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RRE Blog

How We Think About New Media Companies

Will Porteous

Given all the recent assertions in the press about a “Digital Media Bloodbath,” this seemed like a good time to affirm our commitment to media investing and to explain our media investment thesis. Media has been a focus for our firm since our first fund more than twenty years ago. While each year we consider a lot of media related investment opportunities, we make relatively few investments in the area. This is largely because we rarely see new companies innovating broadly enough to build major long term, independent businesses. Innovation in media often begins with content, but building a successful new media business depends just as much on innovation in distribution and in the advertiser’s experience. Drawing on some examples from our portfolio (including Business Insider, theSkimm, BuzzFeed, and Giphy) and from companies we admire, let me try to explain why.

Engaging Content

Most promising new media companies start with original content. If they are successful, they will begin to capture a meaningful share of an audience’s time. Our successful media founders have typically been strongly creative people with experience in the legacy media industry. They know how to fashion something engaging, often out of familiar material. Henry Blodget, Founder and CEO of Business Insider, recognized that telling a story in a timely way through charts (often arranged sequentially as slideshows) allowed an audience to engage directly with the data and reach their own conclusions quickly. This high-velocity storytelling helped propel Business Insider to the #1 spot in daily online business news. Similarly, the founders of theSkimm recognized a need while working at NBC when they were constantly recapping the news for their female friends. Building on that experience, they have achieved breakthrough engagement and reach with millennial women (and some men), by approaching the morning news with a fresh voice and a format that’s easy to consume on mobile. As a result, their subscriber growth and open rates have reached extraordinary levels. But great content is just one critical element in creating a truly innovative media company. Founders need to focus just as much on creating innovative distribution for their original content and on creating a fundamentally better experience for advertisers.

Efficient Distribution

We live in a post-portal world in which content travels freely through different messaging channels (email, text, Snapchat, Slack, a multitude of messaging services) and across major social media platforms (Facebook, Twitter, Google, YouTube). Successful distribution today depends on promotion, broad appeal, and your audience’s willingness to engage, react and share. Understanding these platforms and the forces that drive engagement and proliferation are critical if you want your content to achieve meaningful distribution.

We’ve been investors and on the board of BuzzFeed since May of 2010. The power of sharing as a mode of distribution is one of BuzzFeed founder Jonah Peretti’s great insights. He recognized early on that as platforms become a bigger and bigger part of the digital ecosystem, sharing of engaging content would increase, and that content would exist in many different formats. BuzzFeed has made early, and sometimes surprising, investments that have helped build a global, cross-platform network powered by technology and data science. That network has allowed BuzzFeed’s team to cover a breaking news event like the November 2015 attacks in Paris on par with other global media organizations like CNN or the BBC, reaching millions of people around the world through their site, apps, and distributed video. It’s also brought about creative programming and experimentation with, say, exploding fruit or mesmerizing recipes that resonate with millions of people. The company understands how audiences engage with content and why it is shared. This has given Buzzfeed a powerful cultural currency.

Understanding search as a means of distribution is just as important. To this end, we are big admirers of companies like Bustle. Founder and CEO Bryan Goldberg’s deep understanding of search engine optimization and the search habits of his core demographic — teen and young millennial women — has enabled the company’s content to achieve incredible durability and reach long past the date of publication. The associated ad revenue opportunity has similar endurance, particularly given Bustle’s rich, almost “glossy,” ad format. While treating search as a distribution mechanism, the company has achieved an almost recurring revenue stream on the pieces it has previously published, propelling it to terrific revenue growth.

And then there are companies that recognize that controlling distribution of great content in a new format can be just as powerful a business enabler. We’ve always loved GIFs because of the way they tell emotionally engaging stories in a short, easily shareable format. When they first started, the founders of Giphy created a lot of engaging GIFs. But they soon recognized that all valuable historic video content would eventually be atomically reduced to a series of GIFs (at least the good parts). Fortunately for Giphy, organizing all this new content requires powerful new search capabilities that fall outside of traditional web search. They have focused relentlessly on creating those capabilities and indexing this vast new content landscape.

