MediaMath, which had been trying to find a buyer, intends to file for bankruptcy, AdExchanger reported on Friday. A source with knowledge of the situation confirmed the news to Insider. Read about how the former adtech unicorn fell from grace. This story was originally published March 1, 2023.
At its Halloween party in 2015, the adtech startup MediaMath seemed on the brink of greatness.
It had just relocated to become one of the first tenants of 4 World Trade Center. Party guests were surrounded by highbrow art and floor-to-ceiling windows that offered panoramic views of downtown Manhattan.
Dressed as a chef, MediaMath’s cofounder and CEO, Joe Zawadzki, was surrounded by execs dressed as a packet of Nerds candy, a hotdog, a bottle of Sriracha hot sauce, and Gingerbread Man from “Shrek,” smiling as they sipped on beers and nibbled on cupcakes.
Zawadzki, a jocular, tall Canadian with thick-rimmed glasses and floppy hair, would tell employees the office relocation, smack-dab in the middle of the financial district, represented MediaMath’s big ambitions.
The machine-learning revolution that took over the financial industry was finally happening in marketing, and many industry insiders considered MediaMath to be the hottest adtech company of the time.
The startup had created the first demand-side platform (DSP), which used automation to buy targeted ads across the internet. Zawadzki would describe it as “the Bloomberg terminal for marketers” and, in a 2014 interview with Insider, compared its founding to the creation of Michelangelo’s David.
MediaMath had hired hundreds of employees around the world, many of whom went on to high-level roles at companies like Google and PayPal or launched their own startups. It had scores of blue-chip clients like IBM and Walmart.
For its senior employees, a big exit — and its associated payouts — seemed like destiny. Zawadzki was considered a peer to “the godfather of adtech,” Brian O’Kelley, who sold AppNexus to AT&T for $1.6 billion in 2018, and to Jeff Green, the Trade Desk cofounder who became a billionaire after taking the company public, growing it to a current market value of $27 billion.
But that destiny never played out. Last April, MediaMath gave up a controlling stake to the private-equity firm Searchlight Capital, in an under-the-radar deal that wiped out the equity of cofounders and other early employees and investors.
Shareholders from MediaMath’s Series B and earlier rounds and employees owning common stock, some of whom had expected to become independently wealthy from a sale, were left with nothing.
“People are super sad and angry about the outcome,” said one ex-employee, while another said they “personally feel pretty fucked.”
Based on interviews with 30 people close to the company, leaked documentation, and court filings, this is the inside story of how ambition, missed opportunities, a late-stage investment, and a boardroom breakdown led to MediaMath’s unraveling.
Most of the people interviewed requested anonymity because they weren’t authorized to talk about the company or disclose confidential discussions. Their identities are known to Insider.
“It’s a cautionary tale about competition and hubris,” a person close to the company said. “It’s a Shakespearean tragedy.”
3 missed exits that could have altered MediaMath’s fortunes
“Even though today the success of programmatic advertising feels self-evident, back then you kind of had to squint to see it,” said Zach Rodgers, a former editor of the ad trade title AdExchanger, of MediaMath’s early years. But Zawadzki was remarkably prescient. “Other people didn’t see that future in the way that Joe did.”
But his visionary qualities could tip into hubris.
Several former staffers and people close to the company said Zawadzki appeared fixated on a unicorn valuation — and demanded numbers even above that $1 billion baseline in acquisition talks, scaring off would-be buyers and derailing exit opportunities.
In 2016, Singapore Telecommunications was in early conversations with MediaMath about an acquisition at a value of $700 million to just south of $1 billion, according to people familiar with the talks. The people said Zawadzki responded with a number north of $1 billion and the discussions swiftly ended.
“We never came close to consummating such a deal with MediaMath nor entertained the purported valuation,” said a representative for Singtel. The spokesperson added that Singtel had since moved out of digital marketing.
Notable MediaMath alumni
That year, MediaMath also had serious talks with the private-equity firm Bain Capital, which made an exit offer that would have valued the company at about $950 million, people familiar with the matter said. Zawadzki kiboshed the proposal, partly because he didn’t want to give away majority ownership, the people said.
Bain Capital declined to comment for this article.
People who have worked closely with Zawadzki describe him as highly intelligent, charming, and kind. One former senior MediaMath executive fondly recalled the company’s 2017 offsite — a time when the business had hit a profitable swing.
About 20 staffers were treated to a stay at the luxury Gurney’s Montauk resort in the Hamptons. Seated around the firepit sipping cocktails at sunset, Zawadzki emotionally told his executives how much he appreciated them.
“The warmth and genuine desire to succeed with people he loved was absolutely sincere and palpable,” the senior executive said.
