O’Reilly’s Tools of Change for Publishing: What investors are looking for in publishing companies
As the publishing industry undergoes fundamental changes, new processes and ways of doing business emerge. Companies are now “mobilizing” content, building multimedia, and incorporating social media — concepts that would have seemed utterly foreign just 10 years ago.
In the following interview, Catalyst Investors co-founder Ryan McNally reveals the publishing trends that are catching investors’ attention and he explains how a full embrace of new technology will help the industry evolve.
What are the biggest growth areas related to publishing?
Ryan McNally: Publishing is playing catch-up to the capabilities of new technology, and that makes this an exciting time. Digital publishing and new platforms for consumer engagement — tablets — will be the biggest drivers of growth for the foreseeable future. Ebooks and e-magazines will be the immediate product opportunities.
More broadly, the evolution of what we think of as “publishing” will continue. Incorporation of video, multimedia, and social interaction will foster innovation. In the short term, I think this will mean that publishers will look to the past for their future — using archived content in new ways.
Publishers will attempt to innovate by bringing social media into the mix to utilize the capabilities of tablets and other digital devices — look at Vook, for example. There will be opportunities to meld video, text, images, and social media into ebooks and e-magazines. As this kind of content becomes widespread, consumers will expect more than just a digital presentation of their analog content. Some of the more interesting start-up opportunities will involve services or technologies that help publishers create this kind of material.
When reviewing a company, what are the most important aspects an investor should consider?
Ryan McNally: We are growth investors rather than start-up investors, which means we provide capital for companies that have already proven their technology and business model but need capital to expand. Nonetheless, the things that we look for are very similar to classic venture investors.
Broadly speaking, we look at such things as potential market size and how it is growing. A growing market can forgive a lot of mistakes that earlier-stage companies are likely to make along the way and reassure investors that there will be multiple options to exit. We also look at novelty or uniqueness of the idea or technology or content. Scalability of the business model and its level of profitability at scale are other important considerations. People are important, too. For instance, we look at the ability of the team to execute against the challenges the company will face in its growth. We also look at who is the most likely buyer of the business.
On the other side, what should an entrepreneur consider when starting a new company in the publishing industry?
Ryan McNally: All of the issues I just mentioned are important in deciding whether to start a business. They’re not just applicable to investors. After all, the entrepreneur is the first investor and has the most at stake.
There are other issues that apply just to entrepreneurs, though. You have to ask yourself, can you lead an organization? Do you have the vision, motivation, discipline and creativity to deal with the ups and downs that come with starting a company? You also have to ask: Do you have the skills to run the business or will you be learning on the job? And can you devote the time and make the family sacrifices required to put in the sometimes grueling hours to build a business?
Money is a big question, too. If you’re going to start a business, you should anticipate that you’ll need 6 or more months of working capital without revenue.
The unasked question that runs through all of these other questions is, do you have the passion? If you can satisfy yourself on that one — and assuming your idea is good — you can sort out the others.