Digital Publishing
4 mins read

VC funding is crucial for independent media sustainability, but only with a strong social impact element

Donor-funded media is a growing phenomenon. From Craig Newmark to Google, philanthropic contributions to independent media projects considered ‘worthy’ have been growing. And the funding has been warmly welcomed and enthusiastically pursued by an industry struggling to find a commercial model that can compete with the duopoly.

But there are problems with donor-backed media, from over-reliance on a single ‘fairy godmother’ financer to worries about the impact on editorial independence. Possibly the biggest issue, however, is the absence of a sharp commercial imperative to find sustainability through innovation.

In a late January op-ed for European media-news site The Fix, editor Jakub Parusinski calls for changes in independent media funding models that will speed up and scale innovation. His concern is that relatively few European players are managing to grow and become sustainable, despite years of philanthropic support.

As an alternative to donor backing, The Fix editor suggests a VC-style model of funding to bring hard-nosed commercial imperatives to independent media development.

On first look I balked – more VC funding in media? Please. God. No.

But Parusinski’s idea goes beyond inviting more money men to take yet another seat at the media table.

He proposes the marriage of a commercially driven success and sustainability imperative with some social-investment proxies on the return on invested capital; a private-sector, quasi-VC approach to growing companies that factors in a level of social good.

Commercial goals meet social goals

‘Social impact investing’ is a hybrid venture-capital/tech startup funding model that introduces a focus on societal returns alongside more traditional financial returns on capital invested.

Mixing classic commercial metrics with the need to deliver against social goals, Parusinski thinks, would work better to increase the number of truly innovative independent media projects out there than current ‘donor’ models.

The ‘social impact investment’ ecosystem has until now focused mostly on ecological or inequality-related projects, but Parusinski thinks it’s time to include media in the social impact category, solving some of the innovation issues and helping to create a healthier media landscape.

One of three structural problems Parusinski identifies with the donor funding model relied upon by many independent media operations is the poor incentive to generate revenue. Donor funding, secured on an exciting, important or worthy editorial undertaking, is seen as a stop-gap until commercial revenues deliver sustainability.

In a pseudo-commercial play, donor funding is often throttled to incentivize revenue generation. This is in direct contrast to VC funding, where second round funding would pay for the development of commercial scale. And when revenue generation falls short under the donor model, as it very often does, projects deemed worthy enough will find another donor to bail them out.

Parusinski also notes the reluctance of donor-funded media organisations to pivot. If only a few larger VC-backed media businesses had been just a little bit more reluctant to pivot, but that’s another story. The failure to experiment is a problem; media businesses must be ready to try every available business model and shift to the ones that work. Sticking doggedly to the one founding principle that caught a philanthropic eye is clearly a problem.

Sustainable ventures

There are of course issues with the VC model. Second and third round funding may focus on revenue generation, but it’s mostly not about profitability. Revenue, yes. Profits, not so much.

In ‘The VC Boom’ for Quartz, Dave Edwards writes that, with VC funding, companies are expected to grow at all costs.

“The winner-take-all mindset of today’s technology industry encourages companies to spend as much as possible to grow as fast as possible. Dubbed “blitzscaling,” the modern growth strategy pushes companies to raise more capital to grow faster and then figure out a profitable business model later.”

In the purest VC environment, the reality of targets based on financial returns is that companies become increasingly dependent on funding to chase growth that ultimately outstrips their value proposition.

“VCs must bet on businesses with the potential for not just large-scale, but exponential growth,” wrote Jared Newman, citing the commodification and ultimate fire-sale of Mashable as a warning of what happens when you ‘affix the venture model atop a journalism business’.

The interesting part of the social impact investment approach, however, is its inherent resistance to chasing scale at all costs. With independent media ambitions limited by their mission to serve a specific social good, innovation and expectations, are framed by the mandated impact they will have on their engaged audience, rather than achieving unachievable Unicorn status.

Venture capital with a heart

The VC business has grown exponentially over the last half of the 20th century and the first couple of decades of the 21st. In Quartz, Dave Edwards describes how it grew from a few small partnerships in Silicon Valley into a global industry investing more that $250 billion a year, raising funding rounds 10 times bigger than they were 10 years ago to fund ever bigger unicorns.

The growth of venture capital has created many more startups which provide new job opportunities and innovations that benefit society as a whole.’ But it also led to car-crashes like Theranos and created unrealistic expectations for investors and a sisyphean push for growth for founders.

And you can argue that VC investment, third-party investment as a whole, has been a mixed back for the media.

Recently Minute Media secured $40 million in fresh funding and a $500 million valuation Meanwhile in overleveraged newspaper land, the newly merged business of Gannet/Gatehouse is paying people off and McClatchy has filed for bankruptcy.

But these stories are not the only way to see investment in publishing. You don’t need to invent a software as a service business like Minute Media. And you don’t have to take on millions of dollars in acquisition debt. If we can reign in the idea that growth is not always good, and introduce the notion that good is good, maybe a social impact approach to media funding will save us all.

Believe it or not, Georges Doriot, a Harvard Business School professor who founded one of the first modern VC firms in 1946, was more interested in financing noble ideas than making money. He would probably be a fan of social impact investing.