Here's one way to raise more money in a seed round: Say, "No thanks." That's what Zain Jaffer and Jack Smith, founders of the Vungle mobile ad platform, did when a bevy of heavyweight investors clamored to get a piece of their company as it exited the hot San Francisco incubator AngelPad.
The two say they weren't initially interested in securing funding; they didn't want to deal with the pressure of fighting for control with investors. But as tech luminaries like Google Ventures, AOL Ventures, Crosslink Capital and angel investors SoftTech VC, SV Angel, 500 Startups and Tim Draper started knocking on their door, it was tough to turn down the cash. They closed on $2 million in January.
"When we said we didn't have any more room for investors, they thought it was a bluffing tactic, so they pushed slightly harder," says Smith, who moved with Jaffer from London in 2011 to take part in AngelPad. They launched Vungle in beta this year.
The investors wanted in on the duo's ability to tap into the rapidly growing world of mobile advertising, a sector worth $1.45 billion in 2011 and expected to reach $2.61 billion this year, according to eMarketer. Vungle takes screen grabs and video from apps in action to build the equivalent of a movie trailer for its clients. Because the spots are structured like trailers, they "give you more of a flavor of the application's features and appearance," Jaffer says.
Vungle's app trailers are absurdly cheap and easy to make. Armed with experience in video production, the founders can turn around a finished production in as little as 24 hours--no need for pricey designs and programming. The cost: free (for now) with a commitment to buy a mobile ad campaign that starts at a few thousand dollars.
Distribution comes from developers who've embedded a simple Vungle code into their apps so that the trailers can appear at natural breaks in the action, such as the completion of a game level or task. That's how it works on faceBlocker, an app that allows users to blur certain faces or details on a photograph. As users make their way through the app, a 15-second Vungle trailer will play at a natural pause point.
David Silverman, partner at San Francisco-based Crosslink Capital, loves Vungle's take on in-app advertising. He says the ability to capture a segment of this market is "the fundamental piece" to what will be a profitable business.
Smith and Jaffer are hard at work expanding Vungle's client base beyond the 20 or so it has now and getting themselves on the radar of app developers whose business models depend on advertising. "Until now, if you wanted to run a video ad campaign for or in your app, good luck," Jaffer says. "We figured out how to make it easy."
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