Venture capital is going to murder Medium | Hacker News Reader

Venture capital is going to murder Medium

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108 pointstortilla78 comments

This, unfortunately, is the entrepreneurial version of the "second system syndrome": https://en.wikipedia.org/wiki/Second-system_effect

The pattern: an entrepreneur achieves some level of fame/fortune.

Then, they overcapitalize their next company (to various degrees) from high-expectation investors. Next, they are reminded how fricking HARD startups are, and how much LUCK was really involved in their first success.

Some compound the pain by presuming the second will go like the first, and they run things fat and expensive from the start: high headcount, expensive office, high salaries, over the top perks, etc. And then when reality hits, the "corporate lifestyle downgrade" is especially painful.

(I'm speaking from hard-learned personal experience, and I see this pattern over and over...)

While Second-system effects seems to be describing software, the "human" version of it is apparently called Sophomore slump [1]:

    A sophomore slump refers to an instance in which a second, or sophomore, effort fails to live up to the standards of the first effort. It is commonly used to refer to the apathy of students (second year of high school, college or university), the performance of athletes (second season of play), singers/bands (second album), television shows (second seasons) and films (sequels/prequels).

The second company of a previously successful entrepreneur seem to match that definition!

[1] https://en.wikipedia.org/wiki/Sophomore_slump

And it's also why democracy is crumbling in Western societies (current generation do not have to fight for it, and take it for a granted and guaranteed system, which has nothing to do with the truth).

Which means it's probably going to die before it will be resurrected on a more sane foundation, some time in the future.

"Next, they are reminded how fricking HARD startups are, and how much LUCK was really involved in their first success."

I have the feeling this is hauting my life.

Jobs, relationships, everything.

When I got something, it didn't feel that hard to get it.

When I try to get something it feels impossible.

Perhaps. In fairness Ev Williams had two massively successful ventures before this one.

> presuming the second will go like the first, and they run things fat and expensive from the start: high headcount, expensive office, high salaries, over the top perks

Nailed it. It's tough to resist, though. In the moment, it feels like "doing things right this time" rather than running fat.

How long before SV reinvents the paid magazine subscription? Advertising seems to have an adverse effect on content quality, mostly because it puts focus on the wrong metrics. An alternative is needed.

Medium is in a perfect position to introduce a subscription service. They have a community of both publisher and consumers, a leading platform, and the backing of VC. Turn Medium into a Patreon for writers. This does not mean a paywall. This means things like locking comments to subscribers only, direct tips to authors, chat sessions with authors.

Twitch managed to take a primarily ad based platform and layer subscriptions and donations over the top of it. Their stroke of genius, is that any subscription locked content is left up the creator (streamer) such as emotes, sub-only chat, sub games, etc. It is possible. It also helped that Twitch Prime piggy backs on Amazon Prime, but Medium may be able to find another similar service to partner with.

Also all things are cyclic. We are seeing a low point for paid subscriptions (newspapers), but that doesn't mean it won't come back in another form. Enhancing the social experience, not the content, via subscriptions may be a viable path.

Patreon is already the Patreon for Writers though and for Medium to chase that type of audience is counter-intuitive. As a conduit to larger audiences, I think Patreon is about as useful as selling photocopies on a street corner. Medium has a much larger footprint which, in my perspective, allows them to be more of a Curator / Publicist / Rights Management entity than a skim-off-the-top-pseudo-serfdom-model like Patreon.

How long before SV reinvents the paid magazine subscription?

I would love for the opportunity to subscribe for a nominal amount, if it meant supporting writers and journalists, while also eliminating ads and my data being sold.

It's the principle of "Cheap is better than Free" that we're all relearning.

Locking comments to subscribers only is an awesome idea. I always thought reddit gold was a pretty good idea as well. Reminds me of Something Awful - 5 bucks to register kept out the worst commenters. Mostly.

While I've personally incorporated an LLC for dealing with institutions that don't like doing business with individuals, I'm starting to think that anyone starting a new business should seriously consider making it a Public-benefit Corporation. It lets you define alternative motives for the company besides pure profit, essentially writing the flowery "mission statements" that most companies espouse right into the company charter.

