Pet-sitting startup Mad Paws, and local real estate agent comparison site LocalAgentFinder both announced funding rounds of $5 million and $5.5 million respectively this week, but hidden in the details is another story about the Scaleup Media Fund.
Scaleup Media Fund identifies itself as Australia’s first media-for-equity fund and is owned and backed by News Corporation Australia, Nova Entertainment, Network Ten and Fox Sports Australia.
Despite evaluating 300+ investment opportunities in 2016 alone it appears as though Mad Paws and LocalAgentFinder are the first publicly announced investments by the fund. Prior to the recent funding announcements the only other media of the media fund occurs in a Sydney Morning Herald article from 7 October 2017.
This Sydney Morning Herald article sheds some light on the structure of the fund. Quoting News Corp’s annual report the article highlighted that News Corporation contributed US$160,000 to the Scaleup fund for a 40% stake, while Foxsports, Ten and Nova each contributed $80,000 for 20% of the equity in return.
In addition to that “for each of 2017, 2018, and 2019, News Corp Australia is to contribute approximately $US1,500,000 and each of the other shareholders is to contribute about $US750,000 in advertising space to Scaleup”
From this we can deduce that the Scaleup Media Fund has US$400,000 for administrative / management expenses over the initial 3 year period of the fund. In addition, there will be $3,750,000 per annum provided to the fund (in the form of advertising space) that can be exchanged for equity in local startups.
While neither the Mad Paws or LocalAgentFinder announcements provided specifics on the level of investment provided by the fund, Scaleup Media’s website mentions that they typically look to invest $500,000 to $1 million worth of discounted advertising space for a minority stake in the company. The fund also does not look to take a board seat.
As a result it would seem that the Scaleup Media Fund has deployed $1,000,000 of its $3,750,000 available capital for the year and potentially $1,500,000 or more. Out of the two investments, there is evidence that the contribution made by Scaleup Media Fund into LocalAgentFinder is more than $500,000.
Both Smart Company and Dynamic Business mention that Scaleup Media Fund either led the round or that “the round was led by Scaleup Mediafund…..together with small cap fund manager Spheria Asset Management.”
So while there is no definitive percentage on what defines a “lead investor” it is widely quoted as being in the range of 20 – 50%. This would put Scaleups investment in LocalAgentFinder between $1,100,000 and $2,750,000. It is however unlikely to be at the upper range of this estimate given the small size of the fund (at $3,750,000 annually) would not allow for a sufficiently sized portfolio to be constructed if anything near $2.75m was put into a single investment.
In addition, it is unlikely that LocalAgentFinder would want 50% of their round taken up in the form of advertising credits, rather than cash. While marketing and advertising is important for the growth of the business, it does not help with paying other costs faced by the business. Raising such a large percentage of the round in advertising credits would leave the company at risk of needing to raise another round of equity in the near future.