Despite digital boom, marketing startups struggle to attract investors

While startups have weathered the ups and downs of funding cycles, one corner of the ecosystem has remained stubbornly dormant: marketing services. Despite the country’s digital boom and the explosion of social media, investor confidence in these businesses has been slow to build.

According to data from startup platform Tracxn, there were no funding deals involving India’s leading creative agencies in 2024, with the last recorded round in the sector occurring in 2019. Tracxn’s analysis tracked firms including Collective Artists Network, Only Much Louder, WLDD, YAAP, Qyuki, Jouv, and Growth Mechanics.

The sector spans a wide range of services, from social media management and influencer marketing to content production and advertising. Notably, companies with a focus on influencer marketplaces or content creation have proved more successful at raising funds than traditional marketing agencies.

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Qyuki, a digital distribution and content production platform for artists, has raised $22.1 million to date from investors including Cisco Investments, BAce Capital, and Luck Legend International. The company, founded in 2011 by Shekhar Kapur, A.R. Rahman, and Samir Bangara, is currently valued at $41.3 million.

In comparison, Mumbai-based Collective Artists Network, which has operated for 16 years as an online influencer marketplace, has raised $16.5 million, backed by Glance and Nepean Capital, with a valuation of Rs 826 crore.

Despite operating for nearly two decades, many of these businesses have largely raised capital only at the seed or Series A stages. YAAP has secured $5 million from The Rainmaker Group since 2015, while Only Much Louder, known for its music events and concerts, has raised $4.29 million from CA Media Digital. Growth Mechanics, founded in Chennai in 2012, has raised just $49,800 from Triasr and is currently valued at around $909,000.

Experts attribute investor reluctance in the sector to two primary factors: its dependence on human resources and the sheer proliferation of agencies.

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“There are an infinite number of marketing companies due to a lack of entry barriers,” said Professor Ashish Kaul. “Marketing seems to be something that everyone has an opinion on, but people don't understand it. Therefore, there are innumerable marketing firms, making the investment prospect low for investors.”

Kaul also noted that the unpredictability of client contracts makes it difficult for marketing agencies and talent management companies in India to build sustainable models, often leading to acquisitions by larger conglomerates. He pointed to WPP’s global acquisition spree, including agencies such as AKQA, BCW, CMI Media Group, as indicative of the sector’s dynamics.

Vikram Gupta, founder and managing partner at IvyCap Ventures, said the growth trajectory of these companies makes them less appealing to venture capitalists. “The standard marketing services companies may not scale like a typical J-shaped curve, but they may grow very slowly depending on the number of people they employ. So that's the reason also why VCs don't usually like investing in such companies,” he said.

Marketing Services in the AI Age

Some in the industry see an opportunity for marketing firms to reinvent themselves through artificial intelligence, as technology tends to attract capital more readily.

“VC funding for marketing companies might specifically target new-age applications that use various social media platforms and AI tools to define targeted marketing approaches and help develop marketing products. Those areas will scale up, but VC funding for specific marketing services companies is unlikely to, or if it does, it will decrease substantially in most cases,” Gupta said.

But Kaul expressed skepticism about the link between AI adoption in marketing and investor interest. “Unlike other sectors, this industry has a flawed structure where longevity is restricted by the owner,” he said.

He added that declining margins and price wars have also made it challenging for these firms to attract top talent, even as the industry struggles with instability in client contracts. “There was a time when top talent was recruited from IIM Ahmedabad, followed by MICA, but now even those candidates have become too expensive for such firms to hire,” Kaul said.

“They can't even afford to hire from MICA because what used to be a 15% commission turned into a retainer, and the retainer kept going down due to competition. If one agency doesn't provide the service, there's always another one willing to do it for a cheaper rate. So, the inability to maintain price stability, lack of entry barriers, and all these reasons are why it can't happen,” he added.