It's much harder for an activist investor to demand more profits RIGHT NOW if you can point to your charter and say that you're focusing on your corporation's stated goals - maybe in Medium's case, that could be something like 'supporting quality citizen journalism throughout the world.'

I guess that might make your startup less appealing to VC initially, but I'm sure SV will happily put its money where its idealistic mouth is, right?

I don't think that would have much of an impact. The focus on profits from VCs/investors isn't due to the corporate structure of the company, but the VC Firm's internal metrics -- the 10-year fund lifecycle, LP demands, etc.

Also the mechanism of leverage isn't the fiduciary duty that's placed on LLC / C-Corp management -- the idea that businesses are legally bound to chase profits is misguided. Company management must act in the best interest of shareholders, but have an incredible amount of leeway when doing so. The leverage from VCs comes from their ownership of significant chunks of the company and board representation. They can replace the management team if they don't acquiesce to VC demands. Changing the corporate mission statement won't mitigate these problems.

That's a good point; I guess it wouldn't really help much in the startup phase, but if the company does get established and IPO'd, then it would make a difference with the looming threat of minority shareholder lawsuits.

Investors know this and won't invest. At least as won't invest at as high of a valuation. My preference is bootstrap, that way I can make my own mistakes and not someone elses, which is what happens when investors meddle.

I've never heard of a public-benefit corporation, but that's really interesting. I work in the non-profit sector, and I've noticed a few areas where every non-profit feels like they need help. I've basically automated a way to solve these issues for my organization, and I think it would be cool to use my experience to build a product that other NPOs could use. The structure of the company has been driving me nuts though, because there are a lot of ways the company could be modified to be substantially similar to the one I'm envisioning, but fail to help. A Public-Benefit Corporation seems like it might be the solution, even if it does make the company less appealing to VC.

May I ask what area you're targeting? I'm at a nonprofit as well and the systems / support for the whole industry are terrible. Though, companies like Fluxx (https://www.crunchbase.com/organization/fluxx#/entity) seem to be navigating a useful path for investment and building a good product.

Annual fundraising. The entire industry is definitely a mess, but the big players are well established. There are a few companies that focus on online fundraising for small organizations, but it seems like most of the companies that handle traditional fundraising are targeting large institutions like schools and hospitals.

Can't the VCs change the charter after they get a sizable chunk of ownership?

If you are incorporated as a 'public benefit corporation', you can't just change the charter to no longer be so, it's part of your incorporation.

But it's unclear to me if 'public benefit corporation' is actually anything more than marketting, I don't know if it really constrains your corporation in any way.

Externally, it's mainly marketing: the stated mission of a nonprofit with the equity and operating ability of a C-Corp (and the taxation that goes along with the latter).

Internally, being a PBC adds "protection" of the mission in two ways:

1. Directors are protected from shareholders (e.g., VCs). Since shareholders are not primary to stakeholders in a PBC, directors can make business decisions that may not be in the "best interests" of shareholders and be protected from lawsuits.

2. Shareholders are protected from directors doing the same. Shareholders are able to demand external auditing of the mission and bring lawsuits alleging breach of the mission.

There are a ton of details depending on the state of incorporation.

To the contrary, you can generally file a certificate of amendment to change the corporation however you like, as long as you have a shareholder majority. E.g. in New York: "An existing benefit corporation may terminate its status as a benefit corporation by amending its certificate of incorporation"

https://www.dos.ny.gov/corps/benefit_corporation_formation.h...

There's always some way to get around this kind of thing. If nothing else you could start a C corp and sell off the "profitable division" of the PBC to the C corp, etc.

What is SV?

Silicon Valley

I will offer a counter opinion, the problem with Medium (or to some extent Quora) is not that they raised too much funding but rather they bet incorrectly on the content. As much as readers on Hacker News might want to believe otherwise, light/low-intellectual-effort content such as memes, listicles, gifs, images are far far more profitable than wordy blogposts & articles. Sure you might get lucky and have a viral article once in a while, but low effort content delivers far better median return.