It was also in 2017 that MediaMath’s execs thought the foot was finally going to fit the billion-dollar glass slipper.
The company had scored a partnership with IBM that became months of informal diligence for MediaMath to prove its model. “The business would do anything for IBM,” a former MediaMath exec said.
MediaMath became embedded in IBM Watson Marketing’s software for IBM’s salesforce to pitch to its vast advertiser client base. IBM suggested buying the company for about $1 billion, people familiar with the matter said.
But MediaMath missed out again. IBM’s marketing division failed to get wider company backing for a deal of that size, sources familiar with the talks said. The following year, IBM sold Watson Marketing to a private equity firm. An IBM representative declined to comment on past rumors.
Losing out to rivals
While MediaMath missed out on acquisition deals, its biggest rival was getting stronger.
The Trade Desk, the most comparable independent DSP company to MediaMath, was riding high after its 2016 initial public offering. Its success often came at MediaMath’s expense.
The Trade Desk CEO Jeff Green emphasized its simple proposition: to be the de facto DSP used by advertising agencies. Green and The Trade Desk didn’t respond to requests for comment.
In contrast, MediaMath focused on marketers, betting that they would bring their programmatic ad buying in-house — a big topic of debate at the time.
MediaMath placed the wrong bet. Most marketers continued to delegate the actual trading to their agencies.
“That was probably one of the largest critical mistakes,” a former MediaMath executive said.
Former staffers said another oversight was Zawadzki’s mission to, in his own words, “rewrite the rules for digital advertising” which was often prioritized over more pressing client concerns, like using digital ads to boost short-term sales.
His other main rival, AppNexus’ O’Kelley, told Insider he considered Zawadzki a friend and worked for him at Zawadzki’s startup Poindexter in the early 2000s. Later, as competitors, they swapped ideas on how they would change the industry while their children ran around Madison Square Park on the weekends.
If Zawadzki had a weakness, O’Kelley said, it was a “love-hate relationship with being in charge” that made it difficult to settle on a consistent strategy.
A downward spiral begins
In 2018, at about the same time as AppNexus’ sale to AT&T, MediaMath scored $225 million in new financing from Searchlight Capital, a private equity firm little known to the adtech world.
On the surface, it was clear why Zawadzki did it. The agreement had some of the hallmarks he had longed for. It gave Searchlight only a minority stake, with Zawadzki retaining most of the company’s voting rights. It valued MediaMath at over $1 billion and gave it the funds to buy out an old investor and support new acquisitions.
But former MediaMath executives would later consider this deal, led by Zawadzki from their side, as the beginning of the company’s downward spiral.
The quasi-equity agreement was structured to protect Searchlight if MediaMath didn’t perform to certain quotas or if things went south financially.
It’s a standard part of the private equity playbook, but it did include a contract that a judge in a Delaware court would later describe as “daunting” in length and organized in a “needlessly complex” way.
Zawadzki and the MediaMath board signed up. But MediaMath missed its sales target the month after closing the deal and continued to underperform revenue-wise thereafter.
It posted a net loss of $24.6 million in 2018 and ended 2019 with a loss of $47.9 million, court documents said.
“Searchlight set a trap and Joe stepped into it because he didn’t see that trap,” a person familiar with the agreement said. “Searchlight said, ‘Look at this wonderful cashmere sweater, put it on.’ But it was a straitjacket.”
The money that MediaMath never saw
MediaMath received considerably less than the $225 million headline figure from the Searchlight investment.
Searchlight had agreed to release its investment in two tranches. It initially handed over $119.7 million, of which about $70 million went straight toward paying off MediaMath’s prior investor, Safeguard Scientifics.
MediaMath would get a second batch of funds only if it could close a transformative acquisition.
While it held talks with adtech firms including Iponweb and Magnite about a possible acquisition or merger, neither discussion got serious.
Iponweb declined to comment. Magnite gave no comment.
With MediaMath failing to identify an acquisition target, Searchlight never released the remaining $105.3 million in funding.
Searchlight takes control
In 2020, as the COVID-19 pandemic spooked marketers into pausing their ad spending, MediaMath was projecting a loss of about $7.2 million for the year.
MediaMath execs feared it would default on its $175 million credit facility with Goldman Sachs, which would happen if its monthly average cash fell below $45 million and if it didn’t comply with other financial covenants. Goldman Sachs declined to comment.
So MediaMath lined up a new credit agreement with MidCap Financial.
In response, Searchlight sued MediaMath in Delaware Chancery Court that summer, arguing that Zawadzki and his team had breached the terms of their contract by not seeking permission from Searchlight before lining up the new arrangement.
Though the judge ruled in MediaMath’s favor in the fall, legal and advisory fees had mounted, and the MidCap deal was off the table.
