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DMG Ventures is not your typical consumer VC, nor a traditional “media for equity” fund. Backed by Daily Mail and General Trust (DMGT), DMG Ventures invests typically 50% cash / 50% media-for-equity (with more flexibility for follow-ons). Basically making that cash investment work harder. Together with Manuel Lopo de Carvalho, the CEO of DMG Ventures, we touched on the story behind DMG Ventures, how he built the fund inside Daily Mail, their investment thesis, and their approach to structuring investment deal

With over fifteen years of experience across investing, operational management, and the wider Daily Mail group, Manuel launched DMG Ventures in 2017. Since then, he has deployed over £200m and overseen exits worth in excess of £1.6bn. Before launching DMG Ventures, Manuel was Strategy Director at DMGT, having also worked previously at McKinsey and Goldman Sachs.

• DMT Ventures is not your typical consumer VC, nor is it a traditional media-for-equity fund. Backed by Daily Mail and General Trust, DMG Ventures invests 50% cash and 50% media for equity, with more flexibility for follow-on investments. They make the cash investment work harder. So, Manuel, how did you get into the media-for-equity space? (01:30-05:08)

• How does the media-owned fund essentially work? (05:35 - 08:56)

• Circling back on the fund, the actual fund structure: I think you've deployed over 200 million pounds over the last few years. Is it fair to assume it was almost part cash - part equity in equal amounts? (09:13 - 10:20)

• I'm curious to get your perspective on the market and what is happening right now. What do you feel is changing with your portfolio companies, and also given the kind of corrections that is taking place, do you think or do you approach companies differently? Do you look at other specific sectors or technologies that you haven't before? (10:34 - 12:39)

• Have you seen an uptake for companies that were not spending big bucks on traditional advertising? In fact, from digital startups making the leap forward into media for equity or using more traditional channels than before? (12:50 - 14:57)

• Tell us a bit more about the next fund you’re raising. I think the LP structure this time is a bit different from the current fund. (15:11 - 17:10)

• Why do you think should an LP invest with the DMG Ventures (in this particular fund, as opposed to putting money in a traditional VC fund)? (17:44 - 21:19)

• Let's start with the type of companies that you're looking for because we know that not every company can be a fit for media for equity. (21:36 - 25:52)

• In terms of the actual media investment, given that you are signing the same term sheet, when does the actual media convert into equity? Is it all the same terms as with the cash component? (25:53 - 27:24)

• The struggle I see from founders a lot is: why would I give up equity or why would I do a media for equity, when I can just pay in cash. What you're offering, is a great combo of both, but how do you make the case for media capital, when founders are looking for cash? (27:38 - 30:11)

• The combination of cash and equity - is that always the case or have you had examples where you, for example, did a follow-on investment that was just cash or just media? (30:12 - 31:51)

• How big is your team and what skill set do you have? What kind of roles are in your team? What do you think is absolutely fundamental to have in a media for equity fund? (32:35 - 34:09)

• Is there scope to see an independent fund that bundles together multiple media groups and helps them strike this media for equity deals in the UK? (34:26 - 35:36)

• What kind of technologies or sectors excites you the most right now that maybe other people don't think about or don't feel as excited about? (35:41 - 36:47)

• What's your view on the discussions of Metaverse, and probably more broadly, crypto and Web3? (36:55 - 37:53)

• What is hte best investment advice that you received in all these years. What makes it the best advice? (38:00 - 39:16)

• What is the most common mistake you see a lot of investors do these days? (39:18 - 40:18)

• What are you the most optimistic about this year? (40:20 - 41:06)
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Diana: DMT Ventures is not your typical consumer VC, nor is it a traditional media-for-equity fund. Backed by Daily Mail and General Trust, DMG Ventures invests 50% cash and 50% media for equity, with more flexibility for follow-on investments. They make the cash investment work harder. So, Manuel, how did you get into the media-for-equity space? (01:30-05:08)

Manuel: I joined the Daily Mail Group in 2015 as the Strategy Director. You probably don't know this, but the Daily Mail Group has an extensive portfolio beyond its media properties, especially at that time. I oversaw several areas, but one of the more exciting ones was the group's minority investments.

