The fall of Silicon Valley Bank has become the talk of the town. But beyond its historical significance and cautionary tales, the biggest questions this week are zeroing in on its ripple effects. And in our world of media and advertising, the industry is wondering what to brace for.
We discussed this very thing on a podcast episode with Progress Partners‘ David Arslanian this week. Prior to the episode dropping on Monday, we also got the chance to gather insights from Arslanian’s colleagues. So here’s a Q&A with Progress Partners’ insight on the SVB fallout in the marketing world…
Q. What’s the potential SVB fallout, specifically for VC funding in the media & marketing sectors?
A. SVB’s failure is likely to exacerbate existing challenges for venture capital funding rather than create new ones. Before SVB, February 2023 ad rates were 10-20 points lower than February 2022, and the Federal Reserve was committed to reining in inflation, and by extension consumer spending.
Consumers and companies alike have grown more conservative over the last few months, and the 2nd and 3rd largest bank failures in history happening within 72 hours of each other will compound their concerns. There will be an even stronger emphasis on consumer churn and the cost of acquisition. Regardless of the headlines, the march towards a cookieless future goes on, and the influence of first-party data platforms will continue to grow.
All of these trends were happening before SVB collapsed. But the headlines dominating the news cycle will make decision-makers more conservative than they were last week, and they’ll follow the playbook of minimizing costs while maximizing ROI.
Q. What companies or subsectors of the media & marketing worlds will be hit hardest? Buy-side?, Sell-side?
A. Any companies dealing with paid media are going to see a bigger slowdown. Again, this trend was inevitable before SVB’s collapse, with a PWC survey in January showing that less than half of CMO’s were actively investing in marketing solutions/automation, and just about the same were anticipating their marketing budget was going to get cut. Since then, budget makers have become more conservative, and paid spending is likely to decrease first as a result.
Q. Doomsday scenario time: Could any companies in the media & marketing worlds go under as a result of the fallout?
A. With the government’s assurance on Sunday that all deposits will be safe, the situation immediately turned into a short-term liquidity crisis where the speed of access to funds to cover this week’s payroll became the sole focus. That said, any company that has taken in venture capital funding without being profitable is going to come under more scrutiny. Investors have replaced growth with profitability as the number one metric they focus on. Companies planning on raising their Series B or Series C this year without getting to profitability are going to find themselves needing a serious reality check. The volatility and scares of the last few days have caused investors and companies to pull back and de-risk. Growth is all about taking risks and access to capital, and both of these have taken a hit as a result of the last few days. Brands will become much more risk-averse in terms of vendor size, and many smaller vendors will find themselves in a position where they’ll need to merge with larger platforms.
So there you have it… stay tuned for more insights in our This Week in Local podcast episode, dropping on Monday. Also check out L23, taking place next month in San Diego, where we’ll have Arslanian on stage to discuss this and other orbiting topics in the world of finance and investing.