BuzzFeed, Bustle, and Giphy have all innovated considerably around distribution and this has helped propel their growth. We are deeply interested in new forms of distribution in themselves, particularly ways to reach strong affinity groups and self-organizing communities.

Effective Advertising

For more than 20 years we’ve been fascinated by the slow pace of innovation in ad formats and experiences. For media businesses that depend on advertising, this seems counterintuitive since better ad experiences have the potential to unlock major new revenue streams. Innovating around the advertiser’s experience has actually created a vast amount of value and we wish we saw more companies focused on this.

Through AdWords, Google gave advertisers a way to reach specific audiences that had declared their interests and intentions, dramatically increasing the efficiency of cost-per-click advertising and breathing new life into display. Unfortunately, this still left brand advertisers searching for a better way to tell their story. Facebook promised the beginning of a better relationship for brands, with sponsored stories reflecting our accumulated likes and the collective wisdom of one’s social graph. And yet, even today, we still see an awful lot of poorly targeted display advertising on Facebook. And the platform takes an incredibly artificial approach to our relationship with a brand: Personally, while I may shop at Target (and even like their brand values), I’m never going to take the time to visit and “like” their page.

Across the edges of our screens, the old display advertising model has been dying for some time now. Display ads are awful for telling a brand’s story. The ad exchanges have wrung the last bit of efficiency out of this miserable format. While they have their utility when an audience’s intent can be clearly discerned, all too often they appear where it can’t.

We believe that in every media format, the important thing is to give the brand advertiser a means to engage the audience emotionally, just as the content does. At BuzzFeed, Jonah Peretti recognized this and drove the creation of the sponsored content model. This gave brands a fresh medium to tell a story through shareable content, while holding them accountable for engaging the audience. Today, there are more ways than ever for publishers to be true partners to a brand, helping hone their voice and find their targeted audiences. BuzzFeed’s test-and-learn approach lets brands explore new formats like quizzes, shorter-than-short form content, and no-sound-required video. These explorations have opened up entirely new revenue streams for BuzzFeed in the form of cross-platform branded content packages that are integrated with the company’s owned and operated site and apps. It’s one of the reasons the company has continued to grow at a terrific rate.

Today, we welcome the ad innovations from SnapChat, with Lenses that overlay a brand lifestyle on our own and publisher driven Discover channels that include short, high-quality video ads. Now it feels like we are getting something new that works for brands, though a lot of what’s happening in those channels feels a lot like TV. We look forward to seeing new innovations in ad experiences that captivate audiences and advertisers alike.

So What’s Next?

We will continue to look for new media companies innovating across content, distribution and advertising. For us, those are the essential elements of building major long term, independent media businesses. We know that platforms and formats will continue to change and this will create opportunities for new entrants. With the shift to mobile, this seems to be happening on a greater scale than ever before. And, as it becomes cheaper and cheaper to produce and stream high quality video, new online media businesses are leading with everything from GIFs, 8-second Snapchat videos, 45-second How-To segments, to 3-minute serials.

Judging by the deals that have caught our attention recently, we expect to continue to see innovation in news — particularly the decentralized sourcing and curation of “stories.” We also think there are still huge opportunities for media companies to share data with advertisers about the audience they are reaching without compromising privacy. In fact, we think this is essential for engaging advertisers in any new platform or ad experience.

It has been a privilege for us to work with so many great media entrepreneurs and we look forward to partnering with the next generation in the years to come.

We're Hiring: Platform Content Intern

Maria Palma

For over twenty years, RRE Ventures has been one of the premier venture capital firms in New York, investing in companies such as Buzzfeed, theSkimm, and Business Insider, among many others. We pride ourselves not only on investing in great entrepreneurs and delivering stellar returns for our investors, but also on being supportive partners to our founders, company executives and the broader startup ecosystem.

RRE’s platform efforts focus on providing valuable resources to our existing entrepreneurs and communicating the RRE brand and values to potential future entrepreneurs.  To help us with these efforts, we are hiring an intern to assist with social media, content creation, and event coordination.  This candidate is extremely passionate about technology, an active participant on social media and an excellent communicator and writer. We’re also looking for people that are fun and excited to roll up their sleeves up and learn.  If you are someone who loves left brain-right brain problems, where you can be creative but also be analytical and learn the tech industry, this is the perfect fit.

