Venture Funding in the Book Publishing Industry

Venture Fundingin the

Book Publishing Industry

Thad McIlroythefutureofpublishing.comVancouver & San Francisco

January 11, 2014

A Brief Overview Book publishing is not a major industry Book publishing is not growing nor is it

significantly profitable Physical book retailing is under threat,

and that threatens the balance A single dominant company (Amazon) is

calling most of the shots

In Perspective

Here’s is the smallest member of the 2013 Fortune 500.

Nash-Finch is in the food distribution business and has sales of nearly $5 billion per year.

RR Donnelley, the largest U.S. printer, had 2012 sales of $10.2 billion (10% market share).

In Perspective: The Largest (‘12)

Penguin Random House $3,660,000,000

HarperCollins $1,200,000,000

Macmillan $ 825,402,500

Simon & Schuster $ 800,000,000

Hachette $ 572,250,000

Total $7,057,650,000

= 50% of trade sales; 25.3% of total books sales

What’s in the Numbers?

Over 600 startups About 7% of those startups have

recorded investments The average investment is $70,000k +/- Remove the half-dozen over $10m and

the average investment is $35,000k +/- 2.5% startups have “cashed out”

Ignore the Exceptions?These aren’t likely to repeat

Kobo sold to Rakuten for $315m Goodreads sold to Amazon for $150m Microsoft invests $600m in Barnes &

Noble NOOK

Books vs. Mags vs. Newspapers Several of the startups cross the space between

books & periodicals. The blurring of the boundaries is encouraged by the likes of Kindle singles – in some cases long magazine articles repackaged.

While newspapers are issuing ebooks in a flurry, there’s no real industry crossover

The big difference is that the names of periodicals are the brand; for books the author is the brand

In Perspective: VC Dollars

Hot Start-up Industries

February, 2013No book publishers here.

Another View

We Want to Believe in “Media”

“Media and Entertainment” Defined

“Creators of products or providers of services designed to inform or entertain consumers including movies, music, consumer electronics such as TVs/stereos/games, sports facilities and events, recreational products or services. Online providers of consumer content are also included in this category (medical, news, education, legal)”

No book publishers here.

No M&A Activity (via JEGI)

Judging Investment Value Existing industry, in a period of growth (such as

new homes) New industry, expanding rapidly (home medical

devices) Existing industry with new opportunities (Apple

with tablets and smartphones) Transformative technology addresses an unmet

need (Uber for catching cabs at tough times in big cities)

Condemning an Investment

Mature and declining market Fragmented market Not significantly profitable Difficult to access internationally At risk of structural fragmentation (no

more bookstores) Dominated by Amazon

The Proof is in the Pudding All media markets have a “sex appeal”

that attracts investment Yet book publishing has attracted less

than $350 million in the past five years Three companies have had strong pay-

outs, but most are failing even to get second-round funding.

Just one IPO (Chegg) – not promising

What About Those IPOs?

Forget it. According to the authors of the 2014 Tech IPO Pipeline Report:

“There are no publishers on our lists. The closest thing would be VICE media, but they're primarily online.”

Yes there are acquisitions...but they aren’t startups

VCs aren’t Watching Publishing

Mark Coker on Flattening Sales

“A fast-growing market causes players to misinterpret their success... It’s when things slow down that your business model is tested. The market is slowing. A normal cyclical shakeout is coming.”

— December 30, 2013

AngelList: The Forgotten

AngelList:Can’t We all Just Sound the Same?

“Making ebooks easy” “Building the future of ebook reading” “iTunes for ebooks” “A reading revolution” “Reinventing non-fiction book publishing” “A community within every ebook”

Gust: Never Visited

Collaborating with Startups

Source: Dosdoce.com

Conclusion I

I don’t have a happy face to splash on the challenge of attracting venture dollars to the book publishing industry: I don’t believe that it will happen in any systematic fashion

The one way that book publishing often overlaps newspapers: it’s an excellent way for the wealthy to indulge their egos

Conclusion II

I think the investment confusion arose because many thought that an industry in the throes of digitization should be an industry worth tossing VC dollars at

Just because publishing is going digital doesn’t mean that there’s a new road to publishing riches. It’s the same tough slog

My Background

• 8 years in bookselling & publishing

• 15 years in the U.S. studying the intersection of technology & print publishing @ Seybold

• 10 years at The Future of Publishing.com

• Co-author The Metadata Handbook

The Metadata Handbook:A Book Publisher’s Guide to Creating & Distributing Metadata for Print and Ebooks

Renee Register, DataCurateThad McIlroy, The Future of Publishing

Available both in print and ebook formats

Published December 2012

themetadatahandbook.com

For further information

Thad McIlroy

thad@thefutureofpublishing.com

Publishing rights for this document: This license allows for redistribution, commercial and non-commercial, as long as it is passed along unchanged and in whole, with credit to Thad McIlroy at The Future of Publishing.