The eJustice Network

There was a lot of ground covered at the We Media Conference. Perhaps one of the most important to those trying to create a project with a significant impact was the one on financing your media venture. The term media, by the way, encompasses the delivery of almost any kind of content, including opinion, information, news, and entertainment, whether by TV, radio, Internet, mobile, or print.

Anyway, this note is on the session on how media projects are financed. Good stuff, particularly because it involved a discussion between different types of lenders (and even someone who didn't use any). It was fascinating hearing the VCs interacting with strategic investors interacting with others who chose not to seek outside financing.

For those who aren't familiar with the jargon, a strategic investor is one who invests in a business to expand or further their own business interests. Reuters is one of these, investing heavily in several of the new technologies and companies to remain competitive as the media landscape changes.

Venture financing, or venture capital, is done by firms that raise investment money (often from newly-rich techies). VCs typically invest for profit reasons only, looking for return on investment in financial firms. Both types usually focus on certain types of ventures that they are more comfortable with, or that more readily fit their objectives.

The variations in VCs extends not only to different types of companies. Some are more appropriate for different size investments (say, $50,000, $500,000, or $50 million). Others focus on different stages of ventures, like first stage financing (usually after the founder has fleshed out the idea, put together a prototype, and maybe even assembled a team or started in business) vs. late-stage financing where the VCs may be looking for investments where their know how, or ability to assemble a high-quality team of executives or well-connected board of directors may be just as important as how much money is available because they're looking take the company to higher levels of profitability, perhaps even to go public with an IPO.

There's a high cost of VC money that wasn't discussed. You should know that investment failures can be 70% or more, meaning that VCs have to hit big on the few they do hit on, because the rest will probably be cash guzzlers that go belly-up and never show a dime of return on investment.

Funding based on Social Capital

Some, like Warren Buffet who donated to the Gates Foundation, may not be looking for a financial return, but rather for a social return. Many big foundations are in position to dole out dollars for do-good projects, though often in the areas they got their wealth in.

For instance, the Knight Foundation helped sponsor the conference. That's the foundation that resulted from the family money behind Knight-Ridder, one of the nations largest newspaper publishing chains. They are known to fund projects in colleges (usually in the communication departments), grants to non-profits addressing media issues, student scholarships, etc.

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Aside to those trying to change-the-world -- Microlending is also a new form of venture financing, particularly for non-profits and social enterprises. However, that was not discussed here.

Moreover, there are entirely separate money markets just for those trying to fund social enterprises; microlending is just one of them. But that's another story for another day.

Generally speaking, it's a whole lot harder to get funding in the non-profit sector. However, there are may ways that ventures that start out non-profits can create profit centers or spin-off aspects of their efforts into for-profit ventures that can attract the money they need. In addition, non-profits can also start/operate for-profit businesses (called social enterprises) to create an ongoing income stream, some of which may be appropriate for VC funding.

These were beyond the scope of the We Media discussion, but if you need help exploring them, call me. Don't let the funding barrier keep you from making a difference.

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Pitching for Dollars

I got to sit through several pitches of those seeking money for their projects. Each VC and type of investor has a different set of criteria that they're looking for -- return, growth, stages, track record, partners, history, proprietory intellectual property that can be monetized.

Some of them had really good ideas, but needed better pitch skills and organization. Others were concepts that sounded good, but required people with good business savvy and market understanding to make them work. And some were just, well, things I would advise my clients to think real carefully about what they really wanted to do.

It's important to match the type of venture and pitch to the appropriate fund, since many specialize. In addition, early stage financing must be distinguished from mid- and end-stage financing.

Moreover, never ever go to a strategic investor for early stage financing, because they think they're doing good but their culture and style may just squelch the venture before it ever has a chance to get off the ground. I was thinking of Time-Warner's takeover of AOL, but the result was in reverse -- AOL survived, but TW has no clue how to run it.

None of the pitchers ever got to the down-and-dirty of having to face the choice of growth and giving up control, or staying small and just trying to get along. And many had very little idea of how much money they really needed or what they would use it for, so the numbers they threw out were sometimes just shots in the dark.

One of the panelists discussed it and how he chose to stay small rather than seek investment capital. It's a choice everyone who starts a venture should keep in mind, particularly in making their operational and growth choices. Because one set often leads down the road of having to get money; the other may be doing it cheaper, but insuring you can stay in busines without it.

This is a conversation I've had with clients many times over the years. Keep it in mind if you're looking to build some kind of business.

To a guy who's done deals for a living, it was a fascinating part of the conference. Well worth the price of admission.