March 12, 2019

Venture Capital and publishing are more similar than you'd think

Venture Capital overlaps publishing

Venture Capital and book publishing have a lot more in common than you might think. According to Ethan Hirsch, the two worlds share many similarities including a focus on lopsided returns and bet-taking. As a result of increased competition and limitless supply, publishers continue to fight to attract the best writers as well as bring to life exciting books.

How Does Venture Capital and Publishing Compare?

To understand the comparison, it helps to comprehend what venture capital is. A VC pools money together to invest in small, unproven but high-potential startups. Depending on the startup’s development (ideation stage vs near full maturity), investors will fund and assess their stake over time. Early funding rounds include “seed” and “series A,” with subsequent rounds going all the way down to IPOs and full acquisitions.

Likewise, publishing firms will take a chance on up-and-coming writers to get their foot in the door. In contrast major publishers give large advances to more prominent writers in exchange for the rights to their books and future earnings. This is typically where things like royalties come into play.

Both fields have incumbents that tend to attract the best in the industry. Just as you’d expect A16Z to invest in Facebook (and get first dibs), you expect Crown Publishing to publish John Grisham or Michelle Obama’s latest book. The smaller firms need to fight and take bets on moonshots to become established incumbents, making success rates statistically lower.

Taking Bets

Just like smaller venture capital shops, publishers will typically pursue “blockbuster” strategies. Blockbuster means taking many small bets, expecting the majority to fail but for outsized returns on a handful. The same applies to VC: for every 10 businesses, 6 will fail, 3 will barely survive and 1 will be a major hit. This technique justifies the losses and helps propel these platforms upwards. Perhaps it’s not just startups and authors trying to win the lottery: VC and publishers are doing the same.

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