In September 2016 we closed our second fund at Kibo Ventures. It was a big milestone for us, with a first closing of €71M we were ready to initiate the life of our second fund. We had been looking at a very interesting company out of Germany, Stoyo Media, focused on creating social video primarily for Facebook. Even though our fund focuses on Spanish startups or startups founded by Spanish entrepreneurs anywhere in the world, we had some bandwitdth to look at good opportunities outside of Spain and this was a company we thought was really exciting.
But why Stoyo and why Stoyo wanted us as investors?
Let me walk you through our investment thesis and why we made sense for them.
First on our investment thesis
- We love video. You will find a few companies in our portfolio where video plays a big role. I used to run a video adserver in Europe a few years ago, and our CEO used to say “video is video is video”. Simple, but powerful. Video is video but video content is different if you are watching on Youtube, on NBC or on Facebook. Either you get that or you miss a fundamental point. We can’t get enough of it but we want to get it how we want it and publishers and brands need to adapt to the new consumer. And whatsmore, video consumption keeps increasing. Please check this nice infographic provided by Freewheel on 2016 for video.
- Stoyo gets how to generate views. Once you understand that consumers want to watch video but it is different video content they want to watch based on where they are, you need to figure out how to best get that content to them. Stoyo narrowed it down to focusing on Facebook. What content gets highest views and how they could replicate it. And they became very good at it, growing from zero views in October 2015 to 1 billion in December 2016.
- It still is about technology…Yes, it still is. Stoyo crawls Facebook and other social media to understand what is trending and builds algorithms to best get that data, rank it and feed it to their creative teams. The creative process is guided by data, and it works.
- But, will it scale? The famous question on every VC down the block guy/gal’s head. Well, it does. The video content is extremely easy and fast to produce and it can be repurposed in different languages and for different publishers. Yes, getting to 1 billion views is no easy feat and these guys have done it in quasy stealth mode out of their office in Berlin.
- Validation from top notch publishers. It still amazes us how European companies can get far without having a single employee in the US but if you think about media, not being in Madison Avenue may seem suicidal. Not for Stoyo. Our friends have signed deals not only with German publishers like ProSieben, Die Welt or Bunte but also with the US largest publishers like Time Inc. Viacom, National Geographic, Conde Nast or Cosmopolitan.
- Sold on the value proposition. The way Stoyo has signed on these publishers has been to get them to test their videos against the videos generated by themselves. They would send an email to enough people in these organizations that one would take the chance of potentially looking great in front of their bosses and they did. Stoyo videos typically outperform the publishers’ by 3–5x in terms of views. Stoyo’s videos just work much better.
- But what about the business model? Yes, here comes the other BIG question out there. There is money to be made in video, yes, but will publishers pay if they can still not monetize on Facebook? The answer is yes, they will pay a fee per video, which is great, pays the bills but clearly not the reason why we think Stoyo can be pretty big. Up to now Facebook has not figured out a way to monetize video but rest assured they will, enough thinking heads will get to the best model, and those revenues will be shared with the publisher and Stoyo will get a share of that. And it gets better….
First, Stoyo went to the publisher to generate views and to generate audience (Over 750M audience and >400M unique monthy active users in February speaks for itself). And guess what? now brands are getting really interested and there is clear monetization right there from brands. Check one of Stoyo’s videos to see what they are doing for brands. At Stoyo they call this organic advertising. Ads that are relevant to be in your feed. We really like this.
- Global play. This is not an media company in Berlin or an ad tech play for the European market. This is a company that can help publishers and brands win on Facebook, this makes them VERY global and we also like that.
- Excellent and hard working team. I first had Skype calls with Patrick @patrick_bales where he walked me through the pitch, we met in Madrid and then we met the team in Berlin. Patrick is one of these young entrepreneurs with a clear vision and an amazing passion for his business and the team. He is 24/7 on the ball as he should be and he is able to get everyone behind him. Growth hacker mentality, do a lot with very little, celebrate each win but keep working. Smart enough to get great angel investors to support him initially. Just your dream young founder, right there with the leadership skills to build a great team. Check on all fronts for us.
And now on why they liked us?
- International investor base. They could have closed the round with German investors only and it would have made sense. Germans backing Germans. But @patrick_bales with good judgement from his angel investors Mark and Sebastian wanted to have a true international group of investors that included Kibo as well as an Italian group, a US video player and high profile German investors with video experience.
- Kibo as lead investor. We were able to take the role of lead investor in the transaction and win the trust of the team, primarily because we showed we understood what they were trying to do and we could open doors to publishers in Spain, Latam and access to brands around the globe.
- We worked hard. Yes, VCs have to earn the team’s trust, especially if the round is oversubscribed as this one was. Trust is earned by spending time with the team, asking the right questions, showing what you can bring to the table and being credible at all times. And I think when you fall in love with a company oftentimes it is mutual, great when that happens in any case.
So here is a bit more on our first investment with our new fund. More stories will follow on why we have made other investments. Stoyo will always be the first one. As we said before, we love video AND we love Stoyo.