What caused Gigaom’s demise?
Danny Sullivan has a great article on the perils of taking VC funding. He argues that media businesses should be bootstrapped. He says that VC funding is what caused Gigaom’s collapse. It’s an interesting perspective. However, Matt Ingram goes a step further and argues that it wasn’t the VC funding, per se. It was the debt.
On taking VC money
Basically, after taking VC funding you have a certain amount of runway. Once you burn through the VC funding you better hope you have one of two things:
- a revenue-generating business, or
- the ability to raise an additional round of VC funding
Each stage of VC (Seed, Series A, Series B, etc.) is going to want to see better and better metrics of growth in either users and/or revenue. That’s what Danny Sullivan is alluding to in his article. VCs have high expectations around this because they expect to make many multiples on their investment. The larger the VC check, the harder it becomes to achieve the multiple the VCs are after, especially if you have an unscalable business model.
On taking debt
That’s all well and good, but Gigaom’s proximate problem wasn’t that it failed to raise additional VC funding. The problem was that it took on debt. Debt has a fixed repayment date and when the clock runs out, you either pay your creditor back or you’re dead. Debt is a dangerous game to play when you don’t have a proven business model.
According to Gigaom, it “recently became unable to pay its creditors in full at this time.”
Michael Wolf, a former Gigaom employee has stated “I’ve been told by some that a balloon payment on debt owed to Silicon Valley Bank came due”
How much money do you need to scale?
Peter Kafka of re/code uncovered that Gigaom raised $40 million of equity and debt over 8 years. That’s an astonishing number for a business that isn’t building technology.
Give that to the Indian government and they can get you halfway to Mars.
VC money can help you scale
If you have a scalable business model, investor capital can help you achieve that scale. However, Gigaom relied on conferences and creating custom research. Both of these are extremely labor-intensive and it’s hard to see how that would scale.
According to re/code, the research “group booked $8 million in business last year” and “it wasn’t profitable.” There also seem to have been some management issues as well.
So how should you fund a media business?
Rafat Ali, founder of paidContent and now founder of Skift, argues for “Bootstrap+”
The idea is that you can achieve profitability after a single round of “seed” funding and raise no additional capital. Your early investors will reap their rewards but you won’t be forced down a path of trying to keep scaling to infinity.
The freedom to create the content you want
That brings me to my product.
I’m building a product (currently in development) that will make it much easier to do quantitative analysis on financial data. We’re also going to make it extremely easy to create articles/reports by adding narrative context around data visualizations.
Our goal is to make anyone who wants to analyze financial data more productive. Instead of trying to monetize the content, we’ll be monetizing the core technology that lets you perform the analysis.
For us, the media business doesn’t have to generate its own revenue. That will free us to create quality financial news and analysis without having to resort to chasing page views by writing articles about “12 Places To Go If The World Goes to Hell” year after year after year.
I love Joe Wiesenthal and Business Insider. I have nothing against either of them. I get it. Each of those articles has over a million views.
So, what do you think is the right answer for us in terms of funding? We are currently bootstrapping. I have some ideas but I’d love to get multiple perspectives. Let me know in the comments or on Twitter (@zain_hoda).
