“You can’t get venture capital if you’re hiring people who make content.” Of all the people least likely to say those words, Jonah Peretti, chief executive of BuzzFeed, would have to be high on the list. But Peretti is no stranger to having people say exactly that to him. Looking for investment in his startup back in 2006, Peretti found that the mere mention of the word “content” was enough to scare VCs away.
“When we started, investors did not want to invest in anything that involved journalists or reporters or other professional people creating content,” Peretti explained last year. “Everyone just said, ‘You can’t get venture capital if you’re hiring people who make content.’” Almost a decade on the landscape has vastly changed. From raising an already impressive $46 million in its first four rounds of funding, BuzzFeed blew that out of the water with a $50 million injection from VC firm Andreessen Horowitz last summer.
So what has happened? Why have VCs that were previously so quick to shun content-based businesses changed their mind? It helps to begin with the negatives. As Peretti found out in the early days, VCs see humans as risky. Content-based businesses are the antithesis of what has traditionally been deemed safe investment. Rather than writing a single piece of software and scaling it up, content requires people to create it, keep creating it and then create it some more in a never-ending stream of production.
This isn’t something that most VCs were familiar with. The majority of them had previously been pretty inexperienced when it came to the world of content, entertainment and media. If an entrepreneur-turned-VC made their millions from a big tech company such as Intel or PayPal, they were often wary of piling in on a startup in a content sector that they knew little about which is understandable.
Nowadays people with more of an understanding of the media world have started to operate as investors. This has contributed to creating a more fertile environment for content-focused entrepreneurs to raise money.
The examples globally are numerous. Aside from BuzzFeed, you could look at Vice Media, Contently, NowThis News, Upworthy, Business Insider or a host of other content-based businesses that have seen huge investment from VCs in recent years. The key is people and the power of the consumer. No longer only looking for companies based around products, designs, hardware, software or algorithms, VCs are now attracted to the same people who used to put them off investing in content-based businesses.
As smartphones, tablets, computers and televisions converge and become omnipresent, content – either in the form of video, audio or the written word – is accessed at all times in all environments, which can therefore be scaled more easily and is valued higher. The latest generation of consumers is accustomed to accessing whatever content they want at any time. This has seen new media companies (and the VCs behind them) latch onto the trend and begin to profit.
Previously VCs were inclined to view content as a saturated market that was all too easy to produce and difficult to build an audience. Now though, there is a realisation that the relative ease of content sharing is what makes it attractive to investors, while the consumers themselves act as quality control. If the core idea is strong enough – and of course executed properly – it will succeed.
The internet, and a growing array of devices on which to consume it, has helped new media companies turn what could be deemed as niche ideas into global businesses by spreading content to specialised audiences around the world. Complex Media, which has websites on such diverse topics as sneaker/trainer collecting and indie music, and The Dodo, which purely covers animal stories, are just two examples of these sorts of businesses that tap into previously difficult-to-reach markets.
VCs often point to the successes of games developers, such as Rovio (Angry Birds) or King (Candy Crush) to illustrate the fact that investing in content companies is essentially a hits business. Compared to enterprise-level B2B investments, some say that companies require a winner-take-all proposition in order to generate venture capital returns for investors. While it’s true that results tend to be more binary for content business when compared to those in the B2B sector, the process of investing in and growing content businesses is very similar to that of consumer Internet businesses.
Companies like Rovio and King tend to grow in a similar fashion to the likes of Snapchat and Facebook. It’s not simply a case of making a “hit” and living off of the royalties; the product requires continuous innovation and development, and founders need to live inside the heads of their users to focus on building a product that provides tremendous value. In that manner content companies are not too different from traditional companies that VCs involved with B2C have previously invested in, and eyes have started to open to that fact.
The change can be seen not only in the mindset of VCs but also the big tech companies. Take Netflix, for example. For years a distributor of content developed by others, their decision in 2011 to start financing, developing and producing House of Cards was something of a landmark moment in the video-streaming market.
Producing compelling content is now seen as the special sauce that platforms seek to attract and retain users and drive revenues – hence why Amazon Prime and Netflix are investing in original programming and that we in the UK are placed to benefit, given the success of the UK in content production. However, investing in and driving returns in this sector requires specialist knowledge.
This doubling down on content has been replicated by the likes of Amazon Prime, Xiaomi, Yahoo and many others. If it’s good enough for them, it’s good enough for VCs. Content is becoming more important each year, and producers and aggregators are now major players in the tech world. Hot on their tails, VCs have started to wise up and catch on. With the trend showing no signs of reversing any time soon, expect to see plenty more of them getting involved.
News By : TechCrunch