The Daily Mail has been around for 125 years and has a history of spotting the next big thing. They were the first in print at the beginning of the last century, continued with financial publishing in the 70s, and then with digital publishing, job boards, and property classifieds. Spotting the next big thing has always been in the DNA of the group.

But for me, with media for equity, there was a big catalyst. In 2017, we had a great exit - we were the largest shareholders in Zoopla, and it was acquired by Silver Lake. Everyone was pleased with the outcome, and we saw the potential of backing startups. So, I proposed to the board that we do this in a much more structured and systematic way.

As a Strategy Director, I had oversight of everything that happened in the group and knew the immense power we had from our media properties and insight into the UK and US consumers. I saw an enormous opportunity to help other companies, particularly in the UK, build their brand and reach out to the mass-market consumer.

We established DMG Ventures with the goal of backing early-stage companies trying to build their brand in the UK. We've been doing this for the past 125 years for our advertisers, so we had the experience and the brands to do so. It was a natural fit. It was enthusiastically received by the controlling shareholder, Lord Rothermere, who even now backs the division. That's how it started. Frankly, it was a one-man band on day one, but it has grown into something real and proper these days.

Diana: How does the media-owned fund essentially work? (05:35 - 08:56)

Manuel: From the very beginning, we've had great clarity of purpose. The purpose of the DMG Ventures is to generate the financial return for the investor, which has been the Daily Mail Group. There is no particular incubation objective or even media selling objective in what we do. What we do is leverage the assets of the group to deliver this return. 

So very early on, it's been established as a separate division within the group with this objective. We have service agreements with the media division, whereby has large media buyers, so we have a heavily discounted rate card from them. We also have a couple of people that struggled both divisions to ensure the delivery experience is very good. I think we have probably one of the best media for equity programs in the UK, and they deliver a great experience to our people. 

When we proposed it, we did think if we either go full media or full cash. Analysing both, we understood that there are benefits in both worlds. 

On the media side, we are focusing on companies that want to build their mass market profile so they will be advertising. The fact that we're giving them media at attractive prices is always a great thing from a capital efficiency perspective. The other point is these companies generally have never advertised above-the-line. So we have a team, Suzanne and Louise, who work with them, hold their hands and ensure they squeeze as much value out of the media credits as possible as something they value hugely. 

The cash shows we have skin in the game, that we're not just there to put media. It essentially ended up working very well. 

The way we go about it is: we see these companies, try to understand how we can help on the media sides, and decide what would be a sensible level that maximizes the efficiency of the media throughout something like 18 months. And then whatever that is, we put the same amount of cash over it. 

To be clear, we invest completely from the balance sheet of the DMGT on this first fund. And basically, both the media and the cash come from the DMGT. 

We are employees, but we do have our operating independence and answer to an investment committee where the chairman of the group sits, but also the CEO of the group, myself and other team members.

Diana: Circling back on the fund, the actual fund structure: I think you've deployed over 200 million pounds over the last few years. Is it fair to assume it was almost part cash - part equity in equal amounts? (09:13 - 10:20)

Manuel: No. Our model is 50/50 on the first tickets. After that, when we know the company, frankly, the fact that we are fully owned by The Daily Mail Group and a single investor means that we have a bigger level of flexibility than normal LP/GP funds would have. What has happened is that we deployed, it was 60% of those 200 million in one company that we were very comfortable with and kept on following our money. And in the end, we got a very successful exit out of it which drove most of the returns we have at the moment. We can say it is a happy venture story. The company I mentioned is Kazoo. We were the first investors in kazoo, and we followed on in several rounds and then exited at the IPO. 

