AppNexus CEO: 'There’s An Arms Race Going On, And You Don’t Want To Bring A Knife To A Gunfight’

The ad tech sector is awash with money spurred by both private investment, plus funds generated by a raft of companies listing publicly, according to Brian O’Kelley, AppNexus, CEO.

Speaking to ExchangeWire after his company was valued at $1.2bn after raising up to $100m in Series E funding, O’Kelley shares his views on the dynamics of the ad tech market, plus how his company intends to invest its recently swollen coffers.

AppNexus today (18 August) announced that a large, Boston-based public equity and asset management firm has invested $60m in the company, with interest from other parties to invest up to an additional $4Om, valuing the company at $1.2bn.

Ad tech and ‘the markets’

O’Kelley says the valuation is a sign of the rapidly advancing fortunes of the company, which has seen it forecast that it will transact over $2bn in ad spend in 2014 (up from $500m in 2012) and almost double its head count since January 2013 to hit 600.

The period since January 2013, has been marked by huge sums of finance entering the ad tech sector, with multiple investment rounds being announced, plus several public listings (Rocket Fuel, Rubicon Project and TubeMogul to name but a few).

This plus the trend for the web’s list of household names getting into ad tech ­-  we need only look at AOL’s raising of $345m last week as it looks to further roll out its programmatic  advertising offering – makes having plenty of cash in the bank imperative, according to O’Kelley.

“It’s no secret that ad tech has been going crazy in the last 12-18 months, and to remain competitive it’s good to have lots of funds,” says O’Kelley.

He also says the company’s funding round was not raised out of necessity, rather it motivated by the scale of demand for investors to back his company, plus growing competition in the sector.

“We’ve been well funded historically,” he says. “So if all you competitors have money, and there’s opportunity to raise cash, then you may as well take it.”

O’Kelley also maintains the scale of the funding round demonstrates just how unique a spot AppNexus holds, especially as investors on Wall Street seem to favour pillorying the stock price of those that elected to list. Just look at the stock prices of firms including Millennial Media, Rocket Fuel and Rubicon Project in recent weeks, as examples of this trend.

“We were profitable for the first time in Q2, so didn’t need to raise the money. But it was encouraging to see how much was raised at a time when the markets are maybe not as hot as they used to be.”

For O’Kelley, investors’ reactions to some “bumps in the road” suffered by ad tech firms, such as Rocket Fuel’s profit warning over how issues surrounding click fraud on its platform would affect advertiser demand, its stock price to crash by over 20% overnight, is somewhat off-putting.

“I feel that a lot of the markets don’t get ad tech, so when there’s a bump in the road, which is inevitable when the industry is evolving this rapidly) they overreact,” he explains.

“Seeing something like that doesn’t make you want to be public.”

However, despite these negative examples of the potential misfortunes of ad tech firms going public, O’Kelley does not rule out an AppNexus IPO, this is something that he would rather take his time to mull over, when both the markets and AppNexus are mature enough.

“In the last five years or so, you start to see a lot of companies such as Facebook take their time over things and then going public when they’re good and ready.

“We’re in a good situation right now [AppNexus still has over half the $75m it raised last year in the bank] and we have more than enough capital. We’re in a good situation,” adds O‘Kelley.

How will the investment be spent?

The latest funding round takes AppNexus’ total investment to close to the $200m mark, with the company planning to use the investment to continue the rapid expansion of its global team (it expects to add over 600 jobs by 2016), as well as invest in new technologies, including potential acquisitions.

AppNexus recently bolstered its headcount in the APAC region with the opening of its Singapore office, and seeks to look at furthering its current global footprint with the latest round of funding (as well as shore up operations at its New York base).

“Looking at things globally, we’re maybe a little bit under-invested in LatAm, so maybe we’ll look at that market a bit more, to try and be a bit more integrated there [which it will look to do on all its international markets],” explains O’Kelley.

Build or buy?

In terms of using the investment to enhance AppNexus’ product offering, O’Kelley says this is a key priority, plus the company “will use the funds to potentially make opportunistic acquisitions and forge partnerships,” according to a company release.”

When asked by ExchangeWire if his preference is to build or buy in new technologies (similar to its recent purchase of viewabilty firm Alenty), O’Kelley remains open to either possibility.

“My instinct is to build technology, I’ve built a lot of technology in my time. But we’ll be programmatic, and continue to talk to everybody, and look what’s out there.”

However, this is not to say AppNexus will buy companies purely for the sake of bolstering its portfolio.

“One thing to remember is that’s there’s quite a few companies with unrealistic valuations out there, plus there’s always the option of partnerships. I also like them," he adds.

Brian O’Kelley is scheduled to give a keynote address on ATS London on 8 September, where he will explain his views on ‘The Four Quadrants of Data-Driven Advertising’.