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Dec. 12, 2011, 11:30 a.m.

Jeff Israely: For a news startup, fundraising isn’t just paying the bills: It’s how strategy gets built

Our startup correspondent, building Worldcrunch in Paris, reports on the challenges of getting investors interested in funding professional content.

Editor’s Note: Jeff Israely, a former Time magazine foreign correspondent in Europe, is in the early stages of a news startup called Worldcrunch. He occasionally describes and comments on his startup process here at the Lab. Read his past installments here.

This is the hardest post: On Fundraising.

The process of raising money for a startup can seem deceptively similar to other professional activities. I’d come from a line of work that involves asking all sorts of things of perfect strangers (their time, their secrets, maybe even their soul) — but never their money. My business partner Irene Toporkoff has spent years marketing and selling digital content — closing deals — but that’s not quite the same as trying to get someone to sign a personal check.

Asking someone to hand over their hard-earned cash — to essentially bet independently on your ideas and capacities — is something altogether different than inking a sales deal or squeezing someone for an exclusive interview. Right now, we’re set to move into a whole other world of venture capital — where the checks aren’t necessarily personal, but the bets are still on.

More than a year into it, the process of looking for investors is still largely a mystery to me, and I have been as baffled by some of the yeses as by some of the nos. It is clear that betting these days on news content is a particular kind of wager, an intriguing but troubled cousin to the high and fast returns that investors think they see in certain new e-commerce sites, social platforms, and killer apps.

But beyond whatever insight I might be able to impart — from both the failures and success, as both a news guy and startup dude — it would still be difficult at this stage for me to write openly about raising money. We are, in fact, still on the hunt. And thus I am keenly aware that implicit in this post is a sort of public confession that the next next thing that we’ve been stirring and hyping and sweating day and night on, won’t actually work like magic…that our mission of building a new model for the production and distribution of global news, of doing right by our readers, requires that others do right by us.

The myth of the lone entrepreneurial maverick is just that: a myth. Every risk we take is calculated, every leap we make cushioned by the help of others. Irene and I happened to both be ready to make a rather bold professional pivot, but neither one of us is foolhardy (nor 22 years old!). So every dollar found, not to mention the pavement pounded for those sought in vain, is a hedge placed against the heights of our own ambitions.

In a more immediate sense, this is an even trickier post to write at this particular moment, as we are just about to begin a concerted round of fundraising. After having obtained some seed cash over the past year in a not-very-systematic way, we are now working with professional finance folk here in Paris — and our target figure is indeed much more ambitious than before.

So why write about fundraising now? It came up as Irene and I were telling someone about one of the more, er, extreme encounters we’ve had over the past year. We went to meet someone we’d been told might want to invest in Worldcrunch. Instead, after a not-very-polite hello, he started pitching his latest project to us! At 90 miles an hour, without pausing to breathe or remembering why we were there or who we even were. It was the one time where, when the elevator door closed, we both just burst out laughing. And the kicker: Irene, ever the businesswoman, turns to me after we stopped laughing, and says: “Maybe he can buy some of our content?” We paused for a moment — and then started laughing even harder.

But beyond the hijinks, I realized that we have accumulated some real experience over this past first year…and it is still fresh. So in the spirit of this ongoing, occasional series on launching a news startup, it is most useful for readers — and I am convinced, also for us — if I try to wean something from the ups and downs of our fundraising efforts to this point — just at the moment our attention is most focused on the topic.

The best way to proceed, I think, is to take it chronologically. And this story starts two years ago, well before I had found that kick-ass business partner, launched the killer company — before I really had any practical business experience at all.

In the beginning, there was just one person who could solve the financing question. He had no shortage of funds. He knew my work. He loved media. He was under 40. I had even once talked to him about the idea that I now had transformed into a 22-slide PowerPoint business plan and had printed out and carried under my arm as I strode toward his office on a hot September afternoon.

I had spent the summer convincing myself that there was a solid 50/50 chance he would write me the check I needed to launch the thing — and I could just get on with it. You guessed right: It was the wrong 50. Actually, the story of this entire project (including my musings here) is the fruit of not getting that check — how much I had to learn before having anyone’s money to play with.

The truth is, I never even got the chance that day to ask if he would invest. (I am about to now!) He had brought along a top guy from his marketing office to hear about the project, who would end up helping me to begin to sharpen that business plan. They both asked good, tough questions. They saw some potential. It was not the meeting I had anticipated, in either of the 50/50 scenarios — but it was the first of many good meetings.

Takeaway No. 1: No one will give you money just because they have it.

Takeaway No. 2: Anyone who doesn’t give you money probably can offer something else (or at least a good laugh).

Fast-forward six months. Still flying solo, blissful in my ignorance, though a bit wiser in my ways. I still hadn’t actually asked anyone for money, and wasn’t thinking too much about it. I didn’t understand much, but I’d understood that it was actually too early to be seeking funding. Bootstrapping is a concept I learned to appreciate over time. At first, it seemed like a euphemism meant to encourage those who couldn’t manage to raise money. Now, I know, for some it can also border on religion. And little by little, as I learned more about what you can give up when you do raise money: not just ceding shares of the company and potentially control of the business, but it can start to change the natural order of things — make you move too fast, or slow you down.

Still, in the end, I knew that this news startup couldn’t be pure bootstrap: it was not a blog or software or a design shop or whatever else can potentially be launched alone. Rather, it was going to be a professional news company and content producer; and as such, would need human capital — and as such: some upfront cash.

