Oct 2, 2015 ยท 6 minutes

This week there’s been a lot of back-slapping of Business Insider’s near $500 million exit. And why not?

It’s the largest blog exit we’ve seen to date. So much so, that as Paul reported it’s created a mercenary streak among young reporters who hope to find a place they like and “crank” until it sells.

Earlier this week, here in Chicago, I was invited to give a keynote about the health of media companies. The BI sale prompted me to dig out some stats on the apparent change in heart venture capitalists have had towards content.

I’ve certainly lived that change in just the three in a half years Pando has been around. When Marc Andreessen invested personally in Pando, the firm’s bylaws allowed him to do so because they would never invest in a content company, meaning there would be no conflict. Fast forward to today, and Andreessen Horowitz is one of the largest investors in Buzzfeed.

My hunch was that yes, things have changed a lot since Jonah Peretti tweeted this:

But compared with the broader landscape, money going to content is still chump change, dominated by a few promising companies, and not many exits. I was more right than I’d realized.

Some key points:

- In 2014 content companies raised some $800 million according to CB Insights. Pop the champagne! That’s up some 145% year-over-year from $331 million. But, wait a minute. The numbers are greatly skewed up by two investments in Vice that totalled around $500 million. Take those out and funding of content companies was actually down year-over-year.

- Five content companies have hogged more than $1 billion in funding in recent years: Vice Media, Mode Media, Vox Media, Buzzfeed and Business Insider. And only four of those raised north of $100 million in an age of mega-rounds. It’s an extreme case of haves and have nots, and even the haves look restrained compared to the broader VC landscape.

- VCs have a very short leash for content companies that don’t hit quickly. Remember Circa? After a wave of positive press, ultimately it didn’t resonate, but nor did VCs give it very long to try. The company raised less than $6 million over nine rounds from some 45 investors. No wonder it didn’t work, the founders had to spend all their time seemingly fundraising.

-- On the high end valuations are certainly up. But there are just three unicorns: Buzzfeed, Vice, and Vox. And Buzzfeed and Vox are just over the $1 billion mark. I don’t say this to snub them, I think both are incredibly impressive media companies and certainly in the last wave of content companies no one was close to this price. I think Buzzfeed in particular is the media industry’s best hope at building an enduring brand that does do real investigative journalism. But we are also in an age of wildly inflated valuations, and this is the largest bull market for content funding I’ve ever seen. And still, out of 140 unicorns, three are in the content space.

-- Let’s go down another level and look at companies valued at $100 million. Surely in a golden age of content funding and valuations, there’s far more at that level right? Nope, only six, according to CB Insights. Ozy Media, Refinery29, Business Insider round out the three above-mentioned unicorns.

-- Let’s look at actual exits. In the first generation of blogs, only three exits were north of $100 million: Daily Candy, Huffington Post, and Bleacher Report. So far in terms of exits, the second generation isn’t much better. We’ve seen carnage in GigaOm’s sudden closure, and Re/Code’s surprising sale to Vox after just 18 months of independence. There’s Business Insider at $442 million, but Vice, Vox, and Buzzfeed would be considered “failures” at even double that price. Part of this is because private media companies are doubling down, taking larger investment rounds and betting they can break this glass ceiling of content exits-- this week Medium and Thrillist both raised north of $50 million in capital. Smart moves as a nuclear winter is expected to hit, but also pushing the bar of what’s considered a successful exit for either even higher.

-- So who has exited for north of $1 billion in the content space? A company called SNL financial that you’ve likely never heard of that was started in the 1990s and sold to McGraw Hill and a couple of scrappy upstarts you may have heard of: The Financial Times and the Economist. The remaining brand dominance and power of legacy old media brands has been the biggest surprise to me of the Internet’s last ten years of “disruption.”

My keynote wound up being a downer in a week of media fist-bumping. Ultimately, Vice, Vox, and Buzzfeed will be fine, and all three have truly broken new ground when it comes to Internet content companies. But nearly everyone else looking at the success and valuations of these three would do well to put into perspective just how rare they are: From a funding point of view, from a valuation point of view, and a scale point of view. And so far, their success doesn’t seem to be lifting all boats in the space even in the good times.

I’m personally bullish on some smaller companies like Refinery29, Bustle, and others as well. But they-- and certainly anyone smaller-- would do well to keep an eye on their burn rates. Because I think when this market turns-- which more VCs line up by the day to say it will and even say they hope it happens soon-- it’s gonna hit content harder and faster than most other categories.

It’s expensive and it doesn’t scale the way that other categories do, and most VCs just don’t get it. And so far the exits just aren’t there to support the risk. This is why we haven’t raised an equity round in two years… it may well put us out of business too, but at least we don’t have a false sense of security.

CB Insights ended its newsletter yesterday shouting out Caterina Fake’s recent piece glorifying cockroaches over unicorns:

Who will survive? As always, the less glamorous, but very hardy Cockroaches. Cockroaches have outlasted doomsday asteroids and dinosaur extinctions. They can live for six weeks without food. They are not choosy about what they eat; they don’t need sugar, which other insects crave. They can subsist on grease, hair, or glue. They lack glamour and are ugly and unassuming. You usually don’t see them. They move fast. 

More than anyone, content owners need to heed these words. Because even this bull market of funding isn’t that great if you dig into the details.