Is Now The Time to Raise Money?

Anyone who has spent much time with me and discussed various ways of building media businesses has likely heard my stance on venture capital and media. In a nutshell, a major contributor to media’s woes over the past decade has been an overreliance on venture capital, making media executives dependent on it.

I don’t blame VC for this, of course. Adults run these businesses and they’re the ones who decided to prioritize growth over sustainability. And since growth looked so good for so long, investors were more than happy to invest.

With that said, it might come as a surprise to some readers for me to pose the above question. And to some extent, I am surprised to be saying it because of where I stand on the VC and media pro/con list.

But we are operating in a very unique time in investing. So many SPACs have raised ridiculous sums of money (though it does appear to be slowing down). The markets continue to hit all-time highs. There’s clearly plenty of cash available for the right opportunities.

I started thinking about it earlier this week when a subscriber reached out after reading my piece on Overtime. He asked:

Should every bootstrapped media organization for a specific persona think about raising a venture-style round to build the bottom-funnel product right now?

My answer was yes, but with one qualifier. I wrote:

Once your DNA is content → audience → monetize → repeat, adding a big infusion of cash just gives you more firepower to build the business; who you are as a business likely won’t change. So, if you’ve built an incredibly loyal audience, take an infusion of cash to get more ambitious.

This is the critical point that many forget. In my mind, the purpose of venture-style investing in media is to take an already well-executed business and help make it more successful. This investment is not meant to help prove whether the business idea is right and taking it too early can create inefficient behaviors in the founding team.

Many of the media companies that I respect all had the same start. They raised a small round, likely under $1 million, and used that money to get the business to profitability. They then grew from there. Every dollar that came into the business could then be reinvested back into it. The early days were likely slow, but as the business got bigger, revenue and profits compounded.

This creates the right DNA for the business, which is what I am referring to in the quote above. Media companies need to learn how to create content, use that to build an audience, and then develop the sales skills required to monetize that audience.

In March 2019, I attended a Digiday event in Vail. Michael Finnegan, the President at Atlantic Media was a speaker. I wrote about it in my piece on media DNA:

I am paraphrasing here, but the gist was simple… His sales team was running into resistance from some advertisers who would say that The Atlantic’s competitors could offer similar packages for much cheaper. As Finnegan explained, those businesses were ignoring the cost of business when selling those deals because they cared more about showing top-line growth.

This fundamentally changed my perception of these media businesses. Revenue, not profit, is what powered their ultimate business goal: raising additional rounds of venture capital. Therefore, the DNA of those businesses was top-line growth no matter the cost.

Now counter that with The Athletic. “If we have to, we let them [advertisers] walk away,” Finnegan said at the event. His company’s DNA was about selling profitable advertising campaigns. If they couldn’t do that, they wouldn’t sacrifice.

This was the difference between media companies that were chasing their next round of VC dollars and a media company that had no choice but to build their business on the profits they generated.

But let’s say that the DNA is there. The content process is there, the audience is well defined, and there is a clear monetization strategy. Should you, at that point, consider raising money?

That depends entirely on what you’re going to do. Let’s look at Overtime one more time because this can help inform when it makes sense to raise a venture-style round.

Overtime is raising $80 million that it plans to use to help launch its own high-school basketball league. That’s a seriously down funnel product that, if it works, could be incredibly lucrative. Because it already has an audience, it can move faster to get it going than if they were a brand new business.

That’s true for a few reasons. First, they understand how to create great content. That means they’ll know how to use the basketball league in an efficient way for the rest of its business. Second, it knows how to engage with its audience. It’ll create features that its millions of fans actually want. And finally, it already has a well-established sponsorship business, so extending that to the league won’t be difficult.

This money should be thought of as opportunistic rather than necessary for business operations. Are there things that you’ve wanted to do with your business, but the hand-to-mouth way of investing won’t make possible? That’s when it makes sense to raise a round of money.

Overtime isn’t the only example of this. Industry Dive did this as well. One of the earliest pieces I ever wrote was on the Industry Dive deal with Falfurrias Capital Partners. At the time—and to this day—Industry Dive generated strong profits on significant revenue. Its DNA was cemented.

However, what changed was it now had more resources to take chances on new opportunities. Since that deal in September 2019, it has made a few acquisitions. In July 2020, it bought NewsCred’s content marketing studio. In December 2020, it acquired CFO Media Group, adding that audience to its already owned audience through CFO Dive. Finally, in February, it acquired Mobile Payments Today to become part of Payments Dive.

Having the cash from its partner, Falfurrias, at its disposal meant that Industry Dive could continue to make aggressive investments in growth. Did anything change with its business? No. It still runs a sustainable media company that generates strong profit. But now it can grow faster.

I’m not done yet. Look at Barstool Sports. According to Recode, “the Chernin Group … invested some $25 million to buy controlling stakes in Barstool in 2016 and 2018; people familiar with Barstool estimate that Chernin owned around 60 percent of the company prior to today’s deal.” My rough math says the company was worth less than $45 million in 2016. Fast forward to 2020 and it was acquired at a valuation of $450 million.

Why was that? Barstool was always profitable, but when Chernin invested, it provided the resources for Barstool to take bigger swings. The DNA didn’t change, but it finally had the cash required so that it could bring on even bigger talent, build a more robust commerce business, and when sports gambling was legalized, it was ready to pounce.

If your business has its content strategy figured out, has a well-defined and highly engaged audience, and has monetization that is sufficient to support the business, then maybe it’s time to consider getting opportunistic. So long as you continue to remind yourself of what your DNA is, a sudden infusion of cash won’t change how you build. In many respects, it can be the fuel you need to grow a sustainable business much faster.

I believe a lot of operators should be looking at this investing climate and determine whether they are in a position to be opportunistic. Even if the money isn’t used immediately, having it can be the warchest needed to act when an opportunity does arise. It took nearly a year for Industry Dive to move; but, when they did, they had the resources available to them.

To sum up, my thoughts on venture capital and media have not changed all that much. If you haven’t learned how to be a sustainable media business, I believe this sudden infusion of cash will only bring complications. Being a media operator is about building systems to create great content, build an audience, and monetize it. You can’t fast-track that with any amount of capital.