I understand now, in a way I didn’t at first, that money — both up-front investment and revenue generation — is so much a part of every other aspect of building a business. It is fuel to arrive from here to there, the chance to turn out our product and find good people, and present ourselves to our potential customers. (And, of course, future investors too.)

But in our fundraising efforts, I also learned that it’s never just a pure question of how much cash you have on hand or how many people you can hire or how much of your company you still own. Fundraising is strategy. How you go into the process and how you come out of it is destined to shape the very nature of the company: it is simultaneously about dreaming big, and surviving tomorrow.

The relatively low barrier to entry that the Internet affords renders fundamental the to-bootstrap-or-not-to-bootstrap question for just about everyone. To launch a small enterprise at more or less full capacity, by traditional newspaper standards, would be a tiny operation: four in-house editors, a few webmasters and multimedia folk, one or two marketing and admin staff — and a global network of stringers who would be paid for their work. Overhead would be low, ad sales and subscriptions outsourced. Small, yes, but still north of 1 to 2 million bucks a year on the cost side.

But I discovered that there is vast territory between no funding and fully funded, that we could start small, go live early, and keep costs to an absolute minimum. We could show people, ourselves included, what we had. We could develop best practices, build partnerships, gauge the market…

This would wind up being far more than just a budgetary decision. It would become our strategy.

Takeaway No. 1: Fundraising is more than a means to an end.

Takeaway No. 2: Bootstraps can come in all shades of gray.

And then it began. Sort of. We weren’t going big/fast, but we needed some cash for these first months. We had to get the site designed and built, pay the journalists to produce our articles, figure out legal and admin costs. So, with Irene taking the lead, we started making the rounds. In retrospect, it’s all a blur. We had meetings with people who we thought could have some money, or ideas, or both, or might know someone who did. Sometimes we went for the ideas, and left with some money. Other times, it was the reverse. In any case, more ideas than money.

Of course, when someone does commit, it is just about as exciting — and humbling — a moment in the life of a startup as any. It is pure fuel to feed the little engine you are building — and a very real commitment from someone who was indeed a perfect stranger when you first asked if you could borrow a few minutes of their time.

Still, fundraising can be exhausting, and time-consuming. Especially as the calls and meetings and emails start to pile up, as certain hot leads turn cold, as real interest in someone’s eyes across the table somehow fades when the follow-up email goes out.

There will also be the occasional encounter that can just make you mad, someone who not only doesn’t believe in the project, but decides to take you to school while he’s at it. One entrepreneur/angel investor who had made his millions in his 20s told us that news wasn’t a real business, that he made it because he hacked away around the clock, slept by the warmth of his humming computer hard drive, and finally — when I’d mentioned that I had a wife and two kids — he declared that this was “a real problem” for the potential success of our company!The twist, I realized afterwards, is that it is actually a good thing, every now and then, to run into someone who openly doubts you, who wants to cut you down. That’s a different kind of fuel!

But even for those who believe in the project, there are other obstacles. The valuation we’ve assigned to the company prompted raised eyebrows from some, requests for a special rate from others…in exchange for promises that they will contribute in other ways, not be sleeping partners, etc. (A rule of thumb is to always count on them sleeping in the end — we learned that the hard way too.)

Then there are others who are truly interested, cool with the terms, and apparently ready to jump on board — but you still have to get them to sign that check! Back in September, with a shred of doubt still lingering with a certain key investor, Irene rushed down to Gare Montparnasse one Friday evening to literally pick up the signed deposit papers by hand on the train platform. Humble indeed!

I’ve only scratched the surface of just our one little startup, still at an early stage, not even mentioning how our written business plan and live pitch have evolved. Perhaps after our upcoming round, with the professional help of Lionel Le Maux, I can return to those topics.

I thought I would conclude by returning to what is particular about what we are doing, i.e., finding new ways of producing and delivering quality news content. In our case, it is global news — and it goes like this. But this can apply for anyone with an idea related to content production: from hyper-local to worldwide, topic-specific or otherwise.

Right now, we would-be professional content producers are decidedly not the flavor of the month in the eyes of investors. Beyond the hunt for the next Facebook or e-commerce fix, even for those with a particular affinity for media, it’s all about the stuff around it, the tools and trimmings: the technology, the platforms, the gaming, the social networks.

But I am convinced that we can begin by simply distinguishing between information and worthwhile information. Noise and news. Yes, technology and the crowd will play an ever bigger part. But without a professional layer or two, it is bound to fall short: for the technology, because it’s not human, and for the crowd, because it’s not paid.

But as much as the money, the investment is in the time and thought and effort to figure out the right models that involve professionalism — and as such help to redefine what it means to make a living doing journalism. Of course we should be doing journalism with technological changes very much in mind, and we should know that journalists aren’t going to paid in the same ways — and probably never as much — as they once were, if only for the simple reason that more people are doing it, including a few good ones who will in fact do it for free.

But just because the definition and economics of the profession are changing doesn’t mean we just wait for the clock to run out on the old models. If we start looking now for new ways to find worthwhile information, we can actually make quality coverage part of this transformative moment, rather than its victim — and, as you should remind potential investors, we can discover some great business opportunities along the way.

Takeaway No. 1: Keep on pitching

Takeaway No. 2: You gotta believe!

Photo by Thomas Hawk used under a Creative Commons license.

POSTED     Dec. 12, 2011, 11:30 a.m.
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