Vungle gets $2M in seed round for in-app video ads

SV Angel, 500 Startups, SoftTech VC, Maynard Webb, Scott McNealy, Tim Draper invest

There's two markets experiencing rapid growth: mobile apps and mobile advertising.

And, Vungle is vying to become a big part of those opportunities. 

Vungle announced Wednesday that it's raised $2 million in seed funding to help mobile app developers get noticed by advertising their apps through 15-second video trailers. The new funding comes from a star-studded group of early-stage investors and angels, including SV Angel, 500 Start-ups, SoftTechVC Charles Hudson, Maynard Webb, Scott McNealy and Tim Draper.  

San Francisco-based Vungle, which was an AngelPad graduate in the fall 2011, creates video trailers for app developers that want to advertise and rise above the noise in the very crowded app field. Essentially, think of Vungle as a creator and distributor of video advertisements on the iOS platform. The start-up prides itself in its ability to produce cost-effective mobile video advertisements at scale.

"We can capture the output on the mobile device so you can capture the application in action," said Zain Jaffer, CEO and co-founder of Vungle, in an interview with me.  "The ability to make the videos is our secret sauce," said Jack Smith, co-founder of Vungle. Because the team has figured out a way to produce these videos at low costs, they don't charge advertisers for the production of them.

The advertiser, in this case the app developer, is only charged when a video is viewed. 

Those videos are embedded in other apps created by game developers. Think about playing Angry Birds and after knocking out a couple piglets, a 15-second trailer of Words with Friends pops up. That's the thinking behind how the ads will appear. Vungle believes that a video trailer or video advertisement that shows how an app is used is a far more effective advertisement than a banner advertisement, screen shots or user rating. 

But the price an advertiser pays will be roughly in line with the going rates for mobile display ads, which can run between $10 CPM and $60 CPM. Vungle has yet to determine the price point for the ads.  

At the moment, Vungle isn't working with Rovio, the producer of Angry Birds, or Zynga, the maker of Words with Friends. In fact, Vungle has very few publisher partners. But Jaffer and Smith hope the fresh funds will help them expand their publisher footprint in order to have enough inventory to place their video trailers in.

But getting these publishers may not be so easy. There are a number of mobile advertising networks hoping to get their hands on that inventory. For instance, there's Mogreet, a mobile video ad company, which just raised $4 million in funding. There's Kiip, which has a $100,000 campaign to attract game developers so it can help monetize their inventory with in-app rewards, and many others that are in this space, including Adelphic, which just raised $2 million, and the big whale in this category Google's AdMob. 

Of course, at the moment, many of these services focus on different aspects of advertising and different markets. Vungle is focused on rich-media video ads (not display) and on mobile app developers, at least for now. And, video advertisements are said to be more effective than display, as TV ads have been said to be more effective than print. That's because 15 or 30-second spots can deliver brand image, informational content, emotional content and action content. Print ads don't deliver on those four elements because there's just not enough room.    

But while video ads may be more effective, they'll likely be a more expensive alternative to other marketing channels offered by companies like Flurry and GetJar, though advertisers will most likely try multiple channels to promote themselves.

No shortage of will 

And, every market, particularly a booming one, has competitors. What makes a start-up succeed has as much to do with the team as it does the market timing. Both Jaffer and Smith appear to be a pretty determined team. About nine months ago, they were living in London. When they saw that there was an opening for the 10-week incubator class offered by AngelPad, Jaffer and Smith set out to take the spot. Through some clever, albeit creepy-stalker-like activity, the two Brits created an advertisement targeting close friends of Thomas Korte, one of the founders of AngelPad. The ads were designed to get Thomas to contact Jaffer and Smith. So successful were the ads that Korte eventually did contact them and within a week of the ads, Jaffer and Smith were accepted into the AngelPad program.