The Tipping Point of TV.
Our investment in Cheddar.
One of the things that we look for in an investment is a unique insight. When we met Jon Steinberg, the founder and CEO of Cheddar, he brought us exactly that.
We all know that video consumption has been moving from television to mobile and online for a long time. YouTube started the trend, and Google bought them more than ten years ago now, back in 2006. The new TVOS players — Netflix, Hulu, Amazon Prime Video and others — have upped the quality bar and pulled more video viewing online. Their Video on Demand (VoD) model has dominated live TV watching and removed the appointment from “appointment TV”.
The TV industry has recently reached a tipping point, as my partner Alex Taussig has has discussed before. This dynamic has created a set of second order effects that are not obvious to most industry watchers, who are still focused on VoD opportunities. But they were apparent to Jon.
Jon saw that as the TVOS players became substitutes for TV, not just supplements for TV, they would need to add back live linear television. He saw the opportunity for Post Cable Networks. And he founded Cheddar based on this insight.
Jon saw that there were two use-cases for TV. The first — TV as entertainment — was well served by the new TVOS players. Quality programming — from Transparent to Orange is the New Black — requires a viewer’s full attention. This is the equivalent of primetime TV.
The second use case — TV as company — was not served by the new TVOS players. This is ambient TV. It does not require a viewer’s full attention. It is the TV you have on when you’re trying to catch up on email, when you’re getting the kids ready for school in the morning, or in my case, when you’re trying to do both at the same time! It’s the TV you watch when you tune into a channel rather than a specific show. It’s CNN, The Food Network, HGTV, ESPN and so on. It’s whole day parts and genres. It’s what Jon said when he declared his love for Tiny Houses. To quote: “Video content that is non-appointment in nature must either provide a live window on the world, or remove the stress and hassle of the viewer needing to actively choose.”
Jon had a unique insight. But a unique insight is not enough. A startup also needs to find a path to market. The Cheddar team, much of whose leadership worked together at BuzzFeed, saw that the company could drive repeatable, scalable growth through the proliferation of live broadcasting happening on Facebook and Twitter. Additionally, Cheddar has achieved more OTT distribution through Sling, Pluto, Amazon and others. As the number of live hours increases, Cheddar sees more and more of its viewers tuning in regularly, establishing new habits.
At Lightspeed, we have been believers in Jon and in Cheddar since the beginning. On Planet of the Apps, we were faced with a decision…Jon knew that Cheddar would need more money to realize its full potential, but he also didn’t want to take too much dilution. He knew that Cheddar had more distribution agreements in flight, as well as more live hours about to come online, and that both of these would increase valuation. Ideally he wanted to realize both of these milestones before raising capital.
As existing investors at an earlier stage in the company’s lifecycle, we were aligned with Jon in wanting to see a higher valuation. We were planning on doing our pro rata in the round, regardless of valuation, so we were indifferent to raising now versus later. So we decided to buy the company more time to hit these valuation enhancing milestones by leading a $2.5M convertible note. The convertible note structure punted on valuation because this investment would convert into equity in the next round of financing. By buying more time, we enabled that financing to be done at a higher price.
Our strategy worked. The convertible note we invested in January on Planet of the Apps converted as part of the $19M Series C that Cheddar closed in May. The round was led by Raine Capital with participation from strategic investors including Amazon, Altice, AT&T and the NY Stock Exchange, as well as the existing investors Comcast Ventures and Ribbit Capital. With the additional milestones reached, the valuation was significantly higher than it would have been back in January. We feel fortunate to be partners with Jon — from the early days and beyond.
I spoke to Jon about what makes him tick and how he came to start Cheddar, and I’ve included some of this thoughts below.
Jeremy: What was it like to work with your celebrity mentor, will.i.am?
Jon: Will has as much energy as I do. I told my wife before I went on the show that Will was likely my first pick as a mentor. He understands that running a media company is art. And I wanted a strong creative influence in my mentor. I certainly got that with Will.
Jeremy: What founders do you admire?
Jon: Walt Disney and Elon Musk. Building a whole network is hard, but when I put that in the perspective of Walt building Disneyland without mobile phones or computers, or Elon landing rockets on their tails, everything seems relative. It puts things in perspective and makes me realize anything is possible.
Jeremy: What does success look like to you?
Jon: I don’t ever really think about this question. You climb a mountain, and then you need to climb a higher mountain.
Jeremy: What’s your ultimate goal for your company?
Jon: I want to be the biggest live business news network for people under the age of 50 by any measure. And then I want to do it in headline news and other verticals.
Jeremy: What’s the most valuable piece of professional advice you have ever received?
Jon: I don’t like advice. Advice is overvalued. Friendship, support, and ideas is what I look for.
Jeremy: What is a core value you aim to emphasize in the way you conduct business?
Jon: Be candid and direct. Life is too short, and ideas and work are to valuable to bullshit around.
Jeremy: What’s your motto?
Jon: We live to fight another day.