Regarding the funding, consider that Buzzfeed has raised 446.3M$ and Giphy has raised 150.95M$. The money raised is consistent with the kind of site he had envisioned, the issue is that there isn't a market for it.

> The money raised is consistent with the kind of site he had envisioned, the issue is that there isn't a market for it.

It seems that it wasn't necessarily too much money but too much too soon. It's like Tumblr redux: the product was (intentionally or not) built to put ads in front of lots of loyal eyes, but the founder refuses. In that sense, they lack real product-market fit.

I concur with you that they bet too much on their content. The question then is: did the vicious cycle start from raising too much, or betting incorrectly?

When you are worth few hundred million to a billion dollars. The only rate limiting condition is the time you have left, and the window of opportunity. From his perspective (and correctly) there isn't any point in bootstrapping.

Medium is not the first such example, you also have Path (where sadly one of the co-founder was not as rich), Quora, and as a counter example Uber.

Not that I disagree with you, but Tumblr, among others, disproves that money can be made on sites that focus on the "low effort" content.

It's a pleasure to see DHH pat himself on the back each time his stopped clock overlaps with the hour. He shows the palpable schadenfreude of a man, sitting on the sidelines, who won't shut up about the players in the game. But I notice another flaw to his prose aside from the self-congratulations.

Many people who stumble into a certain amount of fame and adulation, like him, get sloppy when they write. They start to repeat themselves. They don't offer evidence to back up their claims. They don't dig deeper than the insight they offered in the last five columns. In short, they don't do the work any more. DHH's post show all those symptoms. He lacks a good editor, and probably thinks he doesn't need one.

It might be interesting, for those who want to do the work, to consider why VCs invested more than $120M in Ev. One answer is that VCs tend to invest in strong founding teams, and he is about as strong as a founding team gets. Personally, I would never invest in a media company, but abstracting away from the sector, Ev looks like a very good bet.

Secondly, investments fail all the time. Medium might be one of those. Our understanding of the world doesn't change much if that's the case. None of this is really news.

It's a pleasure to see DHH pat himself on the back each time his stopped clock overlaps with the hour.

I don't get this metaphor. How is DHH's clock stopped? As far as I know, he has a very successful business, while leading an exciting lifestyle (he drives racing cars!), and he also heads a wildly successful open source project. I can think of few other besides perhaps Marc Zuckerberg, who is winning in life to that extent.

It doesn't seem like you're disagreeing with him though.

It might be interesting, for those who want to do the work, to consider why VCs invested more than $120M in Ev

You're completely missing the point! We all know why it makes sense from the perspective of the VCs. DHH is writing from the perspective of a founder, and the deal makes a lot less sense from that perspective. VCs make many bets, expecting to lose most, but win big on a few. The founders however, don't get to make more than a few bets, and the odds of winning one are very low.

Secondly, investments fail all the time. Medium might be one of those. Our understanding of the world doesn't change much if that's the case. None of this is really news.

What a cynical way to look at this. Sure, the VCs will be fine if and when Medium fails, but it will have an impact on a other lot people: employees, who've spend years of their career for nothing and whose stock options are now worthless, and customers who have come to depend on the product.

DHH's clock is stopped because he keeps saying the same thing again and again: don't raise VC. When a startup fails that raises VC, he points out how right he was. When a startup succeeds that raises VC, he says nothing. In fact, most startups are default dead and raising VC doesn't change that fundamental fact -- but it does give them what is essentially proxy revenue so they have time to figure out how to make real money. There is a very long line of people between Mark Zuckerberg and DHH who are "winning at life", as you put it.

Without VC money, Ev would have had a hard time getting attention and traction for Medium, which is what he needed to test out his idea. That is true for many founders. VC money is their ticket to real-life business school.

An expectation of Medium failing is just an instantiation of a more general expectation that startups will fail. It's not that cruel, really. The employees worked for a well-known brand and are still in the hottest job market in the US. We should not weep too much for them.

