This article first appeared in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.
Last week, ad-tech startup Visible Measures sold to AcuityAds for $10 million. It’s a tiny deal, but it deserves a second look for two reasons: One, it was a very disappointing outcome for investors, and two, it is a sign of things to come for many well-funded adtech startups.
Founded in 2005, Boston-based Visible Measures raised $70.8 million in funding, valuing it in the hundreds of millions. The company’s biggest backers include DAG Ventures, Mohr Davidow Ventures and General Catalyst. The $10 million sale price mostly covered Visible Measures’ debt line. There were rumblings of founder and CEO Brian Shin taking money out in prior rounds, while not offering all investors the same option. But I’m told Shin’s share sale was “de minimis” — around $500,000. Visible Measures had received buyout offers along the way, but the board supported the decision to turn them down because of its enthusiasm for the market.
Larry Bohn, who led the deal for General Catalyst, broke down what happened: Visible Measures started out as leader in digital advertising metrics, he said, but quickly learned the only valuable way to sell those metrics was to make it part of a video ad buying platform. So the company developed a video ad network and platform. It was going great! That is, until recent years, when the market consolidated around its current Facebook-Google duopoly. “A lot of the great work they did building out a sales force and customers got squeezed down to nothing because of the way bigger advertisers chose to buy from bigger players,” Bohn said. “Despite the best efforts of Brian and the team, it became clear being an independent player in the space was not possible.”
Visible Measures was close to breaking even, but revenue was “tenuous” and declining, he noted. My email to Shin bounced back, but earlier this week he tweeted a link to an article arguing startups shouldn’t use debt like growth equity. “Serious #startuptruth here,” he wrote.
The wider lesson is: Expect a flood of consolidation in ad-tech. The sector has become toxic to investors. Last year year the number of adtech deals fell 17% from the year prior, for example. “Anyone in this space right now is challenged. Anyone,” Bohn says. “You look at some of these very high flying ad-tech companies with multi-billion-dollar valuations… They just come screaming down.”
One way startups are avoiding the stigma associated with ad-tech is by positioning themselves as “mar-tech” or marketing technology. The difference seems, well, de minimis, to me. Ad-tech companies make money when advertisers buy ads, while mar-tech companies sell software via subscription, but the two seem to be increasingly blurring together. Buyers agree. Recall that last month, Salesforce’s head dealmaker John Somorjai told Term Sheet the company is not interested in acquiring companies in marketing and analytics categories.
Not all ad-tech companies are duds. The Trade Desk, which went public last fall and is trading up 26% from its first day, has bucked the trend, thanks, in part, to its profits. Last quarter, the company reported earnings before interest, tax, depreciation, and amortization of $28.6 million and adjusted earnings per share of $0.33.
One last thing to note: The Facebook-Google duopoly has its challengers, but they’re not ad-tech or mar-tech companies. Snap is the most obvious one, and Pinterest may be a close second. Yesterday Recode reported that the company plans to do $500 million in revenue this year and is “putting the pieces in place” for an IPO.