For many years now, VCs have absolutely “hated” investing in media companies. If you were starting a blog or a newsletter, it would be very challenging to raise money from traditional VCs unless you had proven out a ton of traction (with a fast growth trajectory).
But I think it’s important to understand why, because we’re starting to see an inflection point that will shift the entire industry.
Side note: my view on this topic is fairly strong and comes from working with a lot of newsletter companies over the years in running my startup, which was an email ad network.
What’s wrong with media companies?
VCs typically have not liked these criteria about media companies:
Low exit multiples on ad revenue (often 1-2x on annual revenue)
Hard to acquire users quickly & scalably (CAC is too high at scale)
In a recession, companies reduce ad spend – especially brand advertising
All of these things have been traditionally true — especially if you’re looking to sell your business in 5 years.
But what if you thought more long-term? Not a 5 year horizon but 10-20 years or even 20-30 years out? How would you think about your business differently? What would your strategy be?
Regardless of your business, you might do something like:
Gather an audience – maybe start a newsletter to get loyal fans
Launch a product to that audience
Launch many products to that audience to upsell them etc..
And maybe you sell ads or event tickets in the beginning to provide cash flow and keep your company afloat, but eventually you start selling other products and services to a loyal group of people… Maybe you even start a fund that gets layered on top of that.
Oddly enough, that playbook looks like starting a media company!! This is what is happening now — you see creators and influencers starting media companies with long-term goals in mind.
People like Mario Gabriele with The Generalist and Packy Mccormick with Not Boring (full disclosure: am a small investor in his fund) are layering on lots of programs and monetization mechanisms that all work in tandem. E.g. content about companies can also be investments and vice versa. When you align community engagement with monetization, this allows for incredible scale. I would bet that Alexis Grant’s new company They Got Acquired could very easily follow the same playbook with a similar audience.
Now you may be saying, “Well media companies have always tried to mesh together different monetization methods to try to increase value. Why is now any different?” For example, Thrillist acquired e-commerce company JackThreads to try to increase monetization.
I think now there is just so much more infrastructure available to media companies to enable them to quickly plug into new monetization methods and tools. For example, Angellist’s rolling fund allows creators such as Packy to quickly spin up a fund without doing the time-consuming backops work and fundraising required for a traditional fund. This didn’t exist even 2 years ago.
Or other wildcards — like crypto. Mario created NFTs — without third party tools to do that quickly and without hassle would make this near-impossible for a media company with limited resources to do at scale. You can envision community tokens coming in a big way to incentivize audience members to get more engaged and contribute.
In other words, there are now many ways to monetize quickly that have much lower COGs than creating new physical products to sell.
I think there has never been a better time to start building a media company and we will see many billion dollar media companies coming out of this era — perhaps even run by just a handful of people. Long gone are the days of just ads and events — the bigger monetization mechanisms are just getting started.