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Show Me the Money: Finding Cash for Your Publishing Start-up

In Digital by Guest Contributor

Traditionally investors looked to technology as a scalable asset, but content appears to be making a comeback.

By Sophie Rochester

When it comes to getting your business off the ground, in addition to vision and a solid business plan, you need one thing above all: money. At O’Reilly’s Tools of Change for Publishing conference last week, a panel representing very distinct viewpoints — from that of CEO to venture capitalist — came together to discuss the issue as part of the panel: “Start-ups to Publishing Companies Ripe for Expansion: What Are Investors in the Publishing Sector Looking For?”

Thad McIlroy, Principal of The Future of Publishing, has been arranging VC financing for start-ups for two decades, specializing mostly with publishing tools and some SaaS (software as a service) companies. McIlroy kicked off the discussion with a sobering account of his experience of publishing investments – in the last two to three years he’s worked with a couple of pure publishing companies looking for VC funding and he feels it’s a very tough market. McIlroy explained that there are lots of companies looking for funding without success and believes that publishing is not a fertile ground for VCs, because publishing is not generally profitable. “You’re going to have to fight for the investment dollars and you may need to give up a lot more than you want to, to get that money”

Speaking not only as an investor, but also as someone who has sought investment, Christophe Maire, founder and CEO of txtr.com, begged to differ. Maire is bemused as to why there isn’t currently more interest from investors in this area. An active investor in the Berlin technology scene, Maire has been involved in the build-up of Brands4Friends, Plista, Barcoo, Readmill, Appaware, Amen, and Soundcloud, where he sits on the board. Maire believes that more investor attention should be paid to the publishing sector – especially the e-book market. Sectors such as the music industry, he feels, get a disproportionate amount of attention from investors.

This sentiment was echoed by Henrik Werdelin, Managing Partner at product innovation studio Prehype, saying that perhaps when presented with an ebook-related company that this somehow doesn’t have the same “sexiness” as something like a music-related project. Werdelin also dismisses the notion that when presented with a potential investment that vertical industries are particularly relevant at all — that is to say, that they would look more at whether a new product or service resolves a specific problem around user experience than to which industry it is set to serve.

Brian Rich, CEO of Catalyst, a growth private equity fund, is generally more optimistic about publishing investments. Rich distinguishes himself from VCs, and underlines that Catalyst is really looking for proven business models, namely lead generation, content and subscription businesses. Catalyst recently invested in two successful publishing businesses, including one bought from Reed/Elsevier a few years ago, which has been transformed into a majority digital business after what Rich calls “a lot of hard work.”

The Pathway to Securing Investment

Valla Vakili, co-founder and CEO of Small Demons, a content discovery platform, represents a company that has successfully managed to attract plenty of seed funding to date. Although the platform could be positioned as industry-agnostic (as it covers books, music, film, etc), Vakili is adamant that the company is a “narrative-first enterprise” and is not afraid to put it firmly in the publishing camp. Vakili explains that first-level meetings with investors aren’t easy, there are a lot of questions which, at first, are hard to answer – but in time responses to these potential investor questions improved, and with that the funding started to come in.

Do the Big Players Leave Room for Start-ups?

With the omnipresent might of Google, Facebook, Amazon and Apple, what hope is there for publishing start-ups? Rich explained that it’s a double-edged sword – while the big players certainly make it hard for many companies to make their mark, they also offer up huge audiences to work with and the opportunity for secondary businesses to cater for these audiences.

Direct competition with the giants is futile – Rich and McIroy agreed that they’re not interested in looking at companies claiming to be “the next Facebook.” However, Vakili pointed out that knowing the ground not being covered by the giants, can help companies like Small Demons in considering what else it can offer its users. Maire was also keen to underscore that throwing in the towel with the big players might be premature, noting, “The world will not be totally dominated by Amazon.”

Content Discovery and Remixing Content

So are there currently any start-up opportunities in the publishing market? Content discovery and content remixing appear to be two key areas being watched. McIlroy says while other industries are exploring content remixing, that publishing is failing “to differentiate between original content and remix.” He believes that there is still room for publishers to create a “rich, algorithmic method” to explore existing content and present it in different forms, citing Reader’s Digest as the original remixer of publishing.

Content or Technology as a Scalable Asset?

Traditionally investors looked to technology as a scalable asset, but content appears to be making a comeback. Vakili certainly feels that content is an equally scalable asset, a notion backed up by Rich who feels we’re moving back toward a period where “content is king,” though he qualified this by saying we’re not quite there yet. Angry Birds is cited as the perfect example of a piece of content developed and expanded into an entire franchise.

Takeaways for Start-ups

So what should start-ups looking for investment put on their check-list: don’t try and create the next Facebook, look to how your product or service will fit in or work with the giants, try to widen out what you’re doing from ‘publishing’ to broader category of “content,” think about content discovery tools (suggested by Rich as current gap in market) and last but not least – as Werdelin pointed out – if you get turned down by one investor then keep on trying, at the end of the day it’s just one very personal opinion which can be founded one something as arbitrary as “daughter likes to read so I’ll fund books.”

DISCUSS:Which Segment is the Most Promising for Publishing Investors?

About the Author

Guest Contributor

Guest contributors to Publishing Perspectives have diverse backgrounds in publishing, media and technology. They live across the globe and bring unique, first-hand experience to their writing.