Spotlight : A venture fund with a large newspaper business!

Let me ask you a trivia question!

Question:  This firm recently netted $100m on an investment made 7 years ago in a help-wanted classifieds startup. Assuming it invested approximately $2m then[1], that is a 75% annualized return, one that any early stage venture fund would be proud of.

It presently has investments in WordPress’s parent Automattic, digital bookmarks co Bitly and NYC-based social media incubator Betaworks (which has stakes in Twitter, Tumblr etc) amongst others. Which firm am I talking about?

Hint: It also operates a prestigious newspaper, one that makes over $200m[2] in digital revenues.

Answer: It is The New York Times Co, in case you still didn’t get it!

So how did the NYT build up an intriguing portfolio of investments in digital startups, which could potentially yield it big payoffs some years down the line?

To be fair, NYTCo isn’t the only media company that has invested in digital startups (To know more, do have a look at AdAge’s deep dive into newspaper companies’ fascination with early-stage investing.) nor is it likely to be the most successful at that, even with its Indeed payoff!

Conde Nast’s investment in Reddit is presently looking red hot, and Gannett has some interesting ones too in its portfolio. However, this post is about the NYT and how it has leveraged its presence in NYC, ownership of about.com and the access it gave it to digital talent, and its own prowess in online content development, to build out a portfolio of early-stage content-focussed startups.

It is not very clear if analyst valuations have taken stock of these investments in the NYT Portfolio. I haven’t seen any analyst report in the public domain that talks about the potential payoff it could get in the future from these investments. To be fair, it is very likely that a majority of these investments will bomb as Ongo did, for that is the nature of the early-investing game. Still, what the Indeed payoff will likely do is to force analysts & media observers to take a closer look at what is hiding in the NYT portfolio.

Below is a listing of the NYT portfolio, any valuation benchmarks (only if recent), when it was made and a mention of co-investors.

NYTCo’s Investment Portfolio

Investee Co	What does it do?	Revenue / Valuation	NYT’s Co-investors	Investment Date
Adkeeper	Allows readers / viewers to keep ads for later viewing	Not available	Scott Kurnit (founder),Jon Callaghan (True Ventures), Betaworks	Sep ’10 (Series A) of $8m overall;In Jan ‘11, there was a 2nd round of $35m; NYTCo didn’t invest in this round
Appssavvy	Serves ads which appear during in-game activity	Not available	Scott Kurnit (angel), True Ventures	Oct ’08 ($3m);In Dec’11, AOL Ventures lead a $7.1m round in which NYT and earlier investors participated
Automattic	Operates wordpress.com, the #1 blogging platform[3]	Expected to do $45mthis year.Had a valuation of $150-200m early ’08, and expected to be twice that now.	Polaris Ventures, Radar Partners, True Ventures (all did both Series A and B),	Jan ’08 Series B of $29.5m, led by Polaris which invested $20m. NYTCo stake of 0.9%^
Betaworks	Incubates, invests in and initiates opportunities in the ‘real-time’ social web	A ’10 listing (pretty dated) put its valuation at $100m. It should be at least 5x that now, given its stakes in airbnb, twitter etc	Lerer Ventures, AOL Ventures etc	Mar ’10 Series B round of $20m overall
Bitly	Allows users to shorten, share and track links	Not available	Betaworks (seed investor / incubator)	Sep ’10. NYT got a stake in bit.ly + cash from Betaworks for initial work done on what has become news.me
Brightcove	Offers video management solutions for Enterprise customers	Rev of $63m in ’11. Publicly listed in Feb’12. MCap of $319m as on 28-Sep-12	Allen & Co (Series C), Hearst Ventures, AOL (Series B)	Jan ’07 (Series C) of $59.5m overall. NYTCo stake of 3.2%^ amounting to a holding of $10m approx.
Daylife	Started as a news aggregation site (B2C), now offers medium to large-sized publishers with online publishing tools	[UPDATED 29 Oct’12. Sold to NewsCred in Oct’12; valuation unknown]	Ken Lerer (of Lerer Ventures), Mike Borthwick (of Betaworks)	Nov ’06; not clear what the overall funds invested were but NYTCo had a stake of 8.1%^
FM Publishing	Ad network for high profile blogs such as techcrunch, gigaOm etc	$250m valuation according to an old listing, possibly double now. Revenues projected at $90-100m for ’11.	Omidyar Network, Tim O’Reilly etc.	Jun ’05. $750k seed fund. NYTCo had a stake of 2.2%^
Indeed	Job listings site.	$750m. Sold recently to Japan’s Recruit Co.	Union Square Ventures, Allen & Co	Aug ’05 (Venture / Series A) of $5m overall; NYTCo stake of 14%^
Ongo	High-quality news / stories aggregator	Discontinued.	Gannett, Washington Post. Each contributed $4m for a 33.33% stake	Sep ’10. Launched with $12m round.  NYT contributed $4m for a 33.33% stake.
QuadrantOne	Ad Network for local media	Not available	Gannett, Tribune, Hearst. Each has a 25% stake	Feb ’08; NYT invested $1.9m for a 25% share.
Stamped	app that helps people record and share their favorite restaurants, movies, books and more	Not available [UPDATED 29 Oct’12. Sold to Yahoo, Oct’12]	Justin Beiber(!), Eric Schmidt, Crunchfund etc	Jul ‘12
True Ventures	Venture fund	Not available	–	Since Aug ’08 at least; NYTCo had a stake of 0.9%^

