There is a significant boom in venture capital in the media sector, where there are large exits and investments bymany of the biggest corporations in the sector. This is broadly being triggered by a shift to media consumption on mobile devices, where areas such as video consumption and advertising are being revolutionised.
See our most influential tables in the media sector here.
Urs Cete, head of Bertelsmann Digital Media Investments (BDMI), the corporate venturing unit of the Germany-based media company, who we interviewed alongside his colleague Sim Blaustein (see interview), said: “We have never been this busy in a year and are very happy about that. This does include our European portfolio. It is a good environment for raising follow-on funding.”
The buoyant activity in the market means BDMI is advising entrepreneurs to be cautious and raise significant amounts of capital in case the market turns for the worse. Cete said: “We are advising our portfolio if you can get more on the table, raise more, you never know what will happen.”
Some media groups are seeing this as an opportunity to look further a field. Tony Askew, head of Reed Elsevier Ventures, the corporate venturing unit of the Anglo-Dutch publisher, said: “A big trend we are investing behind at the moment is how digitisation and data are transforming industries other than technology, media and telecoms. We have made our first ag-tech investment in a business called AgWorld based in Australia.
“We have been investing in digital health for 10 years and now we are excited in that space that we are on the cusp of a major revolution in how healthcare will be delivered over the next 20 years, much like where media and information was 15 years ago.”
He added: “We see other traditional industries, such as transportation and manufacturing, beginning to be disrupted by innovations coming from data, sensor networks and advanced analytics, for example Uber and Waze. This is a major shiftand will be incredibly disruptive and create a huge amount of innovation and value.”
At the same time there is renewed enthusiasm for content-driven investment.
Global Corporate Venturing predicted last year, in our Future of Media report sponsored by law firm Baker Botts, the production of content would become increasingly important in the venture industry. Sim Blaustein, a principal at BDMI, said: “Content-driven investments are emerging as a viable thesis for a lot of venture capitalists (VCs). It is cheaper than ever to create and distribute good content as a new media company and possible to get VC-style returns. We now see Sand Hill Road [Silicon Valley] investors investing in content deals and video deals. Kleiner Perkins Caufield & Byers did one of our follow-on rounds, which had not happened two years ago. The revival for content is good for us as we like the space and plan to keep investing in it.”
Other units in the sector are adopting novel approaches to secure traction. Roy Bahat, head of Bloomberg Beta, a corporate venturing unit set up last year by the US-based media company, said in a blog the team consisted of “extremists on openness”, as it disclosed its operating manual, having found “the hardest choices” in its first year “had been around the question of trust”.
Deals
In the year to the end of August there have been a number of large exits in the media sector. Twitter, a social media company backed by Russian venture firm Digital Sky Technologies, which is backed by companies including Tencent, raised $1.8bn in its initial public offering (IPO).
US-based music company Universal Music secured a win from its investment in Beats, the US-based headphone company, which was sold to technology company Apple for $3bn. Universal Music had a 13% stake.
Supercell, the Finland-based mobile gaming company, raised $1.5bn from Japan-based technology company Softbank, selling a 51% stake.
China-based e-commerce company Alibaba Group and private equity firm Yunfeng Capital together invested $1.22bn in internet video company Youku Tudou. Alibaba took a 16.5% stake in the company, with Yunfeng acquiring 2%.
Alibaba also agreed to invest $120m in US-based mobile game developer Kabam as part of a strategic collaboration. As part of the deal, Alibaba publishes Kabam games through its mobile applications, which include online marketplace Mobile Taobao and instant messaging app Laiwang.
E-commerce company Amazon bought US-based Twitch, a social video platform for gamers backed by investors including Take-Two Interactive Software, in a cash deal worth $970m.
China-based internet company Tencent bought a 28% stake in Korea-based online games developer CJ Gamesfor $500m.
