Croud has sold a minority stake to private-equity group LDC for £30m – the latest in a wave of deals involving UK digital marketing and performance agencies.
Luke Smith and Ben Knight, who co-founded the performance agency in London in 2011, claim they have a unique model as Croud has developed proprietary technology and a remote network of more than 2,000 "on-demand" digital marketing specialists to work on executing campaigns.
Clients include Axa, Audible, Hiscox and Virgin Trains.
Croud and LDC, the private-equity arm of Lloyds Banking Group, said the investment will allow the agency to "accelerate" growth in the UK and internationally.
Smith, Croud's chief executive who previously worked at Google, said they are "hungry" to keep growing the business and LDC said it is "backing the management team’s vision".
Cash windfalls for staff
Smith and Knight will each become multimillionaires because they own an estimated 30% between them.
The pair are going to share £8m of LDC’s money with the agency’s 185 staff.
About 160 of the staff will receive cash windfalls, depending on seniority and length of service. Around 15 or so senior figures will get six-figure sums.
Even recent joiners are expected to get rewards such as Amazon gift vouchers, although the network of "on-demand" freelancers are not in line for windfalls.
Smith said: "This moment is the culmination of eight years of hard work, dedication and brilliance from our team, all of whom are stakeholders in the business and will share in our success."
Rewarding staff matters because "it makes people truly care about the business and what we are doing for our customers", he added.
"We’d expect every member of staff to get more in part two" if Croud continues to grow and sells more equity to external investors, according to Smith, who said a stock market flotation is one long-term possibility.
'This is just the beginning'
Smith is "bullish" about the future as Croud is growing at "over 40%" and expanding internationally with offices in London, New York, Sydney and Shrewsbury in the west of England, where 110 staff with 30 nationalities work in a "talent hub".
"This is just the beginning," Smith said. "We underwent a rigorous process in finding the right partner for us and looked at several options, but LDC share our vision and offer the ideal platform for us to continue on our mission."
It is thought that Croud's M&A conversations included some agency holding companies, but it did not warm to the consulting giants.
When Croud launched in 2011, the founders wanted "to build a truly different marketing communications business", including its network of freelancers, and Smith said "the dream to become the world’s finest digital technology and communications group remains very much alive".
Croud's technology offer includes Serpico, a software-as-a-service platform, which allows in-house digital marketers access to the agency’s "Croudie" freelancer network, as well as other digital auditing and benchmarking tools "to improve performance".
Smith insisted Croud maintains "quality assurance" because it has a trusted network of freelancers and it does not run "a marketplace" where anyone can pitch for work.
David Andrews, director at LDC, said: "The team at Croud have built a unique proposition that is disrupting a fast-growing sector.
"Its crowdsourced and tech-enabled model has proven it can deliver exceptional results through faster, more cost-effective and efficient resource, combined with the ambition of the team – the perfect ingredients for growth."
Reinventing the agency model
Croud’s sale of a minority stake came weeks after Jellyfish took investment from Fimalac, a French conglomerate with plans to build a digital marketing services group to rival Sir Martin Sorrell’s S4 Capital.
Tradelab, a Fimalac subsidiary, will become part of Jellyfish as part of the deal that values the enlarged company at a £500m valuation.
Brainlabs, another competitor to Croud, sold a minority stake to Livingbridge, a private-equity business, in March.
Simon Nicholls, partner at GP Bullhound, which advised on Croud's sale, said: "Croud is changing the game with technology, with an ability to deliver the right resourcing of skillset and local expertise at higher utilisation and lower cost, using a curated proprietary marketplace of talent.
"In an increasingly digital-first market, we expect to see more reinventions of the agency model like this, using technology and the gig economy to drive new delivery solutions."
M&A firm Results International advised LDC on the acquisition.
Smith said he was an admirer of both Jellyfish, which is based in The Shard, and Brainlabs, which is at Old Street.
"We’re all within about a mile of each other – it’s phenomenal," he said. "There are very few industries globally that have as much energy as the digital marketing space in London."