The underlying premise of what you write, seems to be that money is the only yardstick that matters. That is why you patronisingly write that there is a very long line of people between Mark Zuckerberg and DHH who are "winning at life", even though the reason I referenced Mark Zuckerberg specifically was that he seems like a rare person who succeeds in business and apparently manages to balance that with the rest of his life (hats of to him for taking 2 months of paternity leave). It is why you dismiss the notion that the people who worked hard on a failed product, could have anything to be sorry about as long as they are still able to get a high paying job in the next hot startup. And its why you disregard the part of DHH's criticism that doesn't talk about whether or not your business will stand a smaller or greater chance of "making it", but warns about how dissatisfying it is to be a founder and not have total control, and about how the pressure to strike it big or go busto sucks all the fun out of having a business.

Which is fine, I guess, and certainly explains why you wouldn't be impressed by someone like DHH. I for my part find DHH's opinion both interesting and refreshing.

> The underlying premise of what you write, seems to be that money is the only yardstick that matters.

That's not what I said at all, and it does not reflect what I think, but it does smack of the presumptuous and dogmatic pigeon-holing that DHH often commits.

Money is not the only thing that matters, but it is a thread that runs through most endeavors in tech and all venture undertakings and businesses.

Control is a big issue. And so is survival. Sometimes to you give up the first to achieve the second. That usually happens by degrees. I am part of a venture-funded startup and well aware of the tradeoffs.

I found DHH's perspective interesting the first time, but he has not done a lot to hold my attention since that initial exposure.

> Personally, I would never invest in a media company, but abstracting away from the sector, Ev looks like a very good bet.

Which is absurd. "The chocolate teapot industry is difficult, but boy, Ev really knows what he's doing, even though he hasn't actually made a chocolate teapot before". Silicon Valley has the strangest issue with personality cults sometimes.

The absurdity conceals a reality you don't understand yet, which is that VCs often have to make investments not according to their deep understanding of a specific market, since there are too many markets to study, but by using a few signals that apply to all startups. Those are traction with users, social proof from other investors, and the track record of the founders. Startups are all organizations in search of a business model, as Steve Blank puts it. So you want someone leading the organization who is adaptable enough to figure that out, no matter what initial idea they start with. That's why VCs go with strong founders.

It's interesting to think what the other non ad based models might be:

1. SAAS Freemium: It's free to write on Medium, but if you want a real domain and a few more features pay $10/mo

2. Patreon-ish: Direct monthly sponsorship (subscription) to individual authors

3. Fractional Payment: Overall subscription to Medium as a service payed by readers. Authors are paid according to a formula for how many people viewed their content each month.

Any I missed?

>1. SAAS Freemium: It's free to write on Medium, but if you want a real domain and a few more features pay $10/mo

I think this is a fantastic idea. It has worked on many other platforms such as shared hosting before.

>2. Patreon-ish: Direct monthly sponsorship (subscription) to individual authors

This is also a great model because it allows readers to pay for content that they consider worth while. It has the capability to increase overall content quality, become a platform for new writers, and medium could scrape some small amount of dough off the top for the service they are providing.

>3. Fractional Payment: Overall subscription to Medium as a service payed by readers. Authors are paid according to a formula for how many people viewed their content each month.

I don't think this is a great idea to be honest. This is essentially how click farms already work and has lead to the uprise in clickbait. I see this as the primary reason why sites like Buzzfeed exist.

I've been thinking about 2 as a potential path forward for journalists/journalism. Is there a reason to continue the monolithic paper over directly funding individual journalists?

I think there's a cool idea in a platform designed like this... somewhere in between Kickstarter, Patreon, and NPR, but with a whole bunch of tools for news consumers to discover, read, and support both journalists and stories they're interested in. Things like supporting and discovering topics like "local region politics", "travel", or "technology", while allowing journalists to describe their backgrounds, political leanings, etc, might be a way of addressing trust and transparency in journalism and journalistic leanings while also allowing a range of opinions and perspectives on one platform, rather than being driven solely by editorial control.

