Are journalisms start-ups being appropriately funded?

If you’ve been paying close attention, you might be aware that myself, Kevin and our friend Stephanie Troeth are working on a journalism start-up called NoThirty. Kevin and I have been thinking of ideas for a journalism project for about two years now, talking over different concepts and throwing out the ones that didn’t seem feasible. In January we started work in earnest, bringing Steph on board as our co-founder. We are now at the stage where we need to find funding so that we can get our prototype built.

I have always been keen on the idea of using grant funding wherever possible, certainly in the very early days. Grants are hard to get, slow to arrive and come with strings attached. Almost all money has strings and the key thing is to understand which strings are acceptable and which are deal-breakers.

Last week, we were alerted to two possible grants that we could apply for, one independently and one via a university partner. As I read through the grant details, I was struck by how some of their requirements would immediately undermine our start-up’s business models.

I’ll talk first about JISC, the Joint Information Systems Committee, which supports the use of technology in research and higher education (as we are not in HE/FE, we’d be applying as a partner of a university). They are currently running a programme aimed at improving and expanding the use of digital archives through collaboration between educational bodies such as universities, private business partners and the general public. NoThirty would fit into the remit of this programme, but JISC require “software outputs” to be open source and for there to be enough supporting information for that software to be reused. They also require content to be open access.

Because JISC are focused on an entirely different sector to the one we live in, I don’t say the above as a criticism. Indeed, I fully support their drive to ensure that publicly funded work done by educational bodies should be made available to everyone. But it became clear that their grants are not aimed at people like us, in the position we’re in, and their requirements would scupper us.

Our main aim is to create a sustainable business, so any requirement to open source our code has to be considered very carefully. Whilst we could release libraries rather than the full code base, until we are further down the road we won’t know if that is an appropriate route for us to take. Committing right now to open source/open access could turn out to be commercial suicide and it’s not a decision we can make yet.

Note that I am fully in favour of opening up as much as possible, as I believe that it helps create a healthy ecosystem around one’s service, but until you know the exact shape of what you’re building it is hard to predict what can be made open source/open access. There isn’t an open-closed dichotomy -both can live quite happily side by side in the same business – but one has to be able to make choices based on what is best for the health of that business.

The second funding source we considered was the Knight News Challenge which opens for applications on October 25th. But looking through the FAQ, which is the closest thing I can find to terms and conditions, I came across the same requirement for us to go open source at the end of the grant:

By “open-source” we mean a digital open-source platform that uses a code base that can be used by anyone after the grant period to either replicate your project in their community or to build upon it. You will own your platform, but you will have to share under GPL or Creative Commons licensing.

Again, I understand why they are doing this, but in this case, I feel that Knight is throwing the baby out with the bathwater. Where JISC exists to encourage the use of technology in education, Knight exists to help create new journalism organisations and a healthy journalism ecosystem. But by insisting on full open source, not just libraries or other separable parts, they immediately limit the type of projects they attract.

Most of the people I’ve spoken to about it attribute this insistence on open source to be a result of EveryBlock’s acquisition by MSNBC.com. EveryBlock got $1.1m from the Knight News Challenge over two years to fund development and were bought for, rumour has it, $5m to $6m. Whether Everyblokc is the cause or not, Knight’s open source clause causes problems.

If your project is a public service journalism tool or project, opening up your code makes sense. But if you’re looking at creating a financially sustainable business, then making your site/service/platform/product easily replicable by anyone could be a daft thing to do. If you have created something genuinely new and compelling, the result of making it easily replicable could be that someone with more money and bigger guns comes along and wipes the floor with you.

How does this motivate journalism entrepreneurs? Entrepreneurs work very hard to make their dreams a reality, they take risks not just with their money, but with their time, reputation and their career. What’s the pay-off for all that risk? In the rest of the start-up world, it’s the dream of a big exit, a windfall that make the hard work worth it. Most start-ups never get there, but you still want to have that hope.

Taking that option away from the very beginning will put off journalism entrepreneurs who have an eye on commercial viability. It stunts the growth of the start-up community. It damages the news ecosystem over all and will have knock-on effects for years to come as projects that could have made good businesses remain scribbles of the back of a napkin because of a lack of suitable, early-stage support.

