Hearst is a 135-year-old privately held company still owned by the linear descendants of Randolph Hearst, the American newspaperman. The company owns a large swath of “traditional” media assets from newspapers and magazines like Elle, Harpers, Men’s Health, Cosmopolitan, Marie Claire to some 34 TV stations in the US, particularly in key election states like New Hampshire and Florida.
It has also made some prescient buys in new media brands such as BuzzFeed (in 2008) and streaming company Roku (in 2013).
Hearst has adapted to media sector pressure by increasing its non-consumer business assets. It also owns Fitch Ratings and has a bunch of B2B database businesses, such as the Black Book (car pricing information), CAMP Systems International, the aircraft health management guide and First Databank. The philosophy is about owning essential information businesses, and assets that are embedded in an industry workflow.
So what comes next for Hearst? Sifted caught up with Megumi Ikeda, managing director of Hearst Ventures Europe, to ask about the company’s investment strategy, particularly in Europe.
What is your investment thesis?
Historically we did a lot of consumer deals like Roku and the Drone Racing League, but increasingly we have been looking at B2B businesses, such as fintech and insurtech.
“The pandemic has impacted the way families and individuals operate.”
With the “new normal” we are re-examining our focus. The pandemic has impacted the way families and individuals operate. Logistics and supply chain are obvious beneficiaries. Used car sales — and car sales in general — have been boosted.
We are also looking increasingly at digital learning, and invested in English language learning in China. We are also early investors in Robin Games — games made for women by women — and Plum Guide, which is a listing site for holiday accommodation vetted by professionals.
There doesn’t have to be an explicit synergy with an existing Hearst business. We don’t require an operational deal or an operational champion to do a deal.
Did the pandemic change the way you invest at all?
Initially, during the pandemic, we had to make sure our own portfolio companies were ok, but now we are back to looking at new deals.
Why does Hearst Ventures invest from the balance sheet rather having a separate fund?
We’ve been a balance sheet investor for 25 years and we haven’t really felt the need to have a separate fund. It helps that we are a private company.
“We haven’t felt the need to have a separate fund. It helps that we are a private company.”
A separate vehicle is more necessary at a listed company — listed companies have to answer more frequently to shareholders and can shut venture arms down more quickly. If there is a wobble at one of their big investments the programme can be shut down, so they need a separate fund to protect investment programmes.
A private company doesn’t have that pressure, and our core team has a lot of credibility [with senior management] that they can return the money they invest.
How do the European and US VC markets compare?
Europe is doing phenomenally well in startups but it could do so much better if corporates were more involved in venture and innovation. They are holding back so much capital from the ecosystem.
“Public pension funds contribute 65% of the capital in the US VC market but just 18% in Europe.”
It doesn’t need to be through venturing, it could be through partnerships or acquisitions or pension funds becoming LPs to funds. It is one of the major impediments for startups in Europe. Pension funds could invest more. Public pension funds contribute 65% of the capital in the US VC market but just 18% in Europe. [The UK lags even further with just 12%, while Nordic countries like Sweden have been leaders]
The other problem is that the volume of M&A is much lower in Europe than in the US. Corporates in Europe are not buying startups. Europe worries about tech sovereignty for the region, but if they want it, they need to support local companies.
It’s not about the $1bn exits or the $500m exits. It’s about buying the $100m companies. If there is a market for them, it makes VCs less risk-averse. In Silicon Valley companies like Cisco and Oracle are regularly buying smaller companies and there is a broader swathe of companies making small acquihires. Here Siemens does some, SAP does some but there is a lot less.
How involved are you with the companies you invest in?
We usually ask for a board seat and will be reasonably hands-on with making introductions, interviewing for key management and providing exposure to the US ecosystem. We can get granular if needed, as our network will include experts on everything from SaaS pricing to PR for TV stations.
How big is the team?
We are small everywhere. We have two people in China, two in Europe, one in Israel and five in the US. We are building out our international team as we are committed to non-US markets.
How do you source deals?
We’re very similar to other VCs: we talk to other funds, our network and we will proactively do our homework on companies. Deals are most often with companies that we have proactively reached out to, but I do respond to cold calls almost every day.
Like many female VCs, I will also over-index on the amount of time I will spend with female founders.
What happens when one of your portfolio companies isn’t performing?
You do make your reputation on the companies that aren’t performing well. We are pretty supportive. It is like having a child — once you are in, you are in. You can’t return a child.
Being a private company we probably have the closest time horizon to a founder. We are looking for an exit, of course, but we can be patient capital.