Month: September 2013

A change in fundraising law, but is there still time to save NSFWCORP from a forced pivot?

You’ve seen it, of course. “Brewster’s Millions,” the movie — so popular that Hollywood remade it six times — in which a man stands to inherit a vast fortune, if only he can spend a smaller fortune before time runs out. The catch? If he shares his predicament with anyone, he loses everything.

Now, how’s this for a modern twist:

It’s 2013. An entrepreneur, known for sharing his every last professional trial and tribulation with the world, realizes he has a little over three weeks to raise $100k to keep his company alive. An investor promises half, but only if he can find the other $50k first. But — twist! — he can’t advertise for investors until securities law changes… in three weeks. If he shares his predicament with the word, he could lose everything.

What a gas, right?

Three weeks ago, it became painfully apparent that NSFWCORP — the online/print magazine startup whose growing pains I’ve been documenting on these pages — needed to raise an additional $100,000, and fast.

This past summer, we raised $250,000 in a series seed round, bringing NSFWCORP’s total investment to a little over $900,000. $250k isn’t a huge amount of money for a company with a dozen employees (nor is $900k, for that matter) but as I’ve written before, we weren’t exactly drowning in offers of more. Still, with some luck and a following wind, that additional quarter of a million bucks should have been just enough to get to the 10,000 subscribers we needed to become self-sustaining.

We almost pulled it off, too. In the past couple of months our little magazine really hit its stride — the New York Times has tipped us as the future of paid journalism, so has Reuters and the Daily Beast and CBS. Just last week, Jack Shafer included us in his list of “media typhoons” which look set to blow away tired old incumbents like Gawker and The Huffington Post. This month has been a record month for new subscribers. Our print edition is making people fall inlove with printed journalism again, and our team — most recently boosted by thearrival of David Sirota — has been busting out scoop after scoop after scoop afterscoop online and on paper.

Like Brewster’s apartment towards the end of the 1985 movie, we’ve finally got NSFWCORP exactly how we want it.

“Marilyn? This is the room I could die in.”

And yet.

By late last month, it was clear that, even after slashing every possible non-essential cost (I don’t pay myself a salary and much of the senior team have taken voluntary pay cuts), revamping our subscription flow to leave not a dime on the table, and saying goodbye to two brilliant employees, we were still not quite going to make it to profitability without some more investment. Our burn for September would be in single digit thousands for the first time ever, but the irritating nature of cash-flow means we were still facing a hole. Without raising an additional $100k, we’d risk bouncing checks by late October, especially if we were hit with any unexpected costs.

Of course, bouncing checks isn’t an option. Instead, despite having a product that firmly in its stride, despite press that better funded startups would die for; despite thousands of paying customers, we’ll be forced to “pivot” in order to keep our core team together. God forgive me if I have to turn NSFWCORP into a fucking platform.

“Okay boys, take it all back…”

And so, three weeks ago, I sent an email to all of our existing investors. I would have telephoned them, save for the fact that we’re not really on speaking terms with two of our four backers. (It’s testament to either my credibility as an editor, or my stupidity as an entrepreneur, that at a time when we needed CrunchFund and Vegas Tech Fund the most, we published stories critical of them both.)

Still our other two investors responded immediately, one of them immediately offering to put up half of the money we need. Better still, our lawyers had wisely left open the option of raising up to $250k more in our series seed. We could have the money in days, without having to draw up new paperwork.

We were saved!

There was just one condition.

We were not saved!

Quite reasonably, our investor wanted to know they weren’t throwing good money after bad. Their condition: we’d only get their $50k if we could find someone else (or a group of someones) willing to match it.

And so began the farce.

As I’ve said before, if we were a bullshit app with the kind of press we’ve enjoyed and as many paying customers as we have, we’d be drowning in investors. But we’re a “content company” which no Silicon Valley VC will touch with a barge pole.

Our readers, on the other hand, are more than happy to pay for journalism. When we launched the Conflict Tower — offering lifetime subscriptions for up to $1,500 a pop — we sold almost $50,000 worth in a matter of weeks. When we opened upten year subscriptions ($200), we sold dozens in the first 24 hours. If it weren’t for the support of our subscribers, we’d already be out of business.

The most obvious way for us to raise $50k, then, would be to turn again to those subscribers. Given the willingness (and ability) of many of them to pay four figure sums to help keep us going, it’s likely that at least some of them would qualify as “accredited investors.” And of those, perhaps half a dozen could be persuaded to exchange a few thousand more dollars for part-ownership of the future of journalism (with jokes).

And yet, and yet.

Until midnight last night (when certain key provisions of the JOBS act came into effect), we were barred, by law, from publicly mentioning the fact that we’re raising money. I couldn’t write about it on PandoDaily, I couldn’t tweet about it and I sure as hell couldn’t email our subscribers to tell them. The small print on AngelList, where we listed our most recent fundraising requirements, made the rules clear…

In the U.S., it is relatively simple and inexpensive for your lawyers to close your financing as long as you don’t (1) publicly announce that you’re raising money or (2) raise money from unaccredited investors. 99% of the startups that you’ve heard of took this approach. The alternative is a set of complex and expensive regulations, with serious penalties if you screw up.