Diana: I'm curious to get your perspective on the market and what is happening right now. What do you feel is changing with your portfolio companies, and also given the kind of corrections that is taking place, do you think or do you approach companies differently? Do you look at other specific sectors or technologies that you haven't before? (10:34 - 12:39)

Manuel: We're big fans of the consumer market. And yes, this is not an easy moment: there is inflation, the cost of living crisis, there's all of that. However, I see more opportunities than anything else. Frankly, valuations were very lofty a couple of years ago, and startups that perhaps shouldn't have gotten as much funding as they did, we're getting quite a lot. So, whoever liked the consumer market two years ago should like it even more. Obviously, you need to be cautious about going into something extremely consumer-discretionary. Right now is not the right timing yet, but there will be. We see quite a lot of opportunity in that space. 

In terms of the general market, I think what has changed is the focus of unit economics has changed. We've always been worried about that, but I think the whole demeanour of founders has changed. You don't just get people coming saying: "Oh, I have this gigantic growth and five years from now, we'll make money if we raise three more rounds from here." Now in most of the pitches, you have a clear path to break even and have an acceleration option if you want to raise. A lot of rationality has come back to the market, which is a good thing, frankly. 

The other thing to bear in mind is if you're investing in late seed, Series A - what might not look like a good moment right now, you need to be thinking that you're going to be exiting five to seven or eight years from now where hopefully, this economic cycle has turned, and we are in a good place. So it is a great moment to invest in the consumer market, in my humble opinion.

Diana: Have you seen an uptake for companies that were not spending big bucks on traditional advertising? In fact, from digital startups making the leap forward into media for equity or using more traditional channels than before? (12:50 - 14:57)

Manuel: We see a retreat from doing Social Media and AdWords. I think that arbitrage is over because people tried to do this over the last couple of years, but it became clear that you can’t just do that. 

It's a component - I'm the first one to tell our startups that advertising just on our properties will not solve all their marketing needs. They will need to do direct advertising, social media, create a community etc.

You need to have a much more holistic approach to everything. That's what we work on with our startups. We see our media contribution as almost like a learning journey for these startups. They've never advertised above-the-line. They came from a world where with social media, with AdWords, you have a pretty dashboard, you put 100 pounds, you get 120 pounds back in clicks or sales, and it's all auditable and beautiful. 

In the above-the-line world, you put 10,000 pounds on an ad and don't get 10,000-11,000 pounds from people clicking on it. That is just not how it works. You need to build repetition, build your brand, and eventually, it will help all your KPIs in marketing. But it is a process. 

As part of our points of being in rounds, we are helping educate startups on this journey by doing it with them. If they do it well and in the next rounds, our media no longer needs to be around. That's okay. At that point, we know them, and we're comfortable putting more cash and less media and following on our money. That's how we think about it.

Diana: Tell us a bit more about the next fund you’re raising. I think the LP structure this time is a bit different from the current fund. (15:11 - 17:10)

Manuel: We started the DMG Ventures in 2017, five years ago and we went through the investment cycle. We've had a successful exit that generated quite a nice return for our investor. In the meanwhile, the Daily Mail Group itself was taken private at the beginning of last year. It was a good moment to step back and see what's a new direction. We took the very natural path which is - you start as a fully captive structure. Our second fund already has some third-party capital. Now, we're raising a 100M pound fund, the Daily Mail Group is contributing half of that, and we are raising the other half from external investors. 

Frankly, I am a big fan of "It's not broken, don't fix it". In the way we work, not much is going to change. Structurally, we won't become a GP/LP structure. We will continue focusing on consumer technology companies, late seed/Series A, 1-5M tickets, and a component of media for equity on all our deals. 

We see some benefit in being more flexible than the 50/50 rule that we've used until now. We still see it as a differentiator for us. There are plenty of Venture Capital funds, so you need a reason to be special. The reason why we are special is this consumer angle and the understanding we have especially about the UK and the US consumer through our media properties. 