RESPONSIBILITIES

  • Develop and execute social media and content strategy (including blogging and PR articles)
  • Plan, coordinate and execute events for RRE entrepreneurs and the NYC tech ecosystem
  • Support the Director of Platform in all aspects of platform initiatives and branding

REQUIREMENTS

  • Currently enrolled in an undergraduate program
  • Commitment of 10+ hours/week during the school year / full time during the summer
  • Demonstrated passion for technology, startups and the NYC ecosystem
  • Desire to keep learning and contribute in a fast-paced environment
  • Availability to help with night events 1-2 times per month
  • The role will be based in NYC with a start date of mid May

HOW TO APPLY

Send the below information to talent@rre.com with the title “Platform Intern: Your Name”

  • A brief bio
  • Resume
  • Links to social media presence (LinkedIn, Twitter, etc.)
  • Other work (hacks, designs, blog posts, etc.)
  • What is a current trend you think is interesting in the tech community?
  • Why are you interested in this role?

Sadness: Remembering Bill Campbell

Will Porteous

Bill Campbell’s remarkable impact as a coach, CEO, and mentor will get a lot of attention in the coming days, as well it should.  He was an extraordinary person who gave generously of his time, energy, and insights to help other people grow and develop.  In the process he had a massive impact on the technology industry and particularly on the way technology companies are built.  As an Adjunct Associate Professor at Columbia Business School, I was fortunate to work with Bill in a very special setting- the classroom.

 From approximately 2004 to 2009, Bill Campbell was a regular guest in the Venture Capital Seminar that Stuart Ellman and I teach at Columbia.  During this time he was in tremendously high demand as he served as Chairman of Columbia University, as an advisor to Google’s management and board, and as a Director of both Intuit and Apple, all while mentoring a number of CEOs. 

 In spite of these commitments, every year Bill would make time for us.  Talking about human capital and the development of high performance teams has always been a core part of our course and I think that’s what kept Bill coming back.   Every year we would hold a closed-door session with just our students and Bill.  The sessions were never announced publicly and we kept everything off the record- no tweets, no posts – so that Bill would feel comfortable talking openly about the companies and CEOs he was close to. 

 And talk he did, telling stories from the early days at Google and recalling tough moments as CEO of Intuit.  We dug deeply into topics like hiring, performance reviews, and firing, and even how to do a layoff.  We talked about the role of founders and some of the challenges faced by founder CEOs in dealing with investors.  We talked about values and how to build an organization around them.  Some years we were joined by former Intuit executive Bill Strauss and longtime Intuit Board Member, Chris Brody, who had both worked with Bill for years.  They would get him going on a particular memory and Bill would go off.   The students loved it.  And as a young partner in the venture capital industry, I loved it.  Bill taught me a great deal about how to be a good investor and board member.  Eventually the university found out about these sessions and wanted to film them.  We knew that many of Bill’s stories could never be made public. We dodged them for a few more years and then Bill made it clear that he had to step back.

 Bill possessed a deep, powerful humanity that one doesn’t encounter very often.  I don’t know whether it was a product of his modest upbringing in western Pennsylvania or his passion for football and coaching, but he knew how to connect with every sort of person.  He had vast reserves of energy, and compassion and he was fiercely loyal.  No matter how long he had been away, he always greeted you with a big hug and a slap on the back - a not so subtle reminder that he was counting on you to do your best.  When I was moderating these sessions with Bill, I sometimes found myself on the receiving end of a sharp glance or a suspicious look if I asked a question that didn’t really flow with his thinking.   He always expected the best of the people he committed to – and he was there to help us hold ourselves accountable. 

 When my father died of cancer in March 2006, I received a single, one word email from Bill. “Sadness” was all he wrote.  It turns out that Bill had lost his brother in the same week. With just one word, he reached out to make the connection, to let me know that I wasn't alone in going through something tough.  Bill’s great strength was his incredible humanity.

