Facebook Ad Startup Brand Networks Gets $68M to Fuel Growth

6/6/13Follow @curtwoodward

A year after Facebook went public in the most anticipated tech IPO of its generation, money is pouring into companies that might help the social network deliver more profits to its shareholders.

Boston-based Brand Networks is among those reaping the benefits. Today, the small Facebook advertising company says it has received a $68 million growth investment from AEA Investors, a pioneering private equity firm. Under the deal, AEA takes a minority stake and will also supply Brand Networks with more cash as needed for acquisitions or other growth projects.

It’s a head-turning bet on a company that had been relatively quiet, bootstrapping its way into the top tiers of the growing world of Facebook-focused advertising companies. Brand Networks also offers services and software for advertisers on Twitter and Tumblr, but the company’s claim to fame is that it’s one of just 13 “strategic preferred marketing developers” for Facebook.

The designation means that Brand Networks gets Facebook’s “highest level of support,” including early access to new ad products, higher priority for customer service, and generally closer access to the social networking giant. Other companies in this class include big software providers like Adobe and Salesforce, along with startups like Boston-based Nanigans.

While the new investment is a head-turning amount of cash for a previously self-funded startup, it’s not surprising that private investors are pouring money into this sector.

Marketing software in general has seen plenty of acquisitions and IPOs lately, including Salesforce’s $2.5 billion purchase of Exact Target. And Facebook-focused companies could be particularly positioned for big growth as the social networking service tries to mature into a dependable, ad-funded company.

“Looking around us and seeing what we consider our fraternity or our group of competitors, there’s been a little bit of a frenzy around them when you consider the capital that’s come into this market,” Brand Networks CEO Jamie Tedford says.

Tedford

In its most recent quarterly report, Facebook said it reaped $1.46 billion in revenue, with about 30 percent coming from mobile devices—a critical area of growth for Facebook, which now sees two-thirds of its users access the service over smartphones. Facebook has been experimenting with ways to earn more money by offering new kinds of ads, particularly those that appear in the main “news feed” of information that users see—a critical place for mobile ads in particular.

Tedford says his company’s original focus—and the source of most of its income—was its business making Facebook applications for advertisers.

An example is American Express Sync, which lets Facebook users link their credit card account to their Facebook profile, giving American Express valuable customer data in exchange for shopping discounts.

Today, Brand Networks offers a wider array of services, including analytics to monitor social ad performance, publishing tools to help clients run Facebook pages, and paid advertising.

Its customers are larger companies, Tedford says, including consumer brands, national retailers, and franchise businesses that need a way to spread digital advertising to multiple locations around the country.

A significant slice of those advertising budgets has traditionally flowed to local cable TV, inserts in the Sunday newspaper, or billboards, Tedford says. And outside of Web search ads, digital suppliers haven’t done a good job of capturing that money yet, he says.

“We think about the ability to market at a super-geo-targeted level—at the store level, where we can tell you about what’s on special today at the bar, or why we’re moving to iced coffee in the coffee shop,” Tedford says. “Those are local marketing opportunities that, right now, are just starting to be surfaced.”

Brand Networks’ customers get a combination of software and personal consulting services—if you buy its Facebook advertising product, you also get some people to help come up with those ads.

It’s the kind of human-heavy approach that many venture investors resist in a world of high-growth companies focused mostly on software. But Brand Networks thinks the big-budget advertisers it’s aiming for want personal expertise along with digital tools.

“We’ve found that combination is really what big brands and enterprise marketers are asking for,” Tedford says.

It also reflects Brand Networks’ DNA—Tedford was an ad-agency guy before he founded the company in 2006. And it’s grown rapidly: Brand Networks had about 65 employees a year ago, when it expanded to New York and Los Angeles. Today, it has more than doubled, with some 135 workers.

Tedford wouldn’t discuss how much revenue the company is bringing in, but notes that Brand Networks has been consistently profitable, paying for its previous growth without outside financing. In a press release, Brand Networks says it is “cash flow positive with triple digit revenue growth year over year since 2010.”

If Mark Zuckerberg’s long-term bet with Facebook pays off, you could see its favored ad companies keep up that kind of eye-opening growth. With today’s investment, Brand Networks certainly has the cash to help it keep up.

“It’s sort of time to not be the sleepy company out of Boston, and really tell the world our story,” Tedford says.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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