Despite some eye-catching deals in the last year, venture capital funding for media remains well below the 2015 and 2017 peaks, according to data shared with Press Gazette by Pitchbook.
At the start of 2022, “slow news” startup Tortoise secured £10m in investor funding to expand its audio journalism, events and membership-base.
Last year newsletter platform and alternative media startup Substack raised $65m in series B (second round) venture capital at a valuation of $650m. The investment was led by well-known Silicon Valley venture capitalist firm Andreessen Horowitz. The firm famously took a $50m punt on Buzzfeed in 2014.
These days however, we’re a far cry from the eye-watering deals and hefty valuations of the mid-2010s when the likes of Buzzfeed and Vice raised hundreds of millions in single deals. Some are yet to deliver major returns. Others, such as Disney’s stake in Vice Media, have already been written off.
Daniel Pitchford of Collingwood Advisory says: “If you study the charts, you can see investment peaked in the mid 2010s. One of the reasons why the investing world became more cautious was a concern over how hard it was becoming to keep audiences’ attention, and essentially a race to the bottom for increasingly free content.
“Consumers had a growing number of content platforms or even social media such as Facebook. There was a bit of stand back moment where, investors believed it would take longer to get a return on their investment, combined with consolidation, made the perceived risk higher,” says Daniel Pitchford of Collingwood Advisory.”
Data from Pitchbook shows that in 2020 venture capitalists invested $0.4m in digital media startups in the US and Europe, a fraction of the $1.6bn invested in 2015, the year Vice secured $400m from Disney.
Mergers and acquisitions activity within the sector however is strong with companies looking to merge or buy to get the scale needed to retain customers and take on the tech giants. PWC put the global value of such deals (excluding mega-deals) at $229b in the last quarter of 2021 – more than any quarter in 2019 and 2020.
Those large VC deals, which bet on eyeballs and scale, were driven by the hope that publishers would get their fair share of a burgeoning digital advertising market.
"[The large investments of the last decade] were basically a bet that digital advertising was going to move online and that publishers would have the ability to capture a share of that spend," says Abi Watson, analyst at Enders. "They essentially mirrored Facebook's growth until the algorithm change when it was de-prioritised. Obviously that had a massive impact on publishers’ ability to monetise so it tailed off after that.".
Half a decade on we’re in quite a different media landscape. While there's no shortage of clickbait and viral content for those that are so inclined, the success that some publishers such as the New York Times and (a few) individual Substack stars are seeing through subscriptions shows that quality is something that readers are willing to pay for.
"The really big deals can sometimes potentially distort the way that companies operate because they have to chase growth to justify the funds they've received," says Watson. "What you'll then see a lot of the time happen is they'll move onto more click-bait kind of content. It's why you now see the trend of subscriptions, donations and that kind of thing start to emerge because there's been a pivot back to quality."
Deals have also been fewer. The number of VC investment deals in digital media peaked at 180 in 2018. Since then that number has been in decline according to Pitchbook's records. There were 97 such deals last year.
The VC-backed business model - grow big and grow fast - does not necessarily marry with the kind of journalism some startups are trying to build.
Reduced influence for founders in some cases is another drawback, particularly for those that might be more "mission-based" in their reporting. It's why digital startups in some areas such as local news or investigative reporting have traditionally turned to crowdfunding or foundations instead for support.
Some media companies however, continue to raise money successfully - among them Puck, a US-based subscription-based outlet that says its coverage hinges on the nexus of "power, money, and ego".
Scaleable business models, built on a high level of recurring revenues, says Pitchford, are attractive characteristics to investors.
"What subscriptions do to a greater degree is increase the quality of earnings. It's not to say that more traditional ad-funded models aren't attractive, if they can demonstrate high degrees of visibility and repeatability in their reoccurring revenue.”
Tortoise, says Pitchford is one particularly interesting example.
"They’re focused on a membership proposition around a community that wants to go deeper into a fewer number of stories, quality over quantity you could say. All the things that talk to market value and the relationship you have with your community and audience are really strong in Tortoise's example," he says. "I think that's what investors are buying into because they can see a route to not only growth, but also profitability, if they can scale the memberships."
He adds: "Quality content is of course important, as is how you engage with, and the depth of your relationship with your audience. Both of which talk to the level of stickiness with an audience or a community."
This "ownership" of a community or audience is additionally help driving a boom in tech companies buying media companies. Marketing platform Hubspot's acquisition last year of business and tech news site The Hustle is one example among many.
Looking ahead to VC appetite for digital media in 2022, Pitchford, while cautious not to speculate says that there's plenty of capital to be invested.
"The world of VC, and PE overall has raised a lot of money over the last few years," he says. "There's a lot of capital to be deployed and so if there's if there's an upward trend in investor appetite, and a stronger case in digital media today, compared with five or six years ago, then it makes sense to see continued growth and investment in the category."