Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.
Having been through two funding rounds with a company in publishing, I actually think publishers and venture capitalists (VCs) have more in common than you would think:
Both find a project (book/company) that they believe they can add value to and agree on appropriate terms. Often this is at a very early stage in the project with either an early draft or a minimum viable product. Sometimes it’s just a concept.
In publishing, it’s the experience, editorial knowledge and sales and marketing clout a publisher can bring to a work that adds value. Likewise, a VC can bring their experience of growing similar companies and helping early-stage businesses get to the next level. They both then put the resources behind the project to achieve success (hopefully).
In each industry the failure rates are significant, but the risk is borne by the multiple of returns on the bestsellers and the successful company exits.
Funnily enough, when pitching for VC investment in 2011, the only way I could explain the publishing ecosystem to VCs was couching it in the above comparison. (Best quote from a VC at the time: “What, you mean the bookstore can return all the books after they are sold? That’s a crazy business model!”)
I’m a huge believer in learning from other industries and different businesses, so if we accept that there are at least some similarities between VCs and publishers, what lessons can we take away to apply to publishing?
1. Be selective
Typically a VC will decide to invest in less than 1% of companies that come before its investment committee. Is publishing that selective? I suspect not. Publish fewer and better – a philosophy espoused by the likes of Jamie Byng at Canongate.
2. What can you give your author?
Many of the most successful VCs out there – think Benchmark Capital in SaaS – specialize in one particular business model or market. The reason for this is clear: the investment firm has the experience, expertise and connections to push those types of companies harder and make their paths to success somewhat easier.
While there is some of this consideration across commissioning and editorial in publishing, the continued success of niche publishers like Osprey and Ellora’s Cave suggest this may become a bigger factor across publishing entities going forward. Some of the most successful publishers I work with have small but very focused lists and are experiencing astonishing growth in a market that is somewhat stagnant.
3. Act faster
Despite the fact that VCs are often making decisions around millions of dollars, they make these decisions quickly once they see a project they like.
Typically, once agreement has been reached a startup can expect the VC’s money in their bank about six weeks later. In some cases, if it’s a project they really like, it can be a matter of days.
Publishing often works in 18-month publication cycles, which is crazy. Who heard of Snapchat 18 months ago? Or Pussy Riot? Or Netflix? Not as many people as you would think. In a world that is moving at an astonishing pace – where ideas, trends and ideologies can spread globally in hours or days – it’s very difficult to tap into the zeitgeist in late 2015 today. Rebecca Smart spoke about this at Futurebook 2013, and there are niche, digital-only publishers I know who issue twelve new titles a week, typically in four-week production cycles! Their readers love them and are exceptionally loyal.
4. Plan long-term
Most VCs invest in a start-up and immediately put aside reserves to invest in that start-up again in the future – often three to four times in the funding cycle, and often with new partners.
Publishers tend to think narrowly and focus on the front-list. Some, such as Open Road and Rosetta Books, think of investing in a title continuously and are reaping the benefits.
5. Measure harder
It appears that VCs have their own secret sauce of measuring an investee’s progress, but in many cases they are quite simple. Take, for example, Bessemer Venture Partners “4 C’s” (there are actually ten, but these are my favorites and the most applicable) for measuring SaaS companies on a regular basis: Cost of Customer Acquisition (CAC), Customer Lifetime Value (CLTV), Committed Monthly Recurring Revenue (CMRR) and Churn.
As publishers seek new sustainable business models and focus more and more on direct-to-consumer retail, you need to be thinking about these types of metrics now and baking them into the products and services you create for your readers. David Skol’s blog is an excellent and practical guide.
VCs use these kinds of metrics to decide whether to reinvest in a company. It may seem cold, but the metrics don’t lie and enable VCs to make objective decisions on individual projects.
In fact, I think they are useful metrics for any business and ones we measure obsessively at my company.
VCs are exceptionally good at networking in two ways.
- They engage really well with the start-up scene, attending events, contributing to talks and blogs, putting themselves out there, all trying to spot the next big thing. There is an agenda of course, but it is often these very early-stage conversations and introductions that lead to successful investments months and even years later.
- A good VC is also really well connected on his or her portfolio company’s behalf. Need an introduction to another startup or an established huge company? Done. Need some advice on an aspect of your business? I know the guy. Want to hire a really good CTO? I might know somebody.
All contributing toward helping the company or project grow and realize it’s full potential. Can many publishers honestly say they do all this for their authors?
So VCs and publishers: unlikely bedfellows, but some lessons to learn.