I feel immensely fortunate to have known Bill and to have helped him share his experience with our students.  My RRE colleagues and I want to express our deep sympathy to Bill’s family, his many friends and all the people he influenced throughout his long career.  Today we are all touched by sadness.

Smartphones; the latest invisible ally of the Fed

James Robinson

Throughout my business career of some 60 years, I have always been fascinated by change — the dynamics of change and how businesses, governments and people respond to change. Or fail to respond. Throughout history, major technological trends have had a profound, and often invisible, impact on governments and traditional institutions.

In the digital era, this pace of change is amplified and relentless. While the tech and business communities are naturally immersed in these dynamics, many institutions are not reacting fast enough to how technology is changing our economy — and their own destiny.

I’ve been a student and a fan of the Federal Reserve since the 1960s. Having been involved in the banking and financial sector, including as the former Chairman/CEO of American Express for many years and now as a venture capitalist, I’ve always had to think about how the broader policy decisions were affecting the markets. From the business vantage point, it has been fascinating to watch how technology has both complicated and helped the Fed’s policy decisions.

For instance, one of the main missions of the Federal Reserve is to keep inflation low. Yet, it’s important to remember that for inflation to happen, someone has to raise prices. In this regard, over the last couple of decades, Walmart and then Amazon have been invisible allies of the Fed in accomplishing this goal. The latest invisible ally of the Fed in this regard is the smartphone.

With the smartphone, the power of pricing has shifted into the hands of the consumer even further, keeping downward pressure on retail prices. Today, mobile e-commerce represents 30 percent of all U.S. e-commerce, but, moreover, a recent study found that 90 percent of retail shoppers use their smartphones in-store to check prices, product information and reviews. This translates to an environment where everyone can compare prices and features, both online and offline.

So, unless you are in a unique luxury category, your ability to increase price is limited. Moreover, when you think about the growth of price comparison engines in other sectors outside of retail, such as Kayak for travel, NerdWallet* for credit cards, CoverHound* for insurance and others, it really drives the point home that the mechanics of price adjustment are more and more driven by transparency and choice in the marketplace.

So in effect, everyone with a smartphone becomes a deputy central banker…helping to keep prices in check.

That’s just the example using the smartphone. The broader point is that many of the old models and beliefs on which our fundamental economic and monetary policies are built need to be inspected through a different lens, embracing how technology will impact the economy of the future.

One example of this is the old equation economists have considered for years, MV=PT, where the money supply x velocity of money is equal to price x transactions. Most of the monetary policies in the last 50 years have been based around the money supply being the main driver for things like inflation, currency appreciation/depreciation and interest rates. The reality though, is that money velocity is extremely important, and virtually impossible to impact directly, let alone control.

For instance, the long-held adage that too much money chasing too few goods and services will cause inflation must be questioned. In the last few decades, the money supply itself has embraced so many definitions. The ability to trade or move money without an actual tie to the money supply seems endless. Given this, it makes sense to question the underlying assumptions around how much money supply itself can drive economic policy. This is just one example demonstrating how the implications of change can challenge fundamental beliefs.

Over the past couple of decades, technology has been a major driver of change and, although change can be scary or frightening, one thing is for sure: Change is inevitable.

So whether it is technologies that have been around for many years or new technology challenges, such as blockchain and cryptocurrency, change is not going away. This means institutions, central bankers and governments need to be paying attention to how the economy around them is changing. How and when will all this affect their own modes of operation or assumptions? The question is whether many of these institutions are reacting fast enough.

If I have learned anything from my experience in the private sector, the slower you are to react to change, the more painful it is to adjust once you must. Do you lean into change or risk being disintermediated by someone else? That’s a question all businesses must address — so too must the government, their agencies and political leaders.

*NerdWallet and CoverHound are RRE portfolio companies.

Investing With a New Purpose

Steven Schlafman

RRE's investment strategy empowers each individual to invest in areas they are passionate and knowledge about, with the philosophy that brings out their best—we wanted to take this opportunity to share the latest investing philosophy and areas of interest of our principal, Steve Schlafman:

Several weeks ago, I was hanging out with Lindsay Ullman of Sidewalk Labs and we were talking about some of the companies I’ve backed at RRE and Lerer Ventures. She paused at one of them and asked, “Do you believe this company is good for the world?” Candidly, I was caught off guard. I wasn’t expecting such a direct question and didn’t consider it much when I was making the initial investment. I didn’t know what to say.

