New Media Investors on Credit Crunch: ‘What, Me Worry?’

Yesterday’s announcement from Citigroup that it would take a $7.5 billion investment from the Abu Dhabi Investment Authority was the latest reminder of big business’ thirst for fresh capital. But step outside the world of high finance and you might think it’s business as usual. THR surveys the landscape of new media investment and finds no shortage of enthusiasm for fresh deals, as VC firms and established media companies seek out the next generation of digital startups: “Media and entertainment in the past was about mass media without trying to understand a particular niche audience and its needs,” says John Kim, managing director of VC firm H.I.G. Ventures, in explaining the recent injection of capital into hot digital properties. “The next wave is more customized social networking centered around some passion-driven interest. You will see more (such) investments in more focused communications.”

As for the credit crunch: “The vast majority of venture investments is in equity form,” Kim explains. “We don’t really see the crunch affecting us at all.” Jim Rutherford, EVP at media-focused private capital firm Veronis Suhler Stevenson, says that despite the crunch, smaller amounts of funding for young media companies are still happening. “We still have an active deal pipeline,” he says.

A separate THR piece takes a look at the rise of media-focused blank-check companies (SPACs), which we’ve discussed before. These companies tap the public market for cash and then go looking for a deal. You might think that because they’re involved in bigger deals the credit issues would be a problem. Actually, they claim the opposite, that the credit crunch is making it harder for PE firms, which in turn makes things easier for SPACs. “We’re already seeing a lot less competition, and prices are coming down,” says Robert Clauser, CFO of Media and Entertainment Holdings. This same point was made by CEO Herbert Granath at the recent Media & Money Conference.

Because capital requirements for startups are getting smaller, issues affecting large banks and PE firms doing $100 billion deals may affect media investing differently. But even if access to capital doesn’t become a direct problem, it doesn’t mean there won’t be challenges. VC Fred Wilson recently explored some issues on his blog, including a weakened IPO market (which we’ve noted), less M&A, and a the return of cautiousness among investors. His main point though is that the web continues to have a significantly transformative effect on a number of industries, particularly the media — a good investment thesis in a variety of economic conditions.

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