Time Warner and Singapore Telecommunications secured a large exit after US entertainment conglomerate Walt Disney confirmed it was acquiring US-based online video content provider Maker Studios for $500min a deal that could eventually rise to $950m if “strong performance targets” are met.
The portfolio of Steamboat Ventures, the venture firm backed by Disney, secured a big exit via the IPO of GoPro, a sports camera maker (see big deal). It also invested in other deals, including the $50m raised by Chukong Technologies, a China mobile game developer and publisher.
There were multiple large deals involving South Africa-based media and e-commerce company Naspers, including co-leading a $1bn round for India-based e-commerce company Flipkart, and Singaporean sovereign wealth fund GIC acquiring an 18.5% stake in Brazil-based education company Abril Educacao in a deal valued at close to $265m, based on Abril’s closing share price that day. Naspers acquired a 30% stake in the company in 2006 through a $422m investment. Movile, a Brazil-based mobile software and services developer backed by Naspers, also raised $55m in series D funding.
Palantir Technologies, a US-based cyber-security and data analytics software company backed by Reed Elsevier Ventures, the corporate venturing unit of the publisher, secured a $279m round in February.
Reed Elsevier Ventures also backed the latest round by technology information business GigaOm and TigerText, a US secure, real-time messaging for businesses, which closed a $21m series B round of funding, also backed by Telus Corporation, and Fingerprint, a US-based mobile technology company that powers games and curates educational entertainment for children, raising $10.9m in a series B round led by film studio Dreamworks Animation which included media company Corus Entertainment.
Cable television group A&E Networks, which is co-owned by media companies Walt Disney and Hearst Corporation, was the latest corporate to be linked to a stake in Vice Media, looking set to pay $250m for a10% stake, which would value Vice at $2.5bn. Vice recently ended talks with Time Warner for the sale of a stake, which would have valued the media group at $2bn. Vice sold 5% to 21st Century Fox last year for $70m, which then put the company’s worth at $1.4bn. Vice is also backed by UK-based advertising company WPP.
Venture capital firm Andreessen Horowitz invested $50m in Hearst and Softbank-backed media website Buzzfeed.
US-based digital marketing software provider Offerpop closed a $15m series C funding round that included Hearst Ventures and enterprise software provider Salesforce.
Hearst Health, Hearst’s healthcare subsidiary, acquired CareInSync, a US-based provider of software for patient care, for an undisclosed sum. Hearst initially invested in CareInSync in 2012 through its healthcare venture fund. Hearst Health Ventures also backed Tonic Health, a US-based medical data collection platform.
IDG Capital Partners, the China-based corporate venturing subsidiary of IT publishing company International Data Group (IDG), led a $100m series B round for online grocery retailer Womai.com. IDG also participated in a $310m round for peer-to-peer software company Xunlei alongside internet services company Xiaomi, which invested $200m, software provider Kingsoft, which provided $90m, and investment firm Morningside.
Rubicon Project, a US-based developer of an automated advertising platform backed by media conglomerate News Corp and IDG Ventures Vietnam, a regional corporate venturing subsidiary of IDG, secured an IPO.
IDG Capital Partners and online games developer NetDragon, were also winners from the sale of China-based mobile app platform and marketplace 91 Wireless for $1.9bn.
Bertelsmann was highly active across its various corporate venturing units (see interview). BDMI backed deals including Flat World Education, a US-based education content and software company, BarkBox, an e-commerce company for dog lovers, Traity, a reputation standard company, and Epoxy, a YouTube tools company, with seed rounds raised by maker of connected kitchen items Orange Chef, also backed by Google Ventures, and Panjo, an online marketplace for sports enthusiasts.
Deals backed globally by Bertelsmann included backing Pepperfry.com, an online lifestyle store, as well as China-based online recruitment service Lagou.com, which raised $25m, and China-based mobile healthcare company Chunyu Yisheng, which raised $50m in a series C round that included industrial group Dunan Holding.
