Why media companies make for skittish investors

Their investors, on the other hand, get small but key stakes in ascendant media companies, giving them what is essentially additional research and development arms. That’s vital for a company like NBCUniversal, which, unlike BuzzFeed and Vox Media, hasn’t cracked the formula for reaching young readers, who get most of their news online.

“I think big media companies that are looking for paths forward are wise to participate, even if modestly, in the startup world,” said Marcus Brauchli, managing partner or North Base Media, a media investment firm. “The visibility and signals the market sends can be immensely valuable in thinking through approaches that might benefit a larger group.”

Plenty of media companies agree. Legacy media companies such as The New York Times, Hearst and The Tribune company have all launched their own investment arms, with the hopes of getting early looks at emerging companies.

But while strategic investing makes sense on paper, making them work is difficult, according to Roy Bahat, head of Bloomberg Beta, Bloomberg’s investment fund. “These types of investments are like a ballerina trying to dance with an aircraft carrier; the two just don’t go together,” he said.

Blame DNA. Startups, which are used to moving fast, often struggle to work with larger, more entrenched companies, which move more slowly. At the same time, the businesses of the younger companies take years to unfold, while the typical legacy media company operates quarter by quarter. This is a different model from traditional venture capital investing, which operates on a much longer timeline.

There’s also the risk that as time goes on, the companies’ shared interests could diverge. This could also happen if the original media executive in charge of the deal moves on.“These companies aren’t making these investments out of the kindness of their hearts,” said Ava Seave, principal at media consulting firm Quantum Media. “There’s always that question of how long the incentives will be the same for all sides.”

These challenges haven’t stopped many media companies from launching their own strategic investment arms. Hearst, ABC and The New York Times have all started their own investment funds in recent years in the hopes of getting an early look at young companies.

Media companies don’t always pick winners. Time Warner, for example, was one of the six companies that invested $56.5 million in video streaming service OnLive, which dissolved after its assets were acquired by Sony. The New York Times was an early investor in the now-defunct ad tech company appssavvy, which raised $13.3 million before quietly closing its door.

Of course, venture capital investing also comes with some hangups. VCs focus on companies with high growth expectations that media enterprises — with their high costs and time required to achieve scale — aren’t always able to deliver. Recode and Gigaom, to name two recent examples, attracted venture funding but found that they couldn’t match the demands attached to the cash. Gigaom folded, and Recode sold to Vox Media.

But while neither strategic nor venture investment is foolproof, investors say startups are better off with the latter.

“Commercial relationships are temporary, but investments are forever,” Bloomberg Beta’s Bahat said.