Feb 5, 2019

VC-backed media companies aren't like software companies

Illustration: Rebecca Zisser/Axios

Last week's triple-digit layoffs at BuzzFeed and Vice were blamed, in many digital media quarters, on unrealistic growth expectations by those companies' venture capitalists. Kind of like what we heard after Mic shut down, except louder.

Yes, but: It's more complicated than that.

  • Let's start with the obvious conflict: I work at a VC-backed digital media startup. And we're not even 2.5 years old yet, so what follows could really come back to bite me in a few years. After all, neither BuzzFeed nor Vice were doing layoffs so early into their existences. So please delete this email immediately after reading.
  • Media, like mattresses, isn't software. It doesn't scale the same. And if either VCs or entrepreneurs don't recognize the distinction, they're both going to be in for a world of hurt. Or at least their non-core employees will be.
  • But digital media startups can generate returns that satisfy VCs, founders and early employees.
  • One recent example would be Business Insider, which raised around $55 million over 7 years, with a $7 million pre-money on its Series A in 2008 and a $166 million pre-money on its Series G in early 2015. Later in 2015 it was purchased by Axel Springer at a valuation north of $440 million (it's a bit complicated with cash on hand and Jeff Bezos rolling over his shares).
  • Yes, Business Insider got lucky that Axel Springer had just lost out on buying The Financial Times, but it was still well-positioned as a consolation prize.
  • Business Insider founder Henry Blodget tells Axios: "We assessed our 5-year plan carefully with every raise. We wanted to be confident that we could generate a compelling return. We also didn’t want to take more than we needed to. In hindsight, that approach worked well."
  • Blodget adds that he doesn't "think it’s categorical that more capital is necessarily bad," pointing out that both BuzzFeed and Vice have built large, highly-valued companies. But the reality is that they've raised around a combined $2 billion, so even achieving Business Insider-level returns for later investors is extremely daunting. Again, this isn't software.

Go deeper

Coronavirus spreads to more countries, and U.S. ups its case count

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens.

The novel coronavirus continues to spread to more nations, and the U.S. reports a doubling of its confirmed cases to 34 — while noting those are mostly due to repatriated citizens, emphasizing there's no "community spread" yet in the U.S. Meanwhile, Italy reported its first virus-related death on Friday.

The big picture: COVID-19 has now killed at least 2,359 people and infected more than 77,000 others, mostly in mainland China. New countries to announce infections recently include Israel, Lebanon and Iran.

Go deeperArrowUpdated 3 hours ago - Health

Wells Fargo agrees to pay $3 billion to settle consumer abuse charges

Clients use an ATM at a Wells Fargo Bank in Los Angeles, Calif. Photo: Ronen Tivony/SOPA Images/LightRocket via Getty Images

Wells Fargo agreed to a pay a combined $3 billion to the Justice Department and the Securities and Exchange Commission on Friday for opening millions of fake customer accounts between 2002 and 2016, the SEC said in a press release.

The big picture: The fine "is among the largest corporate penalties reached during the Trump administration," the Washington Post reports.