Comcast Ventures secured an exit from US-based YouTube network Fullscreen. Sources told news provider Re/code that the deal would value Fullscreen at between $200m and $300m. Comcast Ventures’ other deals included backing Axial, a US-based network for professionals who run, advise and finance private companies, Enigma, a US-based big data analytics company, Compass-EOS, a US and Israel-based routing company, in a $42m round, and Nextdoor, a US-based social network for neighbourhoods, in a $60m round.
Bloomberg Beta said it had already funded 28 companies and secured two exits, including news aggregator Newsle, which was sold to social network LinkedIn.
Film studio Warner Bros Entertainment led an $18m series D financing for Machinima, a US-based YouTube video entertainment network and app publisher aimed at men under 35.
Funds
IDG Capital Partners, IDG’s China-based corporate venturing unit, has closed a $586m fund.
Disney and accelerator TechStars partnered to create the Disney Accelerator, based in Los Angeles and open to technology start ups in the media and entertainment space.
Media company BSkyB has invested $8m in a $40m fund being raised by US-based, digital media-focused venture capital firm Luminari Capital.
Japan-based internet company Gree plans to invest almost $100m in businesses outside its coresector.
Media corporation Bertelsmann has invested a “multimillion-dollar” amount in the Digital Nirvana Fund, an early-stage fund run by India-based early-stage venture capital firm Nirvana Venture Advisors.
Naspers subsidiary MIH Internet Africa closed its non-core e-commerce business in the continent and restructured its operations to focus on its stronger, general e-commerce businesses, with particular plans to expand its South African online store Kalahari.
People
Bob van Dijk, the most senior e-commerce executive at Naspers, succeeded Koos Bekker as chief executive. Basil Sgourdos, presently chief financial officer (CFO) of MIH Holdings, the corporate venturing unit of Naspers, also became CFO of Naspers. The news followed the decision by Naspers, in October 2013, to reconfigure its board to reflect the fact that the vast majority of Naspers’ market capitalisation and activity derives from MIH.
Alibaba chief executive Jonathan Lu joined Youku Tudou’s board of directors in conjunction with the $1.2bn round the Chinese e-commerce company backed.
Aditya Singh, a former associate at Comcast Ventures, was named a partner at US-based VC firm Foundation Capital, which has just raised $282m for its seventh fund.
Patrick McGovern, founder of IDG and its corporate venturing unit IDG Ventures, died aged 76 (see obituary).
Sky vice-president of business development Hilary Perchard moved to the San Francisco Bay area in March to oversee investments there.
Hearst Corporation named Neeraj Khemlani and George Kliavkoff as co-presidents and group heads of Hearst Entertainment & Syndication. Kliavkoff will continue leading Hearst Ventures, the company’s venture unit, while Khemlani will continue leading Hearst Digital Studios, which works across Hearst to support creative innovation and development of digital products.
Jon Brod, former president of AOL Ventures and co-founder of AOL’s community news and information site Patch, until his departure from AOL in December 2013, emerged in January this year as the co-founder and president of Confide, a US-based start up that aims to provide business professionals with a Snapchat-like service of self-destructing, confidential messages.
Steve Chen, a co-founder of video streaming site YouTube, joined Google Ventures, the corporate venturing unit of YouTube’s parent company Google, as an entrepreneur-in-residence.
Obituary: Patrick McGovern (1937-2014)
Patrick McGovern, founder of US-based IT media corporation International Data Group (IDG) and its corporate venturing unit, IDG Ventures, has died aged 76.
Born on August 11, 1937, in Queens, New York, McGovern graduated from Massachusetts Institute of Technology in 1959 with a degree in biophysics before founding International Data Corporation, now a subsidiary of IDG, in 1964 to track statistics on the IT market. Before long he had launched other computing titles and incorporated them into a new company, International Data Group.
