Communiqué 27: Thinking about Big Cabal Media’s $2.3 million raise
What are the implications of raising venture capital as a media business in Africa?
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Thinking about Big Cabal Media’s $2.3 million raise
In March 2022, Big Cabal Media (BCM) announced it had raised $2.3 million in seed funding, joining a list of African digital media companies that have publicly raised venture capital, including Stears and OMG Digital.
BCM plans to grow its audience, expand its creative studio’s capacity, and develop new products with the investment. It currently owns two publications, TechCabal, which covers African tech, and Zikoko, a lifestyle publication that explores African youth culture. According to the company, these publications reach over 30 million people monthly.
BCM’s roster of investors includes Luminate, Unicorn Capital Partners, Future Africa, Mac Venture Capital, and a few angel investors.
Uneasy lies the head
The relationship between digital media and venture capital is uneasy, and that is the backdrop for this essay. Only a handful of digital media companies have raised venture capital and produced healthy returns.
The 2010s was a golden era for digital media companies looking to grow fast and upend the reign of their traditional counterparts. Investors were willing to bite on the premise that some of these startups could grow big enough to swallow up the old guard or at least compete significantly.
Buzzfeed, the epitome of that era, raised $696.3 million over ten rounds. Its trajectory was inspirational and meant to usher in a new order. Its CEO, Jonah Perretti, was (and still is) seen as a visionary whose musings on digital media were meant to define the future. But Buzzfeed’s run has been anticlimactic, typified by its disappointing IPO, which opened at $10.95 and has swung between half and one-third of that price since.
Vice, another promising venture, raised over $1.6 billion but has also been uninspiring. In Africa, Ghana’s OMG Digital raised over $1 million in 2017, but it has since shrivelled while all its founders have moved on to other projects. Quartz, another once-hot new media company, has struggled to find an identity. Last month, it sold for less than $10 million to its fourth owner in ten years.
It’s difficult to say The Athletic has been a failure after raising $139.5 million and selling to the New York Times for $550 million. But it also didn’t produce the outstanding returns its investors hoped for. Politico is one rare overwhelming success story, selling to Axel Springer for over $1 billion last year. There are a few other success stories, but the failures and struggles overshadow them.
Rafat Ali, CEO of Skift, a travel industry media company, has consistently argued against relying on venture capital for growth. He preaches that media companies need to stay small and focus on depth rather than breadth. This logic works in some cases, but not for companies with a different kind of ambition and with varying business objectives.
Why BCM had to raise venture capital
It is difficult (not impossible) to build large-scale, high-impact new media operations without significant capital injection beyond bootstrapping. And for many media founders, venture capital is the lowest hanging fruit.
In the African tech media ecosystem, publishers have lost some of their best talents to the industry they cover. For example, a person spends a few years as a journalist or staff writer with a publication, but they eventually outgrow it and emigrate to the industry itself. They’re likely going to make more money and work on more exciting projects than if they’d stayed with the publication. This isn’t always the case, but it has happened too often, making it a worrying trend for media entrepreneurs.
I wrote about this in a previous essay. There’s some competition between the media and the tech ecosystem for talent, content, and audience attention, but market realities and investor interest favour the latter over the former. So, to compete, media companies have to start thinking in part like the ecosystem they cover. This requires product-led thinking, developing diverse revenue models, and contending for a portion of the venture capital pie.
BCM, in particular, has lost many of its editorial talents to companies within and outside the tech ecosystem. To turn that tide, it needs to grow rapidly, generate more revenue, and, at the very least, compete more vigorously for talent. Raising venture capital enables it to get there faster.
However, as we’ve seen throughout history, when a new media publisher raises venture capital, it can no longer operate strictly as a publisher, especially in Africa, where the market realities are much more brutal. The expectations are different. Ideally, at least.
What are the implications of BCM’s fundraising?
The major implication of this fundraising is that BCM will need to generate far more returns than the regular media business models will bring.
In his book ‘Secrets of Sand Hill Road: Venture Capital and How to Get It’, Scott Kupor, managing partner at Andreesen Horowitz, provides a simple framework for whether a company should raise venture capital.