Reading between the lines : Deconstructing the NYT Portfolio

In the above list there are

–       2 funds (True Ventures, Betaworks)

–       4 online ad networks / ad technology players (FM, Quadrant One, Appssavvy and Adkeeper)

–       5 publishing infrastructure / platform support companies (Automattic, Bit.ly, Stamped, DayLife and Brightcove; of which the last is in the video space, but fundamentally doing to video what Automattic does on the text side)

I am leaving out Ongo and Indeed as they are in the past.

If we exclude the two funds, then we see two broad themes

1. Online Ad Networks / Ad-Tech plays : Clearly the investing subtext is that digital advertising is poised to grow, and it makes sense to have a piece of this fast-growing space. This is clearly a natural investing theme for a newspaper / media company; This theme has seen such success stories as Indeed / CareerBuilder.
2. Ideas enabling better content creation, sharing and management : This I confess, puzzled me a bit initially. Why would NYT be interested in the equivalent of enabling better plumbing in the contentverse?

My view is that if we see NYT/NYT.com as a content play, then we can see the online ad networks and the above investments in content publishing tools, as forming the other two legs of the tripod. So its investment in digital startups is essentially an execution of a triple play / focus strategy – content (through NYT), content tools and ad networks.

And if there is one trend that we can see from the internet success stories like Google, Facebook, Twitter etc., it is that the content distribution / sharing / management services that has seen the biggest pops. So perhaps the New York Times is on to something with these investments!

Hunting in a pack

As you can see from the co-investors list, a few familiar names repeat – Scott Kurnit (founder – About.com, which the NYT recently sold to Barry Diller’s IAC), True Ventures, in which NYT has invested themselves, Betaworks, another of its investee companies, Allen & Co and Lerer Ventures.

This is not unusual in the Venture Capital (VC) industry – see Union Square Ventures’ Fred Wilson’s take on co-investing in his fascinating blog. Co-investing, where two or more VCs come together to put in funds, can help save time spent on due diligence, reduce investing risk, and also increase the number of investing opportunities a single VC can access.

Being part of the Scott Kurnit–Betaworks–True Ventures ecosystem allows NYTCo to access interesting investment opportunities – as a strategic VC, and perhaps one who is relatively less known in the investment community, NYTCo is certainly not on top of an entrepreneur’s wishlist. Riding along with the above investment consortiums helps it gain access to interesting startup ideas seeking funding.

Who in NYTCo is responsible for investing in these startups? The corporate website points to William Bardeen. Linkedin also suggests a Stephen Hirsch. So, I am not terribly sure. Perhaps they both look at it in parallel.

Implications while reporting

I will keep this brief. Enough has been said on this already, and those who are interested can follow the links below.  The summary is as follows.

A controversy was stoked last year when the Times reported on Arrington’s CrunchFund and how it violated traditional journalistic guidelines of separating coverage of a company while having a stake in it. Arrington retaliated.

An article in Poynter dwells on this in significant detail. And while Arrington is certainly not exonerated, The Times doesn’t come smelling of roses either!

To conclude

In future blog posts, I plan to look at the digital investments made by other newspaper and media companies as well. Conde Nast, Hearst and Gannett have made a large number of investments. It should be interesting to evaluate their portfolio, investing strategies and to see how it compares to that of NYT.