Growth is the key to valuation, as long as you have these fundamentals.

Investors from Mountaingate, Longshore and William Blair shared why they made investments in the affiliate marketing industry and where they see the future of the industry.

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Before the recent rapid rise in e-commerce and before the affiliate model was being employed across a range of partner types, Bennett Thompson, Nick Christopher and Jerry Darko saw the potential of the industry and risked capital on their early analysis. On Wednesday they shared their insight and thoughts on the future of the industry. All three agreed that investment in the affiliate industry was still in the nascent stage and being driven by a combination of e-commerce growth and the saturation of other digital channels. Then they provided clear thoughts on what drives value for SaaS and services businesses.

If you missed it, stream a recording of the event here.

Prior to founding Longshore Capital, Nick Christopher and his team at LaSalle Capital invested in Gen3 Marketing, eventually expanding the agency via the acquisition of OPMPros, and Optimus Performance Marketing. On Wednesday's webinar he provided a clear roadmap for an agency leader looking to create value.

"We look at customer concentration, recurring revenue, systems, employee turnover and revenue predictability"

All of this is predicated on growth. Jerry Darko was emphatic when asked what was more important, growth or margin in the current climate. "I'd say growth" Darko commented, especially for the SaaS players.

Prior to investing in Acceleration Partners (AP) and leading AP's acquisitions of Streamline Marketing and R.O.EYE, Bennett Thompson and Mountaingate Capital made strategic investments in search and social agencies, so has a unique perspective on the growth of affiliate.

"It's really become a channel versus a tactic. Historically it was more of a tactic within digital performance marketing. Now is it a channel along with paid search, paid social or SEO. said Thompson"

He added, "this (affiliate) is at a tipping point, maturation, scale, sophistication, the ecosystem has developed to a point where we think there is a big tailwind in the space."

Risks were considered during investment.

Although the investment might seem obvious now, they considered a number of very real risk factors prior to investment.

"Networks growing their service arms and overwhelming our ability to compete (are risks), we also talked about Amazon disintermediation driving people away from the affiliate channel, and where marketing budgets are and what happens in a recession. What we got comfortable with is that this is a business where you only pay for performance and is unlikely to get cut by corporations when we go into a downturn." Explained Christopher.

They were less concerned about in-housing as a threat. "When we have clients that want us to support them in terms of building an in house effort we'll do that. Clients leverage the talent, tools, know-how and insights from analytical engines we've built. They lean on us to become an extension of their team. So while there is in-housing it is still a partnership where they (clients) may have a strategy lead, but lean on us to do the execution and help them avoid a lot of the pit falls from lack of experience" Bennett added.

Despite the necessary manual labor Bennett described, Jerry Darko reiterated that automation is coming. "We do believe automation is where this market is ultimately going."

But Darko added that barriers to growth were now more cultural than technical.

"This industry is big, but is viewed as a tactic, and is an insular industry, people have a narrow definition of what affiliate is, so the opportunity is bigger. Using technology and processes and people to think about all of the areas where you can partner to drive growth for your business.
But it does feel like we are reaching a tipping point, but there is work to do to teach people to think of affiliate differently and to integrate the affiliate efforts into the organization and to make it more strategic." said Darko.

Stream the rest of Darko, Christopher and Thompson's insight here.

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