The latter part of 2020 and the start of the following year saw adtech stocks soar, and mergers and acquisitions in the space accelerated.
MediaMath called in the services of the adtech sector’s star dealmaker Terence Kawaja and his investment bank Luma Partners to search for a buyer or new access to finance.
MediaMath held serious sales talks with four companies, including Amazon and the publicly traded adtech firm Tremor. Amazon and Tremor declined to comment.
But the board — which at this point included independent appointees of Searchlight, Goldman Sachs, and representatives from other major investors, among them Akamai Technologies and Spring Lake Equity Partners — bickered over the minutiae of deal terms, with some shareholders disappointed in the cut they might get on their initial investments. Spring Lake declined to comment; Akamai didn’t respond to a request for comment.
“The investors were dead set by that time on simply, ‘I put in 10 bucks, I want 100 out,’ and wouldn’t settle for anything lesser,” a person familiar with the discussions at the time said.
MediaMath was again bleeding money as legal and advisory fees mounted. Without access to working capital, it became difficult to win new business and it was delaying payments to vendors. Talent began to jump ship.
Zawadzki was still holding out hope that a buyer would emerge and disregarded advice telling him otherwise, people familiar said. He and MediaMath’s investors reached a tense stalemate. Even investors who had backed Zawadzki for years had lost confidence in his ability to run — or sell — the company, the people said.
“By that time there was a mismatch in what Joe wanted, what the board wanted, and what the buyer wanted,” said a person familiar with the discussions at the time. “It was a very dysfunctional structure.”
The board acted, firing Zawadzki from his CEO position in December 2021.
The MediaMath board member Neil Nguyen — formerly the CEO of the adtech company Sizmek and chief digital officer of the ad agency Havas Edge — moved into the vacated CEO role to “land the plane,” by closing a deal, Nguyen told Insider. But a sale didn’t materialize.
With MediaMath close to financial disaster, refinancing with Searchlight was the only viable option left on the table. Searchlight made a $150 million recapitalization commitment in April, a transaction that also included a modest investment from its previous investor Spring Lake.
In a letter to shareholders, obtained by Insider, MediaMath said the deal culminated a nearly two-year period in which the company had contacted more than 120 counterparties. But, it said, the company’s revenue had fallen short of its business plan over that same time period.
“No third-party was willing to advance funds to the company to consummate any of the alternatives,” the letter said.
The terms of the recapitalization wiped out the equity owned by MediaMath’s former executives and founding team.
Some insiders and observers feel Searchlight “put the squeeze on MediaMath” with the plan of eventually owning it. Others blame MediaMath’s management team for making poor operating decisions rather than the structure of the deal itself.
“This is just a large and public example of what happens when you have a combination of a late-stage investment with structure and a scenario that plays out to the downside,” a person close to the company said.
A ‘gut punch’ to MediaMath’s early executives
If MediaMath had sold at its peak for more than $1 billion, some shareholders would have become rich.
Instead, a letter to them bluntly laid out their fate. Each share of Series A and Series B common and preferred stock “was canceled and ceased to exist without any payment or consideration therefore.”
Searchlight bagged the company for little over $375 million in commitments over the course of five years. The private equity firm hasn’t yet invested close to that much, two people familiar with the company said.
“A few years ago I still thought about MediaMath equity as a rock of my capital and future,” a former early employee said. “It definitely impacted some of my other investment decisions.”
Zawadzki, on the other hand, negotiated 7.5% equity in the new Searchlight-owned MediaMath, plus a $250,000-a-year advisory agreement with the company, according to a shareholder letter.
“It was a gut punch,” one former employee said of Zawadzki’s outcome.
But in reality, Zawadzki lost a considerable amount. He lost control of the Michelangelo-like vision he had crafted for 15 years. And MediaMath, under his stewardship, couldn’t claim a legacy as a successful luminary of the adtech industry.
“The greatest shame about MediaMath is that it never felt like they had all the right pieces at the same time,” said O’Kelley, who was an early investor in MediaMath but also didn’t see a penny from the Searchlight deal.
Zawadzki is now investing in adtech companies through his venture-capital firm AperiamVentures.
He’s also securing funding for a new startup of his own, a cross between a fintech and an adtech firm to help companies overcome late payments.
Unlike at MediaMath, and his prior startup before it, Zawadzki has recruited a CEO.
In February, MediaMath joined the slew of technology firms conducting layoffs. But its immediate credit concerns and pressure to sell are now behind it.
With a new management team under Nguyen, sources familiar with the matter say MediaMath is profitable and signing big new client deals and partnerships.
Yet those close to the first iteration of the company are left with only the specter of the outcome they might have seen.
“It should have gone a different way,” a former senior MediaMath executive said.
“Shame on us for it not.”
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