Over the last few weeks, I’ve thought about my conversation with Lindsay at least a dozen times. Her question forced me to be honest with myself about the reasons why I funded this startup, and the rationale behind some of my other investments too. I realized that my investment philosophy had been slowly changing for some time, and our conversation was a kind of tipping point. I finally arrived at the following conclusion: If a company doesn’t solve a worthy problem and make the world a better place, then I have no business investing in it. 

That’s a big statement, I know. But this isn’t just another watered-down plug for “impact investing” or an attempt to make myself feel better about being a VC. This is what I believe, and I think it’s important to explain why I feel a responsibility to invest in companies that solve worthy problems and why I believe that doing so can make the world a better place and drive returns. 

The longer I spend in the venture business, the more I realize that investors are in a unique position to help create the future. Let’s be honest. The large majority of VCs don’t perform the hard work that founders do on a daily basis. We don’t sacrifice years of life on a single company, and we don’t deserve the credit for successful outcomes. That’s just a fact. Where we do play a role is in deciding what gets funded. For better or for worse, that’s in our control. We’re enablers and supporters of change. I’ve come to believe that we have an ethical and moral responsibility to be supporters of positive change. 

If I’m completely honest with myself, I’ve invested in some companies without seriously considering whether they actually make life on earth better. Those days are over. Starting today and going forward, I will not hear a pitch or make an investment unless I truly believe the effort is improving the world. While applying this filter will help me say no much faster and save time for founders and myself, that’s not really the point. And while I can only make so many new investments each year, that’s not the point either.

The point is that I genuinely believe values-led investors are better investors and values-driven investments drive superior returns. And personally, I feel a responsibility to search for companies aligned with my values and worthy of my time. What follows obviously isn’t a complete list of worthy problems that need to be solved, but these are some categories that are important to humans across the planet. It’s impossible to predict which problems innovation will solve next, so it’s critical for me to keep an open mind, but these are a few categories that matter to me as an investor: 

1.    Life extension: Products, services, and digital therapies that improve our health and extend our lives. 
2.    Self-expression: Products that enable us to create, express ourselves openly and be heard. 
3.    Productivity / automation: Apps and services that enable us to reallocate our time to more meaningful activities. 
4.    Financial flexibility: Services that enable financial freedom by helping us earn, save, borrow and protect money. 
5.    Sustainability: Apps, services and hardware that support the conservation of resources and production of renewable energy. 
6.    Mobility: Apps, services and vehicles that enable cost-effective, reliable and high scale mass transportation. 
7.    Brain boosters: Apps, services, hardware and institutions that educate and enrich the mind. 
8.    Food: Software, services and products that make it possible to feed and nourish billions cost effectively and efficiently. 
9.    Decentralization: Services and platforms that cut out a middleman or central authority. 
10.    Shelter and housing: Software, services and hardware that provide access to more affordable housing. 
11.    Exploration: Services and products that enable us to experience the world and discover new places. 
12.    Connectivity: Services that provide affordable and ubiquitous access to the Internet. 
13.    Diversity: Founders and companies that level the playing field. 

As I explore these themes and meet with individual companies solving specific problems, I’ll ultimately be forced to decide which few companies I’d like to partner with on. Of course, my decisions will inevitably be based on a number of factors. But now and going forward, first among those factors must be values. 

I know that all sounds good in theory, but how about in practice? Let’s be honest about one more thing: VCs are in the business of making money for limited partners. We have to invest in companies that we think will make money, and stay away from ones that we fear won’t. That’s my job and I’m okay with that. Why? Because I really believe that in looking for founders and companies focused on solving real problems and making the world a better place, I’ll find massive companies that generate outsized financial returns. While making money and making a difference are too often seen as being in conflict, they don’t have to be. My job—today, tomorrow, and as long as I’m in this business—is to look for companies committed to doing both. 

