Bloomberg L.P. announced today the creation of a $75 million venture capital fund called Bloomberg Beta. It says it will be run strictly for financial return rather than as a means of bringing new products and services to Bloomberg.
The fund's focus, says Roy Bahat, the head of Bloomberg Beta, is on "the next horizon for Bloomberg" in areas such as data technology, media distribution and human-computer interactions. As startups continue to disrupt established markets, many large companies are creating investment arms and incubator programs to pursue innovation.
Bloomberg quietly established the fund in January, with headquarters in San Francisco, and it has already made investments in a handful of startups. