Sir Martin Sorrell likes to say that it is the growth of digital in China that keeps him awake at night. So it might be a fair assumption that WPP’s chief executive is not sleeping all that soundly these days. The mainland’s overheating technology market is acting like the proverbial flame for the many venture capital funds and private equity that have gathered in Beijing.
Jostling for space among the Valley-types is WPP Digital - which is attempting to emulate the VC model by taking stakes in companies that it feels will help its development of digital marketing. To some, it is an approach at odds with the holding company’s traditional investment model of buying agencies wholesale but, in Western markets at least, progress is evident. So far, WPP Digital counts stakes in companies as wildly divergent as mobile solutions provider Iconmobile, rich media ad platform VideoEgg, and online video game network Wild Tangent.
In China, however, the situation looks rather different. So far WPP Digital has yet to make its mark on the countless number of technology ventures that are looking for funding in the country, which perhaps begs the question: can a holding company really compete with its more nimble competitors from the VC world? “I absolutely think it’s a realistic goal,” says one source. “But it’s not built to be a private equity company. It’s getting to move faster, but then even private equity firms don’t necessarily move as fast as they’d like you to think.”
Neither is WPP alone. IPG’s Emerging Media Lab counts stakes in Facebook and Joost, while Publicis (Denuo), and Havas (Havas Media Lab) have initiatives with the same objectives in mind. But, for now at least, WPP Digital appears to be the only player actively courting deals in the mainland. “Certainly, though, we are talking about valuations that aren’t what WPP might be used to,” points out a source. So far, $3.2 billion has been invested into venture in China, with approximately a third of that going into the TMT space. “Naturally, with a lot of money chasing a relatively few number of good deals, valuations are getting pumped up.”
In addition to the booming market come other complexities. Private equity funds are earmarked for investment - it is the reason they exist. “That’s not necessarily the case for WPP - a lot of those funds can be ploughed into the operating companies,” explains a source. “It’s not set up as just an investment company.”
Omnicom Asia chairman Michael Birkin, meanwhile, resolutely opposes any attempt to mimic some of these investments. “The idea of making small individual technology-based investments is not the business we’re in,” he says. “It’s my opinion that much of what is happening is to create a short-term headline rather than helping our clients build their businesses.”
Funnily enough, though, some of these weaknesses may yet present themselves as strengths. Holding companies can afford to be a little more circumspect when it comes to evaluating deals. And as one VC investor points out, the presence of a holding company may actually provide a venture with the credibility it needs to attract even more funding. “VC tends to be more of a money management business, whereas for these guys it is a corporate development initiative,” says the source. “Depending on the research the holding companies do, they might actually be better positioned to evaluate companies.”
“VC can be our friend - not necessarily our competitor,” adds a holding company source. “They may see value if they see an investor like WPP, particularly if they are dependent on the advertising ecosystem.”