(Thanks to my colleague Cooper Zelnick for reviewing this post.) 

 

When Revenue Isn’t The Answer

Raju Rishi

So you’re an enterprise startup. You have a solid founding team, you’ve raised a Seed Round to tackle a particular problem in your target market, and you’ve built and launched an MVP. Everyone said you need at least a million dollars of ARR and a dozen customers to raise a bona fide Series A, so you’ve chased the dollar and you’ve gotten there.

But one thing went wrong. You became so focused on closing deals and winning customers that you missed finding real product/ market fit. Only after you raised your Series A did you realize that velocity does not equal repeatability when it comes to enterprise sales, and that the latter means far more than the former. Suddenly you’re not scaling as fast as you’d expected and modeled. Welcome to the world of a bridge round.

How and why does this happen? And how can you avoid it? Let’s go back. An enterprise startup raises a Seed Round, develops a product, and introduces an MVP into the market. The next step is to see if anyone will buy the product, so the team focuses on getting pilots and deals in place and — hopefully — signing up one or two big customers. It works, and suddenly the company can boast modest recurring revenue.

Even for seasoned entrepreneurs, this initial taste of success can be intoxicating. The product works, and a few clients are signed up. Money — for the first time — is flowing in and not just out, and a decent sales pipeline seems ample evidence of product/market fit. That’s the good news. At the same time, you begin to feel the weight of competition both real and imagined. Existing investors are pressuring you to think about the next round. Now, you’re sure, is the moment to move swiftly forward.

But here’s the catch: Closed deals and sales velocity are not exclusive measures of product/ market fit. Maybe, among your first customers, there are wide variations in the core use cases for the product. Maybe your team is struggling with lengthy sales cycles. Maybe you find yourself significantly altering your pitch for different target customers and creating multiple marketing messages along the way.

While these can be typical growing pains for many young companies, they are also indicators which — if occurring consistently — might foreshadow difficulties for enterprise startups. The simple fact is that product/ market fit is not always obvious. And just because you’ve closed deals doesn’t mean you’ve found it.

How do you know if you’ve achieved real, meaningful, and differentiated product/ market fit? Here are a few key questions to test your thesis:

1. Do you know, at a granular level, which potential customers you should target?

2. Who are the influencers? Who are the buyers? Where does their budget come from?

3. What marketing channels should you use to target those customers?

4. Do you have a simple and — most importantly — single marketing message?

5. Do you know what your sales process is, and is it an easy process?

6. Do you have a clearly defined product roadmap that’s aligned to your target market?

7. Can you hire junior sales reps, ramp them quickly, and have them close deals with consistent results?

Product/ market fit is ultimately about repeatability. If you understand who your customers are, what causes them to buy your product, and how to make your solution their number one priority, then you’ve found product/ market fit. But if you haven’t, you need to make some hard choices and keep searching. While it can be deflating to give up revenue or a Series A check, attempting to scale in the absence of product/ market fit can — and often does — debilitate promising companies.

It’s a cruel irony that while early customers and revenue often feel like the lifeblood of your business, these things might actually be killing you. It’s not ultimately about selling to customers; it’s about fundamentally understanding what core functionality causes customers to buy. Allowing a few early customers to determine the trajectory of your business or product offering in exchange for a quick buck is a Faustian bargain, and the devil always collects.

Too frequently, entrepreneurs and investors alike believe that the goal of a Seed Round is to get a startup to the Series A. It’s not. Seed Rounds are the only time in the lifecycle of a startup where you are allowed, expected, even encouraged to test your product in search of real product/ market fit. That’s the ultimate goal of a Seed Round, and a hallmark of great teams is the discipline to move deliberately in the face of distracting opportunity.

Achieving product/ market fit is the transformative moment in the life of a startup. It is the moment of metamorphosis, where a company aligns messaging, marketing, target customers, sales methodology, product roadmap, and operating metrics. This moment cannot be bypassed, faked, overlooked, or ignored. So be disciplined. Slow down. Don’t get caught up in the expectations of customers, investors, or yourselves. For in the absence of product market fit, more money will yield nothing but more problems.