Diana: Why do you think should an LP invest with the DMG Ventures (in this particular fund, as opposed to putting money in a traditional VC fund)? (17:44 - 21:19)

Manuel: Well, I would argue that we're becoming a traditional VC fund from a lot of perspectives. Essentially, we've shown that we can deliver. We have a track record, a stable team, an angle that few people have, and insights into the UK and the US consumer market.

Let me bring it to life because it's not always obvious when I say we have access to 10M+ people. What does that mean in the day-to-day? 

There are three areas. One is it helps us learn about the things we should be looking at. We have a great analytics team within the Daily Mail, which helps us see the big consumer trends and what should we be focusing on for deep dives and investments.

Still, a bit nebulous, but much more practical, is when we go for something we like. Very early on, what we did was: we ran a series of surveys from our readership to try to understand what people feel about that product: do they know that brand, do they like the product? We get a bunch of information that we then use to go to individually the first or second meeting with these companies and tell them: here's how we are going to help you, here's some stuff you probably don't know about your brand, this is the sort of stuff that we think you should be focusing on over the next 18 months on the marketing side. 

It becomes clear to them why we are having a conversation with them. And then it also informs them from the beginning how the media for equity component of the investment will be constructed.

The third bit is once we invest, we have a couple of people working with them. As we've been doing it for 4-5 years, we have a bit of a name in the market. So if you're a startup looking to go for the mass market in the UK, especially, it's likely you come and work with us. For investors, we give access to this whole cohort. We have a very particular angle in the selection and then the acceleration of these companies.

The reason why startups are also interested is because of the low chances of failure, the media involved, but also the expertise of the team.

First of all, the media discount is quite attractive. It's capital efficient for them. Then we work with them just to reach the investment. For us, before we make a series B investment, the fact that we are much closer to the operation than just sitting on a board and attending it monthly gives us a lot of information about how this company operates, which is very helpful when you decide if you're going to double down or not.

Diana: Let's start with the type of companies that you're looking for because we know that not every company can be a fit for media for equity. (21:36 - 25:52)

Manuel: For me, a very important starting point is: you need to have a product that is working, has shown product market fit, and has a decent level of early adopters. I don't think you're ready to do above-the-line or mass-market marketing until you've found your identity as a company. It's just not for you.

However, if you have proven all these things, and you are now raising a Series A to go national or international, saying you're going to be in every person's house, then you are a business that we are interested in taking a look at. 

The way we sourced this is in three ways: we do our deep dives, and we'll go looking for these companies in particular sectors that we're interested in. But also, as the Daily Mail is a big brand, we get a lot of incoming deals. Also, we've been co-investing with other consumer funds for a few years, so we also get deal flow from there.

But let's just say we find this company, we have a normal introductory meeting, and very soon after that, if there is interest within the investment team - we action the media for equity team, either Louise or Susannah. 

We run the surveys and the background work on this company to see if it's something we should invest in or not. I've had things I thought were wonderful and then came back saying that 96% of the UK population would never buy them. But most often, we're not net wrong. 

What we do is - we meet very early on with the team, where we walk them through what we've learned about them, how our properties work, what we could do for them, what the next six months could look like for them or a year in terms of our media support, and so on. From there, we start having that discussion of what would be the amount of media credits that would be appropriate for a company at that stage. It's a two-way thing: if they don't think our media will help their business do well, we're probably not for them, and that's fine. But they also need to convince us they're a good business for us to back. 

The structuring is fairly straightforward. For example, we are a 2M pound investor. On the subscription agreement, rather than our 2M when we're sending it to your bank account, we say: "Here's 1M. The other million is now a created account with the Daily Mail Group that you can redeem against this discounted rate card." 

The only difference is: part of it is redeemed against the credit rather than sent in as cash. And then over time as this million gets spent, it gets reduced on our credit accounts. And eventually, it gets used up, and hopefully, at that time, we're looking at a fantastic series B, and another double-up and the relationship continues.