I think Knight are being short-sighted by insisting that grantees go open source. If the only projects they fund are public service projects, what happens when the grant runs out? How will those projects become financially sustainable? How will they provide employment for journalists? We desperately need to find new business models for news and there are untold thousands of journalists searching for work. This means we need to foster start-ups that could become commercially viable, that could develop new business models, and that means they could wind up in a big exit.

I know what some of you are probably thinking now: If a project is so commercially viable, let the angels and VCs fund it. That’s what they do, after all. But I don’t think that’s an answer. We’re going to need a lot of experimentation, a lot of learning, a lot of slow growth before we get to the point of understanding what the new commercially viable business models are for news. Clearly it’s not a problem that is easy to solve, because if it was, we would have solved it by now. I love the quote from Barack Obama in his recent Rolling Stone interview:

[T]ypically, the issues that come to my desk — there are no simple answers to them. Usually what I’m doing is operating on the basis of a bunch of probabilities: I’m looking at the best options available based on the fact that there are no easy choices. If there were easy choices, somebody else would have solved it, and it wouldn’t have come to my desk.

There are no easy choices in journalism innovation. If there were, we wouldn’t be in this mess.

I certainly don’t want to generalise about the motivations of angels and VCs, but generally speaking I don’t think that they have the stomach for the kind of long-term investment and support that news ventures are going to need. Private equity investors seem to prefer start-ups with simple concepts, potential for mass market adoption and a quick route to profitability.

Journalism innovation certainly isn’t simple – all the simple stuff has been done already. It’s not mass market either – the fragmentation of the market is one of the key problems that any start-up would have to overcome. The fact that audiences are time- and attention-poor and have a myriad options to choose from when it comes to how they spend that time and attention has pretty much destroyed the ‘monetise eyeballs’ business model, so any new model has to depend on niche markets. And as for profitability, given the potential need for extensive research, experimentation and change, I don’t think that many journalism start-ups will find profitability within three years, and it’ll probably be more like five. How many VCs would be happy to fund a start-up that is complex, niche, and slow to profitability?

It turns out that, indeed, VCs aren’t flocking to fund media start-ups. Matthew Craig-Greene recently wrote on The Media Briefing that (original emphasis):

Private-equity firms are not really investing in young, entrepreneurial media start-ups.

Whilst cash invested in media buyouts has grown nearly six-fold since the late nineties, investment in fast growing, maturing media businesses has less than doubled and, worst of all, venture-style investments in new, disruptive media technologies and service models has remained absolutely flat.

So far in 2010, the only significant venture capital deals in the European media sector to grab my attention have been Rockola.fm, a Spanish online music and radio business, and pr2go, an innovative, online PR agency with a distinctive “pay as you go” pricing model. The two investments together total less than 2 million.

If grants like those from Knight are inappropriate and private equity investors don’t have the guts for it, who exactly is going to fund and support innovative journalism start-ups? Matthew suggests that perhaps large media organisations should create investment funds, but many of them are preoccupied with their own survival and lack the skill to both spot promising start-up and let them develop in their own direction.

Where does this leave NoThirty? Well, we’ll keep looking for grants that have more acceptable strings and we’ll almost certainly be trying alternative funding models early next year. Keep your eye on the blog for news.

12 thoughts on “Are journalisms start-ups being appropriately funded?

  1. Really interesting piece, Suw, and thanks for referencing my post at The Media Briefing. Depressingly, I think you are right: VCs aren’t going to find very many journalism projects that interesting. Right now, I think the only way to confidently launch a new title is probably to do so through an established media firm. Naturally, this imposes somewhat on the very editorial freedom a journalist-entrepreneur might be looking for. And selling a new idea into established media businesses at the moment is pretty tough, too.

  2. Good article,

    You make a good point about Open Source. One of the Hallmarks of business is the idea will give you an advantage and give your competitors a disadvantage in the marketplace.

    Open source will be good in some areas but in others areas it could hurt the Entrepreneur.

    Check out theseedblast.com. We connect Entrepreneurs to Angel Investors, Venture Capitalist, Hard Money Lenders and more.