I love this idea. I'd honestly be really excited to take it on as some sort of side project. The company/application itself could be an extension of the idea. Open source the whole thing and let the community help improve it while using a patreon-esque model to support the core developers/maintainers.

I think that's pretty clever. Spent 15 min talking about it with coworkers today though, and IMO the challenge with something like this is identifying and specifically addressing the problems it would be trying to solve rather than boiling the ocean and hoping it does the "right thing".

I think it requires some more thought.

Medium should be an AI-first company. Instead of the suggestion above for "formula for how many people viewed their content each month" it should be investing its time into generating the best of humanity's thoughts and writings and ideas with the vision that AI content generation will be the future of publication.

I agree. It would be fantastic to have access to a writing platform that focuses entirely on content quality as it's product.

>3. Fractional Payment: Overall subscription to Medium as a service payed by readers. Authors are paid according to a formula for how many people viewed their content each month.

For the love of god, please no. This will only encourage clickbait. It would be better if the reader could buy a subscription and dictate how the subscription revenue should be split, i.e. writer A gets X%, writer B gets Y%, etc.

Your ideas aren't even mutually exclusive! They could have multiple tiers of membership: a lurker who pays to read ad-free, a promoter who drives traffic and provides good feedback for free, or a quality publisher who actually gets paid to write.

I'd really love to see Medium develop into a marketplace for content, driven by membership AND ad revenue.

I apologize if the answer is obvious, but could someone explain to me the rationale behind a blogging platform taking 132M in venture funding?

This isn't critique of their strategy or anything. I'm genuinely curious as to why they would do that. I'm sure their engineering is great, but does it really take that much money to build and scale such a product? It seemed like most of their marketing was organic too. I'm just trying to understand the situation better.

They've paid a lot of money to have their own content created. For example, https://backchannel.com

So they outright paid content creators and writers? It seems that Backchannel is owned by Wired/Conde Nast. Have they contracted them to keep Backchannel publishing on Medium?

Feels like we'd only just forgot about Posterous. At least Posthaven is already there to accept the fallout?

Nice to see ten times as much money was raised this time though.

Such a shame though, would be nice if there was a better way of extracting value from these viable but non-unicorns.

The one pivot Medium could do - and potentially reap large fiscal revenues & find profits in turn - would be to become a Writing Talent Incubator. They have the Ecosystem. They have the Banner. If they have cash, then they can get into the Rights Management sector and pursue the sources of almost every modern Media or Communication Content: Writers.

Compared to Engineers, Writers are dirt cheap. Funding in the tens of thousands of dollars per writer - or unicorn hundred thousand for some really promising ones - is the pathway to getting Content that can be monetized. If they play nicely with Writers and not make the "Indentured Servant Musician Record Label Contract" a staple of their model, it could attract a lot of attention in a good way. Mutual long term benefit = good business.

Unfortunately the Hit-to-Miss ratio isn't something I'm confident Medium wants to buy into. As in, if the most popular Writers sling pretty unappealing material (ex: Self Help, Conspiracy Theories) then it could take a lot of work figuring out where the gold might be. Having lots of data and pieces to examine through their systems certainly provides an advantage at the outset.

It's still all about risk and reward though. The big hits are what cover for the bad bets. It's a viable business model, until it isn't. Which, honestly, goes for a lot of other types of businesses too (times change, tastes change, regulations change, etc) so it's not out of the realm of consideration.

Basically I see Medium as right in the sweet spot where Netflix turned the corner. Licensing content and being the distributor is grunt work. The real money comes from owning the fountains. In a perfect world Medium would buy-up Script Revolution tomorrow, specifically the founder/creator, and begin the Content / Writer Incubator attempt with sincerity with his cultivated pool of writers, and see how it turns out.

Such a pivot definitely has some appeal to me as both a Content Creator and Consumer, and is, dare I say it, a bit more innovative than figuring out a new part of the donkey to pin the ad tail on.

