Why does the media only care about my startup raising money? What about my more important news?
The answer lies in the unfortunate unintended consequences of business news reporting and there’s no easy fix
Simon Griffiths is a great bloke, and his company Who Gives A Crap does great things. In Australia, the UK, Europe and the USA they sell great toilet paper online and donate a chunk of proceeds to fund hygiene and sanitation work in communities in need. They reckon that every roll they sell funds access to a toilet for a week. I use and recommend Who Gives A Crap toilet paper and their packaging and customer relationship copywriting makes me laugh and smile every time. Try it, you’ll thank me. But I digress.
This week the company announced they’d donated a record AUD5.85M to charity as a result of the increased sales of toilet paper created by the pandemic lockdown. There was one bummer though…
This frustrated Simon, and it frustrates many startup founders I know: how come raising investment is always a bigger story to journalists than other, more important things? (Things like how they responded in time to meet a 1,100% increase in daily sales, or like how their donation this year will be the third biggest globally to their charity partner, WaterAid, beaten only by PepsiCo and HSBC!)
There’s one good reason for the focus on raising investment in the news: journalists (particularly finance and business journalists) want private companies to disclose hard numbers — revenue, customers, profits, etc to help them sift facts from hype.
Sometimes companies (big and small) get away with telling porkies about how great their company is. When that gets found out to be a pile of poo, journalists and media organisations cop some of the blame. Get caught bigging-up the wrong company without at least trying to establish what’s really going on and it can kill your career in journalism (unless you work for Fox News, News Limited or Macquarie Radio, obviously).
So, reporters need hard facts, and numbers are generally considered to be the hardest. In many business and finance publications, if you don’t have numbers, don’t bother knocking. Try to get a story in the tech section of the AFR and, with very few exceptions, no matter what your news angle, Paul Smith will tell you nicely to take your story elsewhere, unless you’re prepared to disclose some numbers.
So why not tell journalists your numbers?
It’s usually a terrible idea to disclose any numbers publicly, including (but not limited to) customers, sales, revenue, profit, revenue per customer, revenue per transaction, operational costs, marketing spend, number of staff, and any geographic or historical breakdown of any of those. Why?
Because once you’ve done it once for one journalist, it’s difficult to justify not giving them to all journalists. It’s even harder to say no to giving updates on those numbers too, any time a journalist asks for one. Nekminnit you’ve got disclosure obligations.
And competitors, employees and the public can decide for themselves whether you’re exciting because of your important news announcement, or not, because your numbers suck, or they’re weaker than the last time a journalist asked, or they’re weaker than an analyst says they should be, or weaker than a competitor says their numbers are.
So next time you go to media with some great news, a sceptical journo can write a negative take with something like, “Despite [cherrypicked numbers], the company is doing [whatevs] and observers say [negative reaction]”.
So if disclosing numbers is bad, why do startups announce how much they’ve raised from investors?
Investment rounds get announced because the investors (usually not the startup) need the publicity to help them with their own marketing. Also, they’re writing cheques for large amounts of companies into unproven or semi-proven investment opportunities so they deserve a little press.
Journos report the dollar value of the investment round because it’s a hard data point in the history of a company without many hard data points. Assuming there will be future investment rounds, we might be able to get a sense for how the valuation of the company has increased between rounds.
In tech startups, there’s a rough rule of thumb that says most startups aim to give away between 10%-30% of their equity in each round of investment (really strong startups with lots of investor interest in a buoyant market can give away less, and less strong startups with little investor interest and/or in challenging market conditions may need to give away more).
So, if a startup announces they’ve raised a million dollars, the investors have probably agreed to value the company at something like $3M or more.
It’s just a short skip and a jump from there to training founders to get excited about announcing how much they’ve raised, because that’s the kind of news angle that seems to get the best press coverage.
So everybody in the chain is doing the right thing really. The startup is hoping to get some awareness for the important things they’re doing. The journalist needs some meat on the bones of their story. The investors want to announce that they’ve just written a big cheque because that’s their job too. And other founders get excited, or envious, or worried, when they see another startup has raised a bunch of money from investors.
It’s just that when you connect them all together, you get unintended adverse consequences like: not being able to get any attention for things that may matter way more than your startup securing a new round of investment.