Diana: In terms of the actual media investment, given that you are signing the same term sheet, when does the actual media convert into equity? Is it all the same terms as with the cash component? (25:53 - 27:24)

Manuel: There is never a conversion. We invest since day one, and rather than paying it with cash, we’re paying it with media. Essentially, DMG Ventures is the owner of the shares from day one and has a debt towards the startup of delivering the advertising. 

There are pros and cons for all investment models. This one has the great benefit of simplicity and easy to understand how it works. It also has an implicit incentive for the companies to spend the media because also this media tends to have a use-by date. 

There have been cases at the beginning where you would do a media deal, and they would sit on it for months on end. We thought: the sooner you use it, the better for your business rather than saving it from someday in the distant future. 

We're big believers in the impact of our media, and it always frustrates me when it's not getting properly used.

Diana: The struggle I see from founders a lot is: why would I give up equity or why would I do a media for equity, when I can just pay in cash. What you're offering, is a great combo of both, but how do you make the case for media capital, when founders are looking for cash? (27:38 - 30:11)

Manuel: If they are just looking for cash, then I'm probably not the right guy for them to be speaking with from the start. We are very clear about what our proposition is and what it isn't. We're not full cash investors. That's why it only makes sense for us to talk with companies that are planning on doing marketing and above-the-line, and so on. That's a very big start. 

The other point is, we make a lot of really front-load effort of all this stuff. As I said, these sessions that we have explaining what our media does, what are the results it had with others etc., it's really to prevent disappointment on both sides. There's nothing worse than our media credits not working for the company - it damages the brands, prevents us from getting future deals, and also damages the returns of the fund.

It's something we are always very mindful of. But we are confident about the quality of our media, it's heavily discounted, so there is a capital efficient efficiency point there. If we were giving them the media at the same price as any cash buyer could walk in through the door, I think there is some weight to the question from the founder of why don't I just get cash and then come in, buy it for him from you. 

And then the service point is not a minor one. The idea of here's a credit, give me a call whenever you want to spend it doesn't work. I know it because that's how we started. In the first few months, it wasn't a happy experience, especially light years from having a great team that squeezes the most out of our media properties for our companies and worked internally as advocates for the startups, which is super helpful. 

Between case studies, the discount, and the startup relationship with us - if you do well, we intend on following on with our money. We've done so in most of the cases where things have gone well. It's a mix of these things.

Diana: The combination of cash and equity - is that always the case or have you had examples where you, for example, did a follow-on investment that was just cash or just media? (30:12 - 31:51)

On follow-on, we are much more flexible. We have done all media deals in the past, we have done all-cash deals in the past, and we have done 50/50. Our operational guidelines for fund one were always 50/50. One exception or another happened, but it's not how we wanted to operate. Going forwards in fund two, we are what we are, and the media is an important part of our offering, but we're looking for on average to be less than 50/50, more something like 20%, which probably is more an easier balance than 50/50.

Essentially, we are one piece of the holistic marketing strategy that they have. There is a limit as to how much makes sense for them to have - if we had in books, TV, radio outdoors, and all the other parts of a complete marketing strategy, then it could be a bigger number. But given that we have a very strong digital presence and a very versatile print presence, it's part of the story, but it can be the whole thing.

Diana: How big is your team and what skill set do you have? What kind of roles are in your team? What do you think is absolutely fundamental to have in a media for equity fund? (32:35 - 34:09)

Manuel: I have a great team, and that's why this thing works. On the one side, we are for most aspects a normal venture capital fund, we recruit from other venture capital funds. A part of the team is on the investment side: they evaluate all investments, and their background is VC, advisory VC, and so on. So what you would normally expect, however, the team also needs particular marketing experience, so another part of our team came originally from the media division, and they have marketing agency background. They are very attuned to how to serve customers from a marketing perspective. 

So it's merging of the views of the investment side of the team and the marketing side of the team that eventually yields the sort of stuff we will invest in. We do need to have a bit of both. 