And "big hits" for authors, especially non-fiction authors, aren't really all that big. With _very_ occasional exceptions. I'm not sure this would work.

True, selling "texts" is a busted model. I wasn't advocating that particularly; I think the revenue model is in the downstream rights management, not the actual text. Audio book rights. Film rights. Translation rights. I'm not the biggest fan of the Copyright system in the US as it stands now (specifically Term Length) but pointing out all the different avenues for compensation via multi-media exploitation is a forward-looking business model.

I noted on the original discussion thread that Medium became the de facto place for easy-setup-startup blogs after Tumblr faded from consciousness. If the same things begins to happen to Medium as they chase an exit strategy, do these startups have a Plan C?

Plan C is to get acquired by Yahoo.

While I appreciate the value that Medium has provided, I'm unclear how its product could take $132 million dollars to create. Could someone elucidate me?

75 people employed for 4 years at ~$200k/head + rent in the heart of SF for 4 years at Market and O'Farrell + Amazon + ...

>75 people employed

This just shifts the question down the resource pipeline :)

I don't have any inside knowledge but it probably didn't take that much to _create_ the product. They're getting rid of 50 positions described as mostly business and sales, so they obviously have built up some costs around pursuing whatever revenue sources they thought they were after.

Ah, yes.

So, it may not have been the product that cost $132 million, but the spectacularly underwhelming monetization strategy.

Ev was right about social (micro-) blogging with Twitter and the VCs backing him did well as Twitter figured out how to monetize content. Ev says he's got wind of a similar opportunity in long form blogging. I'm not sure why we'd be surprised that VCs would back him strongly, even while they understand the monetization risk.

Actually, the lead investor says it better: https://knowledge.sparkcapital.com/our-investment-in-medium-...

Wow, somehow I didn't realize they'd taken on that much funding. I have to agree, I don't see how they make their way out of this. Would love to be wrong, though.

My first thought was of the Silicon Valley episode about asking for a lower early valuation. $132 million is a stunning amount of money for a company with an online publishing platform and no real revenue, and I'm a bit shocked they let the numbers climb that high.

"no real revenue" -- I don't think I've ever seen an ad. So what is their business model?

medium is used as backend for some publications - there you see ads. Not (so far) on medium.com or users content.

I'd imagine it wouldn't be too hard to start putting in ads once you've built a userbase

I not so sure. You might not die immediately, but you would start bleeding to death right away.

Worked for YouTube.

The only reason it worked for youtube is that they were the only service offering reliable high quality video. Other video hosts had problems with loading times and reliability.

Youtube is arguably a more valuable service in that it takes way more infrastructure to run a video hosting site than it does to run what is essentially, a simple blog. It would probably take no more than a year of development experience to build a site like Medium(leaving out scaling concerns). Youtube, on the other hand is a beast. I can't even imagine beginning to build an application like youtube. Youtube can push ads hard without bleeding users because they offer quality so many orders of magnitude higher than the alternatives. Medium has only one thing to offer: nice design.

I'm skeptical for Medium in particular. As a reader, their only advantage over other platforms is a clean, well-structured reading environment. I'd be very displeased if they did anything to damage that.

Honest non-nvestor question: How is it that investors valuate and front hundreds of millions into companies with a functioning app, a user base and no clear path on how to monetize? I saw this recently with yik yak as well and it confuses me.

It's not venture capital. It's the standard reason 150-person organizations die; they have no revenue of note and no plan to get more.

I wonder if medium could partner with Brave Browser

I don't think Venture Capital is killing Medium. Spending that much money no matter what the source is the problem.

Written on medium

> "It’s the best writing environment on the web, and they sweat the details like nobody else."

> "Especially for anyone who moved to Medium but hedged their bets by keeping their own domains."

The claim here isn't that Medium is bad, or even not excellent. It's that they took >$100 million in VC money with no real plan to monetize, and so they're doomed regardless of product quality.

That's consistent with DHH's message: the product is fantastic, but the business story was artificially propped up by VC $$$.

And?

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