We forbid all public fundraising announcements on AngelList; for example, through a public status update. And we advise you not to make public fundraising announcements on Twitter, through a reporter… or anywhere elsewhere. And the risks of not complying with securities regulations…

1) Your closing may be delayed for 6 months.

2) All of your investors may have a legal right to get their money back, whether or not they invested through the equity crowdfunding site. Lawyers call this a “right of rescission”. The directors and officers of the company may also be personally liable in this event.

3) The SEC and state regulators can apply additional penalties. The law, and the penalties, made perfect sense, of course. They prevented snake oil salesmen from plastering the Internet with ads for shady investment opportunities, and put the fear of hell into anyone who considered “disrupting” the rules.

Unfortunately, while the old law certainly irked those in Silicon Valley, it was deeply frustrating for companies outside of that bubble. In San Francisco, a great tech product with decent enough press will bring investors swarming directly to your door, term sheets in hand. But for those laboring, say, in Las Vegas or Virginia, spreading the message that you’re looking for investment is ludicrously difficult if you’re not allowed to use social media or any other public channel.

And that’s just tech companies. To find even one investor willing and able to put money into a boring old journalism startup — especially one based in the middle of the desert — requires shouting very loudly indeed: the one thing that the law specifically banned us from doing.

And it’s for that reason that companies outside the valley, generally, and media companies like ours, specifically, have the most to gain from today’s change in the law. Finally we can do what we do best: tell our story, loudly and clearly, to an audience who are already predisposed to hearing it.

The only question, for NSFWCORP at least, is whether that audience has enough time to act.

The boardroom clock inches closer to midnight. Tick, tick, tick…

EXCLUSIVE: NSFWCORP MUST FIND $50,000, OR DIE “Don’t make us pivot into a fucking platform,” pleads founder.

In a plot straight out of Brewster’s Millions, much-hyped journalism startup, NSFWCORP is looking for $50,000 of new investment, in order to trigger more cash from its existing backers.

But the company, which describes itself on AngelList as “The Future of Journalism” and which CBS recently called “a modern day equivalent to Spy,” says it only has about a week to secure the funding or be forced to “pivot.”

Founder Paul Carr said he was “as confident as it’s possible to be” that the company could find a backer who understood its peculiar mission, which often seems to include gleefully mocking its investors. “They get a room in the Conflict Tower, and equity at a $4m valuation,” he added. “I mean, what else do they want?”

Asked about where NSFWCORP might pivot if their fundraising efforts were unsuccessful, Carr pointed to cash-rich rival “Bustle” as a possible inspiration. “Maybe we’ll become a feminist site,” he said. “I mean, how hard can it be?”

At press time, Carr had already registered, “just in case.” Paul Carr is a regular PandoDaily contributor, and CEO of NSFWCORP which is raising money right now, via AngelList. He can be reached

Advice for journalism startups: Take the money. Take it all. Ask for more

Afew hours ago I sat down to write my usual somewhat-weekly newsletter toNSFWCORP subscribers. Normally I include links to the great journalism the team has produced in the previous week along with my standard blurb about how great NSFWCORP is going and how you should subscribe to be part of our success. Blah blah blah.

But this week, writing a message like that seemed more bullshitty than normal. I mean, yes, entrepreneurs are always supposed to be selling. Everything is always great, until it’s not. We’re always committed to the course until we pivot. We’re always fiercely independent until we sell to AOL.

And certainly, in the past month or so, the story of how NSFWCORP has cracked the nut of getting people to pay for journalism has started to catch on, and not least because it’s at least half true. The New York Times has written a variation of that story, so has Reuters and the Daily Beast. And I know of at least three other reporters who are working on in-depth profiles of what we’re doing out here in Vegas.

But the fact that thousands of people have signed up to read what we write, while absolutely true, is only half the story. And that’s why I felt uncomfortable when I sat down to write today’s newsletter. You see, while NSFWCORP has raised a decent chunk of cash from investors (around $900,000, last count) and we’re a little under halfway towards breaking even through subscriber revenue, the truth is we’re also rarely ever more than a couple of months away from completely running out of money.

The reasons for this aren’t hard to fathom. Journalism, particularly serious investigative journalism, is really fucking expensive. Insanely so, at times, which is why today’s killer scoop about the NSA’s ability to decrypt your communications and mine wasn’t published by an independent magazine like NSFWCORP, or even by a publicly traded super-indie like (where Glenn Greenwald used to write, until recently) and certainly not on Edward Snowden’s personal blog. Instead it was published through a collaboration of two giant newspapers (the Times and the Guardian) with additional support from Pro Publica. Because great journalism takes both talent and time, two of the most expensive things in the world, especially when multiplied together.