  3. There is a major disconnect between available outside funding and those who are driving journalism startups. I can tell you from direct experience. I started The Printed Blog – we were a daily newspaper comprised entirely of the work of citizen journalists (bloggers) and other content. When it launched, I was in every print publication in the world, on TV, on the radio, etc. I met with the largest investors in the world – billionaires, the folks who funded Groupon… about 14 different major venture capitalists, and I was unable to raise significant funds. I’ve recently re-launched The Printed Blog in a weekly subscription model (to avoid raising funds for the moment and the expense of doing ad sales), and I’m about to launch another daily newspaper called The Top Sheet. I’m bootstrapping everything… Best, Josh (founder and publisher, The Printed Blog)

  4. You make a lot of good points Suw, but I think the commercial viability of open source isn’t as bleak as you suggest. One can still give away the product by charging for the manual (e.g., Red Hat Linux). And as for EveryBlock, the value came from their content and not the platform.

  5. If I recall correctly, they responded to the EveryBlock sale with a requirement that led to the Foundation getting a cut of future deals or something similar. I applied for a grant after that and that’s why I recall the detail. I’m not sure when they decided on the open source requirements.

    I understand your frustration but I think organizations that are trying to maximize their gain for the public good are right to make commitments to open source and also to open access. That’s a requirement that I wish had been enacted long ago for publicly funded research and the like though I certainly wouldn’t object to a private foundation feeling that other approaches are also valid.

  6. But I hear you on the sustainability issue. I’ve looked at a lot of the projects that get funded and I often have problems finding signs of future profitability and there’s a limit as to how many would get ongoing funding.

    That would be true of private funding as well so I think the issue is, whatever their requirements related to open source software, the business model issue should be taken quite seriously. They may be recognizing that problem and that may be why, if I recall correctly, the next round of one of their journalism funding projects includes an emphasis on innovative business models.

    Or they could simply be following the next in their list of trends. Hard to say.

  7. Matthew, I think the established media firms are just too focused on their own problems right now. I’d be really surprised if any of them had the foresight or the muscle to start an investment fund at this point. That said, perhaps the public broadcasters could do it – S4C has an investment fund that they haven’t been doing much with (as far as i can see, at least), although given the threatened cuts, that money might go on keeping them alive.

    Joshua, thanks for your insight. Sadly, I’m not at all surprised. I do think that if there’s the option to bootstrap then perhaps that’s the way to go, not just for you but for us too.

    Jesse, I’m not against open source and I realise that it can be commercially the right decision. As you point out, there are examples where open source makes perfect sense. It isn’t always the best route, but the decision should be made by the people running the start up when the time is right, not pre-emptively by the funders. The business model issue is at the heart of the problem, which is why we need to fund experiments to try to figure out what works.

  8. Stop belly-aching and get on with it… If you spent as much effort working on your idea as I imagine you do moaning about the problems, you’d be ,akin a lot more headway. It’s not easy, in fact it’s bloody hard starting a tech firm, that’s why only a few make it!!!

  9. Rupert, sweetie, you have no idea what we’re doing behind the scenes, and sadly you have imagined it all wrong.

    You’re equally wrong to think that this post is ‘moaning’, because how journalism start-ups are funded is a very important issue with implications way beyond what happens to us. We need to have a healthy ecosystem of sustainable journalistic start-ups, but the wrong funding model will undermine them.

  10. How many staffers do you suspect your startup will require? Are you doing anything that is particularly technologically innovative? How many people will do you think will be attracted to your content or service? As you may have already found out, these are the questions that private capital asks. There are plenty of capital resources that have the stomach for long-term profit plans, but those plans must be attached to something that will scale. Amazon.com with its 7-year road to profitability is a good example of long-term capital commitments for big ideas. The point I’m trying to make is: If you have something that a lot of people will use, the money will find you.

  11. Syed, I guess it depends on how you define “a lot of people”. What a news outlet might define as “a lot of people” might be “hardly anyone” in a VC’s eyes.

  12. The idea that VCs and angel investors are not funding media startups is not what I’ve seen (atleast according to my personal, empirical evidence). My media startup raised money twice – once an angel round last year and another larger round this summer. We were Europe based as well, although now relocating to NYC.

    During our latest fundraising process, I saw a tremendous amount of interest in the media sector, mainly due to the opportunities being created by all the structural change in the industry. However, pure-play content startups will find it tougher, and rightly so (unless there is business model innovation away from pure CPM plays).

    BTW, just discovered this blog – great stuff! Let’s grab a coffee at ONA next week.

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