But again, as I always say, the objective here is to invest, to deliver good returns to our investor. 

Diana: Is there scope to see an independent fund that bundles together multiple media groups and helps them strike this media for equity deals in the UK? (34:26 - 35:36)

Manuel: I think it makes a lot of sense. When companies think of their marketing strategy, they should look across mediums: I have two pieces of the puzzle, the guys from ITV or Channel4 have another piece, and the guys from the radio have another piece. If we could bring them all together, we would be a much more compelling proposition for startups, no doubt. 

In the past, I've dabbled into this idea from a consortium perspective, and they could never make it work. Up to now, my issue with this is I haven't seen a structure that makes sense from the side of the media providers and networks, but I'm very open-minded, and I like the concept. I just need to see how it would work in practice. I haven't yet seen a model that works for us.

Diana: What kind of technologies or sectors excites you the most right now that maybe other people don't think about or don't feel as excited about? (35:41 - 36:47)

ManueI: I think there are huge opportunities in the consumer market. Again, the economic cycle is not looking great at the moment, but if your exit horizon is in five to seven or eight years, there are huge opportunities to invest in at the moment. Valuations in the mentalities of founders have fundamentally shifted, and they are in much more investor-friendly modes than they were only a year and a half ago, when this sector was getting quite a lot of deployment. So there is a big opportunity there. 

Diana: What's your view on the discussions of Metaverse, and probably more broadly, crypto and Web3? (36:55 - 37:53)

Manuel: We've done some work on it. My view on web3 is that it has a concept that consumers don't care much about. Like how it works. Frankly, I don't know what's the specific technology behind half the things I do. 

However, if there is a good use case that leverages web3 technology and that we can show a consumer why they should be buying a certain thing, we're more than happy to look into that space. 

My point is, what needs to lead the investment decision is what is it, what does it do, and not necessarily what technology is powering it. We are open-minded, but the use cases we've seen so far haven't dazzled me that much, especially given the valuations at which they were at least a few months ago.

Diana: Your best investment advice that you received in all these years. What makes it the best advice? (38:00 - 39:16)

Manuel: Definitely in VC, we invest in people, not in the business so much. I think some of my biggest misses or biggest disappointments have been probably in the smartest things I've invested. Ultimately, I got dazzled by what the business was, and perhaps I haven't looked closely at the people that were supposed to do it to deliver it. 

I've invested in businesses that were not that amazing, but they had such a great founder that made the business work well. That's a very big one for me. 

The other one is pretty obvious. When things look too good to be true, they tend to be so. If there's something off the valuation, the growth or if something doesn't look right, probably it isn't. There are very few glaring inefficiencies in the market that you can take advantage of. Sometimes they do happen, but it's more often they're not.

Diana: What is the most common mistake you see a lot of investors do these days? (39:18 - 40:18)

Manuel: Herd mentality is by far, especially in the venture capital world, the biggest problem. I am sometimes as guilty of it as the next person. It's a very warm and fuzzy feeling to know that the thing you have invested in is getting invested by this other big-name fund that gives you cover as to why you're investing in it. 

Frankly, you need to do your work. You need to be comfortable, you need to be investing because you have a conviction on it, not because name A, B or C is there and they gave you some space on a very hot deal.

There were plenty of hot deals in the last couple of years. I'm sure many people that invested in them wish they hadn't. So you really should do your work. 

Diana: The final one for you, Manuel: what are you the most optimistic about this year? (40:20 - 41:06)

Manuel: 2023 is not an easy one, I would say. I take solace in the fact that finally seems that inflation has been brought under control. Hopefully, we'll see the bottom of the economic cycle somewhere towards the second half of this year, and there's subsequent recovery. Hopefully, these things will come up and set us up for a good next few years of recovery. But it's going to be a tough year, 2023. We should be resilient and optimistic about the future but also prepared for the realities of the next few months ahead.