IDG has since launched more than 300 magazines and newspapers, as well as 450 websites across the world, and has distinguished itself by being unafraid to expand internationally. IDG began publishing a Japanese title, Shukan Computer, in 1972 and in 1980 initiated one of the first joint ventures between a US and a China-based business. Its media brands have stretched to 97 countries and its technology-focused events business to 67.
This attitude would be reflected in IDG’s corporate venturing activities. McGovern founded IDGVC, China’s first venture capital firm, in 1993, and it has since grown to become the largest in the country, with more than $3bn under management. He followed that by establishing IDG’s own corporate venturing unit, IDG Ventures, in 1996.
As IDG has grown into the world’s largest IT media company, IDG Ventures has expanded to become a family of funds spanning China, India, Korea and Vietnam, with about $3.6bn under management and investments in more than 220 countries. Its portfolio has at various times included Netscape, Tudou.com, LivingSocial and VA Linux Systems, which went public at $30 per share before closing at $239 at the end of the first day of trading – the most successful initial public offering until 2005.
McGovern is survived by his wife, Lore Harp McGovern, son Patrick, daughter Elizabeth, two step daughters, Michelle Bethel and Dina Jackson, and nine grandchildren.
Big deal: Steamboat records IPO with GoPro
Disney’s corporate venturing unit Steamboat Ventures achieved another big exit with portfolio company GoPro, a US-based maker of sports cameras, floating on Nasdaq.
It raised $427m in what the Wall Street Journal said was probably the biggest consumer electronics initial public offering (IPO) on record,
John Ball, managing partner of Steamboat Ventures, said: “These are the days venture capitalists live for. It is hugely rewarding to see the outcome for everyone who was involved.”
He added: “From Steamboat’s perspective, the GoPro investment was a soup-to-nuts fit with our investment strategy, leveraging Steamboat’s US-China cross-border capabilities, leading to a great working relationship between GoPro and Disney’s ESPN, and providing a very attractive financial return.”
Steamboat recently raised money from other limited partners (investors in a fund) to come in alongside Disney, which had previously been the firm’s sole fund backer. Ball said: “Steamboat does not disclose the specifics of its individual investments, but let us just say that everybody who invested in GoPro is very happy. For Steamboat, the investment will more than return our entire Fund V, which we closed early at $85m partly because of the significant value appreciation of the existing portfolio and due to a GoPro distribution in 2012.”
Steamboat backed the company even though it had not necessarily wanted to raise outside capital. “We had heard about what Nick Woodman and his team were up to at GoPro and were very impressed, but Nick for the longest time had not considered raising venture capital financing. GoPro was already profitable and did not necessarily need to raise outside capital. Yet Nick saw the opportunity to grow the business more aggressively and put together a syndicate of value-added investors, including Steamboat with our ESPN relationship and presence in China, and Riverwood Capital, run by Michael Marks, former CEO of Flextronics, who provided a wealth of experience and contacts in consumer electronics and outsourced manufacturing in Asia.”
Ball said the primary strategic link to Disney to date had been “the immersive fan experience that the usage of GoPro cameras provided for ESPN’s X Games”. He went on: “The sophistication of the GoPro Hero 3+ camera has allowed ESPN to capture and stream amazing live video at broadcast-TV quality. This is an unbelievable advance for a $399 camera, when you previously needed $10,000-plus video capture equipment, and frankly the fans find GoPro’s video even more enjoyable and compelling to watch.”
Steamboat is also eyeing successes in China, where it has a strong presence. “YY is a great example of our investment strategy in China, so far returning 50 times our capital and still counting. Two more companies in our current China Fund V portfolio are on track for IPOs in the next 18 months – Chukong at the end of this year and 51Fanli in 2015.”
Referring to a report last year that Steamboat had pulled back from the US, Ball described this as “rather an exaggeration”. He added: What was interpreted as leaving the US was in fact a big push in China.”
