is and what they have done in the past but also where they actually are.

The most important technology shaping madtech is the ongoing revolution in artificial intelligence and machine learning. AI/ML makes it possible to transform the enormous amount of data that is being gathered about consumers from myriad sources into actionable knowledge that can be deployed in real time. A great example is the eBike manufacturer Serial 1 which used Vizit, a visual intelligence platform that leverages AI and machine learning to assist in the determination of what images resonate best with consumers. 

Through the application of Vizit, Serial 1 is able to boost website conversions by 98%. As a consequence of examples such as this, it will increasingly be possible to produce rich, personalized consumer experiences that are both context-aware and adaptable. It will also be possible to more accurately predict customer behaviors as they change and evolve as human beings over time. The behavior and buying patterns of a 20-year-old will be dramatically different from those of a 50-year-old and leveraging past data will be insufficient. 

It is essential to adapt to new realities confronted by a changing demographic and physical context. Artificial intelligence and its ability to facilitate and enable predictive analytics in madtech will make this possible. Aside from improved personalization and enhancements in the ability to identify customer behavior, other advancements enabled by artificial intelligence include automated customer service through developments in natural language processing as well as the capacity to detect micro-moments that signal buying intent. 

It is because of these trends that a 2020 McKinsey survey indicated that those working in marketing and sales had the third-highest rate of artificial intelligence adoption and that a “small contingent of respondents coming from a variety of industries attribute 20 percent or more of their organizations’ earnings before interest and taxes (EBIT) to AI.” Indeed, AI-enhanced madtech is increasingly dominating the industry with 128 new such products announcements in Q2 2023 including 34 new generative AI tools inspired by the popularity of Chat-GPT and the like. 

Many of these artificial intelligence and machine learning products are delivered through the cloud as software as a service solutions which are another popular segment with venture capitalists due to the ability to quickly generate revenues with relatively little cost and financial investment. Personalized, predictive consumer experiences are not just a nice to have but rather are expected by consumers so these investments must be made. 

This is evident as research has shown that 80% of customers are more likely to make a purchase if they feel that their experience is personalized and 80% also say that poor customer experience has led them to abandon one brand for another. Venture capitalists have taken notice of these trends and the investments have poured in although there has been a recent decline which reflects the general decline in venture capital investments overall:

Adtech funding peaked at $6 billion in 2021 during the COVID-19 pandemic but declined dramatically as people emerged from the forced behavioral shift of being locked in their homes and doing large amounts of their commercial activity over the Internet. The pandemic provided a powerful impetus for venture capitalists to invest in madtech as during that period online sales increased by 32% in 2020 and an additional 39% in the first quarter of 2021. On the martech side there was a similar trend: 

Overall, investment in martech declined by over $11 billion from almost $40 billion in 2021 to approximately $28 billion in 2022. Two-thirds of this investment is business to consumer while the remaining third is business to business. These declines in martech venture capital are in tune with broader investment trends but the large amount of overall venture capital investment in this sector reflects a fundamental reality. 

Much of modern commerce and the data that shapes capitalism is now digital. For example, consumers increasingly rely on social media sources to inform their purchasing decisions—whether online or in person. This is evident as an astounding 85% of consumers check online reviews before making a purchase and only 33% of customers trust traditional media sources. Thus, the madtech that enables the various stakeholders in capitalism to gather data, make informed decisions, enable efficient transactions, and manage their digital relationships is more important than ever before—and an incredibly lucrative investment opportunity since it is intrinsic to all commercial activity.

MADTECH VENTURE CAPITALISTS

There are a number of venture capitalists who have emerged as top dealmakers in the madtech space. Again, madtech is typically delivered as a software-as-a-service solution which makes it particularly appealing to venture capitalists due to the ability to harness recurring revenue streams, and maintain direct relationships with customers that facilitate the extraction of valuable data which can be deployed in wide variety of use cases. 

Investing in madtech is very much a learning opportunity for venture capitalists who wish to obtain insights about specific customers and markets overall. As such Salesforce Ventures, the corporate venture capital arm of Salesforce which is a leading provider of leading cloud-based software encompassing customer relationship management applications as well as sales, customer service, marketing, analytics and e-commerce tools has long been a major and consistent venture capital investor in madtech.

Salesforce Ventures has made 37 investments in CRM, 45 investments in analytics, 29 investments in mobile and 35 in artificial intelligence. It also provides madtech startups with exit opportunities through acquisition. The company invests at every stage from seed (10% of investments) to Series G (0.4%) but its most popular stages are Series A (23%), Series B (21%) and Series C (14%).

A relative newcomer in the madtech venture capital space is the Black Sheep MadTech Fund which is the first European venture capital fund that is explicitly focused on Madtech, particularly as it pertains to artificial intelligence, big data and automation. As part of its investment thesis, Black Sheep seeks “visionary entrepreneurs who are unflinching in creating new realities for entertainment experiences and human interactions, including in eSports, Gaming, Blockchain Technology and Immersive Experiences, and other sectors, where disruptive technology such as Blockchain and visionary creativity can permanently shift the established order.”

The company invests at the pre-seed, seed, and Series A stages. Amongst its investments are Nexoya which is a madtech firm that integrates digital advertising channels and connects them with their AI-based solution. Through the use of Nexoya, marketers are able to keep their advertising spending under control across all channels and optimize the performance of their campaigns which is a powerful value proposition.

Other top madtech venture capital investors include:

• 500 Startups: This leading startup investor and accelerator has made 359 investments in madtech enterprises across the world including in the firms Saucey and Lettuce.
• Y Combinator: This is another leading accelerator that has made 52 madtech investments including in firms such as Faire, gusto and WEPay.
• Accel: A well-known venture capitalist based in Silicon Valley, Accel focuses on e-commerce, SAAS, and enterprise applications. It has made over 57 investments in madtech firms.
• First Round Capital: First Round invests primarily at the pre-seed and seed stage and is industry agnostic in terms of focus. Nonetheless, it has made 58 madtech investments.
• Techstars: This top accelerator has made 65 madtech investments in firms such as Caravel and Fango.
• DFJ Growth: DFJ is another brand name venture capital firm that has invested heavily in madtech. It has made 55 investments in the space including in Baidu, which is the Chinese version of Google.
• Sequoia Capital: Sequoia is a famous venture capital firm that has made 55 madtech investments.
• New Enterprise Associates: This mainstream Silicon Valley venture capital firm has made 55 madtech investments including leading a $300 million Series F for Branch, a madtech firm that helps advertisers model the effectiveness of advertising campaigns.

These are the firms that have made the most consistent investments in madtech over time and thus have the experience and expertise to be of the most benefit to entrepreneurs. Fueled by innovative developments in big data, data analytics is a hot area in madtech that is attracting venture capital investment as 83% of B2B marketers indicated that they planned to focus more in this area in 2020—according to a survey by Dun & Bradstreet. 

The figures are astounding. Spending on AI-enhanced madtech reached over $52.2 billion in 2021 and despite the supposed novelty of artificial intelligence, investments in AI for madtech have been part of a long-term trend with a compound average growth rate of $46% from 2016 to 2021, according to International Data Corporation. 

But the true game changer is generative artificial intelligence. We are rapidly entering an era in which the agencies and other traditional actors that produce commercials may be displaced by algorithms capable of producing or “generating” highly customized commercials or print ads as well as digital ones on demand, which will likely lead to another upheaval across the advertising and marketing industry. Venture capitalists are investing in that disruptive future which is why so many of their investments in madtech are emphasizing generative artificial intelligence, machine learning, and big data.