Which brings me to the newsletter, the text of which I’ve republished here, if you’re interested in reading it. Rather than focusing on the positive of how we’re doing, I decided to share some of the actual numbers behind our business. For example, how it takes 100 subscribers just to cover the reporting expenses of a single story about abortion rights in North Carolina (a relatively inexpensive story by our standards, and just one of maybe a dozen we published that week).

With around 5,000 subscribers paying $7 for our web and print editions (or $3 for Web only), it’s little wonder that we continue to launch additional revenue drivers like our Conflict Tower: a way for our most dedicated subscribers to buy a 10-year subscription to NSFWCORP for a one-off payment of “just” $200.

So far we’ve brought in a little over $70,000 through the Conflict Tower — enough to cover the additional reporting costs (not including salaries and healthcare) of 50 to 100 online stories, or the investigative reporting in four or five print editions. Our two 24-hour marathon radio fundraisers brought in around $20,000 more.

The purpose of sharing those numbers, apart from to balance out some of the hype about us — because, as I’ve written before, hype isn’t particularly helpful — was as a precursor for asking subscribers if they’d tell 2 to 3 friends about NSFWCORP and encourage them to subscribe too. That’s more important than any one-off radio telethons: When we reach 12,000 subscribers, we’ll be entirely self-sustaining as a business, and I can stop writing emails begging for money.

What I didn’t get into, though, was a more basic issue with the economics of journalism startups. That’s too inside baseball even for our subscribers, but I figured it might be interesting to share with PandoDaily readers.

Imagine if I told you that there was — I dunno — an email app which had been featured prominently by the New York Times, Reuters, and The Daily Beast. Imagine the latter publication had described this app as the most interesting example of its type. Imagine the company behind it had hired a dream team of developers with decades of experience building that kind of app — developers so well regarded that they’ve won awards and are frequently invited to speak on television about the things they’ve built. Imagine people were paying for the app in larger numbers than they’re paying for comparable apps from far larger organizations. How hard would it be for the makers of that app to raise money, do you suppose? Almost impossible, right?

Nah, I’m fucking with you. They’d be swimming in venture money. Drowning in it, maybe.

And yet look at the editorial startups you’ve heard of recently. The wise ones (BuzzFeed, The Verge) made sure they had a ton of money in the bank before they launched. That’s by far the easiest time to convince investors that you’re doing something different enough, or good enough, to give them the return they need. I’m not saying it’s impossible to raise money after launch — we recently raised another couple of hundred thousand dollars from one additional investor, but were unable to get any of our previous backers to join the round. PandoDaily raised another half million too. But, at the risk of appearing uncharitable to my fellow startup founders, the editorial startups who can raise millions of dollars post-launch also tend to be ones who don’t share my fears regarding the usefulness of slideshows and kitten videos.

Meantime, those of us who, through accident, design, or lack of opportunity, didn’t start out with a big war chest very quickly realize that often the only way to stay the course is to be acquired (Matter), pivot into a platform (Atavist), or constantly be finding new ways to beg existing subscribers for cash until we hit break-even.

(Another thing that few editorial startup founders mention, largely because the law makes it very hard for them to talk about, is how current laws prevent us from appealing directly to subscribers to become equity investors. The laws on General Solicitation are changing but right now if, hypothetically, we were in the process of raising a new round of founding — even just trying to bring in $100,000 or so — it would be very legally dicey for me to say so, even to PandoDaily’s audience. I certainly couldn’t mention it in our subscriber newsletter, even if I knew there were readers who would happily chip in $10,000 or so in return for a tiny slice of NSFWCORP. There are good reasons for this, of course — not least to protect non-accredited investors from snake oil salesmen — but it’s yet another obstacle for any journalism entrepreneur facing a looming cash-flow crunch.)

The good news for us is that my email seems to have lit at least a small fire today. We’ve seen more new subscribers this afternoon than during the rest of the week combined, and my Twitter client keeps pinging with another current subscriber encouraging their followers to sign up. I appreciate every single one of them more than would sound sincere if I tried to put it into words. (Update: as I was editing this post I also looked at the number of people who have bought the $200 10-year Conflict Tower subscription — we’re in real danger of running out, which is just plain astonishing and humbling.)

So maybe we’ll be okay. Maybe we won’t have to pivot into another godforsaken “platform.”

All I  know is that we’re not giving up. Which reminds me of something Naval Ravikant from AngelList said when I saw him recently:

“Startups only die for two reasons: The founder gives up, or they run out of money.”

The former is never going to happen at NSFWCORP, but the possibility of the latter is very real and is a constant source of agony, not just for us but for everyone struggling to make a business out of great journalism today.

We’re doing everything we can to stay in business and keep doing the kind of work that gets the attention of the folks at the Times, Reuters, and the rest. But if other journalism entrepreneurs can learn anything from our current pain it’s this: if someone offers to invest in you before you launch, take it. Take all of it. And ask for more. Because it only gets harder — much, much harder — once you start proving that you’re more than just a business plan and a neat idea.

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