“...As a rule of thumb, you should be able to credibly convince yourself (and your potential VC partners) that the market opportunity for your business is sufficiently large to be able to generate a profitable, high-growth, several-hundred-million-dollar-revenue business over a seven-to-ten-year period.”
So, venture capital isn’t just another funding model for sustaining a business. It works with the underlying assumption that the business can generate returns in the multiples (7-10x), hence the high level of risk involved (the business owner typically isn’t liable if the business fails).
BCM isn’t oblivious to the fact that VCs fundamentally expect outsized returns, as is evident in its revenue projections for the next few years. It generated over $1 million in revenue last year, growing more than 400% from the previous year. It anticipates a 600% revenue increase over the next two years. Some of this will come from advertising, but that won’t be enough.
Let’s look at Stears, for example. In 2020, when it raised $600,000, the motive was clearly to build beyond publishing. In addition to Stears Business, its subscription-driven publishing arm, it also has a financial data business and announced plans to build a subscription management service last year.
Stears will look to raise additional venture capital, but not with a typical media business strategy. This, eventually, will be the case for BCM.
What does the landscape look like for BCM?
As BCM looks to broaden and deepen its revenue mix, what areas will it need to focus on?
1. Creative studio
The same way The New York Times, BuzzFeed, Vice, and Complex have leveraged their unique content style and identity to build studios and creative agencies that serve clients, BCM is doing the same with its Cabal Creative arm.
While the studio has done some work for corporate clients like MainOne, Coca-Cola, and Nestle in the past, the bulk of its success will rest on Zikoko’s cultural impact. That will set the studio apart from the thousands (and maybe millions) of alternatives.
Let’s take a cue from Pulse, one of the most successful African digital media companies. Pulse has enjoyed some success creating videos for corporate clients. However, many of these videos are essentially replicas of successful formats that Pulse has experimented with over time. Its vox pops, celebrity interviews, and trivia videos found resounding success with the audience. Then the company packed these ideas and sold them successfully to its clients.
In the future, if BCM creates more publications with the uniqueness and stickiness of Zikoko, there will be more opportunities for its creative studio to thrive.
2. Content licensing
Much like TNC Africa, BCM, through Zikoko, has built up a significant IP library over the past few years, enough to build entire content ecosystems around.
Suppose it can repurpose some of its Naira Life, Sex Life, or Abroad Life hits into successful multimedia projects. In that case, it can head into conversations with streaming platforms like Netflix, YouTube, and Prime that are hunting for high-quality, high-impact African content.
If BCM can pull this off, it will add a few million dollars to its revenue mix.
3. Pan-African expansion
There aren’t many truly pan-African new media companies around, but BCM is well-positioned to be one. Its tech publication, TechCabal, has the potential to be just that, but there are some adjustments it needs to make first, especially with its recruitment strategy.
TechCabal has tried multiple times to get its East Africa coverage going, hiring a few correspondents over the years, but this hasn’t worked out for various reasons. To mitigate this, it can explore building a network of paid contributors and freelance reporters across the continent. This way, there’s minimal overhead cost but true pan-African coverage.
Zikoko also has the potential to go pan-African, for instance, through spin-offs. It can retain its core strategy and principle but with an approach unique to each market, starting from Ghana and heading into Kenya, South Africa, and parts of Francophone Africa.
As we’ve established, venture capital comes with much more pressure for media companies, which requires thinking beyond regular, prominent revenue streams.
There’s a lot that BCM is already doing — expanding its advertising and sponsored content offerings, deepening its research and digital economy consultancy services, and ramping up the quantity and quality of its content output. However, I think investing in these three areas will be how the company builds its moat and paves the way for the kinds of returns that venture capital demands.
As with all things, though, only time will tell.
One more thing ☝🏾
Thank you to everyone who applied to be a part of the Communique Learning Circle. We’ve taken in and announced our first cohort. We’ll work with them for the next three months to develop their knowledge and skills. Looking forward to all the great things we’ll do together!