In 2007, I started building a database of publishing startups and published my initial findings in a report released in 2017. In November, a new expanded report will be released by Weekly editors. The 50-page report will offer insight into the English-language book publishing startup scene in the United States and around the world in fall 2022. Central to the effort is a live database of some 1,300 companies, almost all founded since Amazon launched the Kindle in 2007.
Each database listing includes:
- A brief mission statement and description of the type of product or service provided, categorized
- The amount of funds received since inception
- Current operating status – whether still in operation, merged, acquired or publicly listed
Equally important, the report includes summary data that defines the scope of the book startup community, including:
- The percentage of startups with declared funding
- The total funds raised by all startups and the average (and median) per funded company
- Business results
This provides a measure of the extent of startup activity within the broader book publishing industry and the broader US startup scene.
What is a startup? In theory, of course, it’s a new business of sorts. But I also recognize a sort of existential notion of “startup” versus just a new business (“startupedness”?). For example, dozens of new independent bookstores have opened in 2022, but they are not on the list. Nor are new editions. Startups tend to think of themselves as a new kind of business, with new approaches to old challenges. The definition can be loose.
A critical aspect of startups is technology that can scale. Think of it this way: an editorial services company is convenient. Each new author and each new manuscript requires personal attention. An editor can tackle two or three projects at a time, but if more projects come up, other editors need to be hired. Meanwhile, a tool like Authors.AI can process hundreds of manuscripts simultaneously, with roughly the same size of staff. It’s scalability.
The majority of startups in the report, over 60%, are based in the United States. There are two categories of international startups. The first is the large group (over 200) of other English-speaking countries, mainly the UK, Canada and Australia. Second, international startups that include support for English-speaking users in the United States, marketing their offerings beyond their home country. India and China are well represented on this list.
When Amazon launched in 1994, it disrupted book retail. When Amazon turned to e-books and launched the Kindle (15 years in November!), it legitimized the concept of disrupting publishing itself. Many startups have followed Amazon into the e-book and self-publishing space. Since the release of the first iPhone in 2007 (just months before the Kindle), the explosive growth of mobile devices has enabled an even wider range of startup activities – almost everyone has an always-on reading and entertainment device. .
The wide picture
Here are some observations on the summary data analyzed from the information gathered for the report.
The total funds raised by all startups exceed $4 billion. Much of that money went to a dozen companies – Wattpad raked in $118 million (before being sold for $600 million). Inkitt, a competitor, raised $80 million. Scribd now has over $100 million in outside funding. The median investment for all companies funded is $2.5 million.
A good 22% of companies have received at least one funding (sometimes less than $100,000), while 10% have attracted $1 million or more.
Nearly 40% went bankrupt, but that’s consistent with the rate of business failures across all industries.
A respectable 10% of companies have succeeded in some form of exit: merged, acquired, or publicly listed.
The return on investment of subsequently acquired companies is 1,200%.
2021 has been by far the busiest year for large-scale acquisitions of publishing startups. Wattpad took home the highest price, bought by South Korean Naver in January 2021 for $600 million.
In response to this deal, in May 2021, Kakao Entertainment, also of South Korea, purchased online comic book app Tapas and serialized fiction app Radish for $510 million and $440 million, respectively. . By all accounts, Naver and Kakao are fierce competitors in the international online cartoon, serialized fiction, and e-book markets; there is no such thing as competition to achieve acquisition target prices.
With only one in five startups attracting early stage funding, companies are mostly seeded. Some of these publishing startups aren’t just thin: they’re emaciated. In many cases, there is no startup per se, just a website and some good intentions. Marketing and promotion are rare. Too many of these startups are trying to solve a problem that doesn’t actually exist. “Room for innovation” is quite different from “ripe for disruption”. While few startups aim to disrupt the publishing industry as a whole, several claim to disrupt the role of the publisher, the role of the agent, or the balance of power between writers and publishers or publishers and resellers. We will see. As one observer put it, too many startups “think incumbents are using flawed models because they’re dumb, not because the problems aren’t easy to fix.” Startups might better seek to innovate, not recreate.
Book publishing has never been a tech-savvy industry; indeed, it is historically averse to technology. This is a challenge for tech-focused startups targeting existing publishing operations. Selling technology to publishing houses is labor intensive. Authors, too, are notoriously awkward with technology, and there are limits to the complexity of products and services that can be directed at them.
The book publishing startup community has come of age. The publishing industry is strong; the Covid sales surge remains largely in place. The majority of businesses registered in the database are viable small businesses. Many have already managed to exit through mergers or acquisitions. At the same time, it’s a market just waiting to be consolidated. Some offerings, like book discovery and authoring services, are under siege from gamers. Small farms should seek partnership or acquisition.
There are many possibilities for publishing startups. There are exciting new opportunities around NFTs/blockchain/Web 3.0, AI-enabled text generation (GPT-3) and image generation (DALL E), webcomics and “content generated by the user”. The creative economy is booming. The next set of innovations could be the most disruptive ever.
Thad McIlroy is editor of TP. He also directs the The future of publishing website and is a founding partner of Publishing Technology Partners.
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A version of this article originally appeared in the 10/17/2022 issue of Weekly editors under the title: how book publishing startups fared