Steamboat continues to make investments in the US and has two partners in California – Alex Hartigan in San Francisco and Liping Fan in Los Angeles. Ball moves between the US and China, where Steamboat has two partners in its Shanghai office – Perry Chui and Jennifer Yan.
Profile: BDMI dances as VC spotlight falls on media
Bertelsmann Digital Media Investments, a corporate venturing unit of the Germany-based media company, says it has never been busier. This activity and the thinking behind it has put Bertelsmann in the second spot in Global Corporate Venturing’s rankings of the most influential groups in the media sector. We caught up with two of their senior people, Urs Cete and Sim Blaustein, to learn what trends most interest them.
Part of the reason for its current boom is that interest in video technology has taken off, and BDMI was one of the first investors to target this space. Cete, BDMI’s head, said: “We chose video as our focus over two years ago. We have taken a deep dive and it really worked out quite well. General interest around video is only accelerating, which is great for us.“
This is leading to a boom in venture investment in Los Angeles, where many of the world’s biggest cinema and television companies are based. Sim Blaustein, a principal at BDMI, said: “LA is happening. The start up ecosystem is growing strongly, although we are a little biased as a media company. A lot of online video comes out of LA. LA is already the single largest ecosystem for our portfolio and we are very active there.”
The group is finding that advertising technology start ups look more promising investments, than traditional advertising companies. Cete said: “There is so much out there in ad-tech and the space is so crowded, you have to get comfortable with the distribution strategy. You do have to look at ad-tech companies as a media investor. Software as a service is a great business model where you get comfortable recurring licence fees. These companies are more tech orientated, rather than sales plus a bit of technology.”
The unit thinks some of the controversy around native advertising has been overplayed. Blaustein said: “There is a lot of debate about people being duped by advertising as native content. Yet there are a lot of benefits versus display advertising. I actually think advertisers and users find it much more effective, and this is a good trend for publishers who are seeing better monetisation around pure content plays.”
BDMI is also finding e-commerce has proven to be a complex space in which to invest, although it is still interested in the area. Cete added: “Some investors made big bets in e-commerce. After several big failures that we have seen in this space, we are a little more cautious but we still like it. It is a very different bet to some of the stuff out there. It is possible to get quickly to $20m, $30m or even $80m revenues, but getting to profitability is a difficult execution play.“
Future of Advertising series: influencer marketing
Marketing in a smartphone world has become a complex game. To stay in touch with an audience flitting around different platforms it is necessary to explore new techniques and be savvy about how you seek to engage. BDMI has shared its views on the latest trend in which it is interested – influencer marketing.
Large audiences have been captured on new media platforms like Twitter, YouTube and Instagram by influencers, who have shot to internet fame through their curation.
BDMI singles out prototypical influencers such as Zoe Sugg, a fashion blogger known as Zoella, who has amassed more than 5 million followers on YouTube – she is backed by advertisers Maybelline and Top Shop – and graphic designer Joy Cho, who has more than 13 million followers on Pinterest – she is backed by Target and Sephora.
Urs Cete, head of BDMI, said: “We are currently spending time in this space but are not yet sure whether we will find something we like enough to write a cheque.”
Influencer marketplaces and agencies singled out by BDMI include Niche, Tapinfluence and Famebit, aggregators picked include Stylehaul – backed by BDMI – and Fullscreen – backed by WPP Digital and Comcast Ventures – analytics and monitoring companies include Simply Measured and DataSift, while marketing, customer relationship management and page managers include Percolate – backed by WPP Digital – and Spredfast.
BDMI explains the shift to influencer marketing by citing the reach of the influencers, especially among young people,t he declining reach of Facebook brand pages, the diminished effectiveness of traditional online adverts and the increasing demand for advertising on social media.
This is the first article in our Future of Advertising series. Global Corporate Venturing will be looking regularly at what trends in marketing are emerging ahead of our Future of Advertising round-table alongside US-based media company American Media in New York in November. Email tlewis@globalcorporateventuring.com to attend.