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Why venture capitalists are suddenly investing in news

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Why venture capitalists are suddenly investing in news

Something curious is happening in the American news business.

Media organizations are hiring again. Promising young reporters are leaving stalwart publications for new newsrooms. And venture capitalists are pouring millions into nimble publishing startups. It’s a rare moment of optimism for an industry accustomed to doom and gloom.

“When we started, investors did not want to invest in anything that involved journalists or reporters or other professional people creating content,” said Jonah Peretti, the chief executive of BuzzFeed, which launched in 2006. “Everyone just said, ‘You can’t get venture capital if you’re hiring people who make content.’
These days, BuzzFeed is rapidly expanding with $46 million in funding. Vox Media has raked in some $80 million in venture capital. Business Insider’s $12 million boost last week makes its haul about $30 million. And feel-good social curation site Upworthy has raised about $12 million since launching two years ago.

“Suddenly, the market for content just opened up,” said Sarah Lacy, founder of PandoDaily, which has secured about $4 million in venture capital since 2012. “It’s dramatically changed. I think a lot of it for me was Vice getting valued at $1 billion. No one had seen anything like that in the content space. And they’re trying to speak to a very specific audience that’s hard to reach in a deeply authentic way. It’s certainly not something you’re phoning in. It’s not a pre-written press release. It’s not a listicle.”
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The shift doesn’t simply reflect a renewed confidence in publishing. It’s also a signal that some online media ventures are finally perceived as being sophisticated and agile tech companies, as well.

“Even now you have people who say if there’s any humans making content then I don’t want to be involved,” said BuzzFeed’s Peretti. “But there are starting to be a lot who say, ‘I see, you have scale and leverage on the internet with social and mobile that will allow you to rebuild great media from the ground up.’ That resonates with people now. Five years ago, no venture capital investors thought media was a great business. They thought it had to be something rich billionaires or philanthropic organizations would fund. That’s the biggest change.”

Still, even venture capitalists who are bullish on media investments are split on whether recent funding is evidence of a turn or just a bright spot in an otherwise risky market.

“Media companies where you’re paying editors to create original content are companies where they don’t have that kind of natural flywheel that [user-generated content] companies have,” said Andrew Parker, a general partner at Spark Capital, which led Upworthy’s $8 million Series A funding round. “You’re on the treadmill of paying for content.”

The venture capitalists who are willing to back media organizations are looking for the right kinds of companies, some of which are similarly appealing to investors but distance themselves from one another. For instance, you may see stories from BuzzFeed and from Upworthy shared widely on Facebook by the same people, and the sites are mentioned in the same financial circles, but BuzzFeed and Upworthy see themselves as totally different from one another.

Whereas BuzzFeed has made a huge commitment of resources to producing original content, including investigative and magazine-style journalism, Upworthy curates existing editorial content. Curation is a practice that has deep roots in journalism, but Upworthy refuses to call what it does journalistic.

The idea that avoiding the word “journalism” because it could be a turn-off to investors is not part of the Upworthy strategy, a spokeswoman said. But Parker says “journalism” is indeed a word that scares off investors, who prefer publishing models that leverage user-generated content instead of paying a full-time editorial staff to create stories from scratch.

This attitude helps explain part of why more publishing companies—Medium, BuzzFeed, and Gawker Media, for instance—are experimenting with a mix of user-made and professionally produced content, a structure that enables editorial staff to spend more time producing high-quality work and enables them to dip into the pool of freely produced stories so they may showcase the best ones alongside their own content.

“I’m really optimistic about the future of journalism,” Parker said. “But I do think that if you polled a hundred of my VC colleagues and asked them about a social media company focused on the surfing community compared to a journalism company focused on the surfing company, more often than not they’re going to say if it’s UGC, that’s going to be a plus.”
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To Parker, recent publishing investments aren’t a signal of enthusiasm about the industry as much as a sign that it’s “less of a negative than it otherwise would be.” Things aren’t getting better, they’re getting less bad, he says. Other investors are more optimistic.

“Our general view is that news is a growth business,” said Eric Hippeau, managing director at Lerer Ventures, which has invested in PandoDaily, The Dodo, PolicyMic, NowThis News, Circa, and elsewhere. “There are many more people are accessing and interested in and engaging with news today than ever before, thanks to technology. So we’re bullish on content and we’re bullish on news. Clearly, we have to pick the right companies. Not everybody’s going to be a winner.”

For Hippeau, the organizations worth backing must be run by tech savvy, top-notch people focused on social distribution of stories that serve an existing but underserved niche audience.
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“They are all technology companies first,” Hippeau said. “They understand how people utilize technology and how to present and create content. In the case of NowThis News, we distribute on Instagram, Vine, Snapchat, and we have to be able to tell stories—whatever the desires, whatever the modality the user is interested in.”

Hippeau says The Dodo, which launched late last year and covers animal news, is a good example of a site that approaches an already-covered topic in a new way.

“There’s plenty of places where you can get information about animals, but we felt the market was underserved in terms of one organization that covered all animals and all aspects of animals,” he said. “So the idea of covering animals was not new but there was a new way to do this.”

As audiences have naturally fragmented online, companies that can identify and distribute specialized content to those audiences have found ways to thrive. It’s why Complex Media, a network of sites that caters to twentysomething male consumers, has more than a dozen websites devoted to people obsessed with sneakers.

“It’s all around people’s insane vertical passion-points,” said Complex Media CEO Rich Antoniello. “And I’m a little closer to someone’s wallet than a cute puppy site. That’s why it was so easy for us to raise capital.” (Complex Media got $25 million last fall from the owner of retailers like Rocawear and Rampage.)

The publishers that have successfully raised millions in venture capital say they notice something else encouraging about how conversations with investors have changed in recent years—a trend toward valuing high-quality work.

Here’s what Vox Media CEO Jim Bankoff says he likes to tell his employees: “Web content and web advertising have been engaged in this race to the bottom. You had crappy, cheap content that was gaming search engines or gaming Facebook. And now there’s a race to the top. We want to lead the way to the top for audiences, for advertisers — and as a result investors will benefit as well.”

Back at BuzzFeed, the newly formed investigative team is just beginning its work. There are dozens of editorial and engineering job openings in the company’s London, New York, and Los Angeles offices that reflect growth in areas like mobile development and data reporting. Peretti says BuzzFeed is focusing a lot on “investing in things that won’t pay off for a long time.” And he expects the media landscape will continue to change dramatically.

“There will probably be some amazing pure social network that doesn’t have any editors that emerges, or maybe there will be some incredible aggregator,” Peretti said. “There are lots of models. The difference is now is people are seeing there is a clear path to build a big, enduring media company that invests in things like longform and investigative journalism, and you can do that while you’re growing. I think people are finally saying, ‘This isn’t small potatoes stuff.’ The internet isn’t for small companies. These are going to be big companies.”

Adrienne LaFrance is a writer in New York.

 

http://qz.com/186492/why-venture-capitalists-are-suddenly-investing-in-news/

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