Last week, Accuracy in Media warned readers that the future was looking bleak for woke digital companies in the wake of layoffs of staff at Vice, BuzzFeed and HuffPost. The bad news was just beginning for them.
That’s because each of these digital media companies has been struggling with organic growth and containing expenses, making it difficult to reach profitability.
And this week the news, for Vice at least, couldn’t be worse.
Vice had anticipated going public this year through the use of a Special Purpose Acquisition Company with a valuation of $2.5 billion (down from its 2017 valuation of $5.7 billion). Instead, Vice had to settle for raising $135 million, which is probably enough to make it through the year.
In 2020, they raised $90 million but needed to replenish the well after burning through existing cash.
And there is no worse time to raise cash than when you really need it. The even more disappointing news for Vice is that the founder and chairman had to make a major concession to worried investors to bulk up the balance sheet with another year’s cash.
“As part of the fundraising, Vice’s co-founder, Shane Smith, has agreed to give up his voting control…. He remains chairman of the board,” according to the website The Information.
“Although Vice has never been consistently profitable, CEO Nancy Dubuc (ex A+E Networks) has cut costs and thereby slashed its losses to around $20m in 2020 from around $100m in 2018. Still, the company regularly needs to raise cash. The current fundraising follows Vice’s raising of around $90m last year, also from existing investors,” said the site.
The investors are led by James Murdoch, the son of Rupert Murdoch. James is the more liberal son of the two Murdoch’s juniors.
He recently left Fox News over editorial content decisions that he thought were too conservative.
While $135 million isn’t a small amount of money, it pales in comparison to the $5.7 billion valuation that the company was talking about just four years ago, and even the $2.5 billion valuation that they expected this year.
To be clear, we don’t know exactly how much Vice Media is now worth after the deal, as no one has seen the deal book. But when the founder of the company gives up voting control of the company for a year’s worth of operating cash, the news is not very good.
In addition to losing control to outside investors, it also put the company at a disadvantage when it comes to acquisitions if their competition, BuzzFeed, eventually completes its own Special Project Acquisition funding as anticipated later this year.
It will allow BuzzFeed to use the public stock of the company to make acquisitions at more favorable terms than Vice can likely do.
“The SPAC could help strengthen the company’s position to acquire other digital media companies, BuzzFeed co-founder and chief Jonah Peretti told CNBC’s ‘TechCheck.’ Peretti said there’s a ‘lot of other attractive opportunities out there,’” according to CNBC in June.
Here’s the real trouble with these companies and the giveaway: While most companies use going public as graduation for reaching maturity, digital media like Vice and BuzzFeed are using the Special Purpose Acquisition Company as a way to paper over their faults.
People do not want to buy what Vice and BuzzFeed are selling any more than they wanted to buy what Air America and Al Gore’s Current TV were selling.
And this time, there are no Arab businessmen waiting to bail the liberals out.
Wall Street noticed this flaw in its business model. And that’s why they are having trouble going public at fair valuations this year.
Which other industry, for example, solicits individual non-tax-free donations at the same time they are trying to help investors cash out with $2.5 billion like BuzzFeed is doing?
In every other context, the practice would be called a grift.