Venture Firms Support Online Ad Startups Despite Privacy Concerns

Lora Bentley

At the same time that government regulators and privacy advocates are concentrating on restricting the ability of online advertisers to collect information from Web users without their permission, venture capital firms are pouring money into startups that specialize in the targeted advertising that necessitates such data collection. Does that even make sense? Venture capitalists think so.


Maybe it's more accurate to say they haven't really thought about it. Or they have thought about it and they don't care. Whatever the reason, venture cash abounds for online advertisers.


Citing research from Dow Jones VentureSource, The Wall Street Journal reported last month that venture firms have invested $4.7 billion in 356 online advertisers in the last four years. Terence Kawaja, an investment banker at Luma Partners, calls the online ad investment market "frothy."


Randall Glein, a managing director of the DFJ Growth Fund, says regulators' efforts to curb online advertisers with such measures as "Do Not Track" requirements or an online privacy "bill of rights" do not deter investors from the market. "It is not affecting our desire to be active investors," he told the WSJ.


That's not to say, however, that privacy concerns don't impact the firms' individual investment decisions. For example, First Round Capital managing partner Chris Fralic says the venture firm, which has made 30 online-ad company investments since 2007, has shied away from companies that combine online data and offline databases "to develop richer portraits" of users.

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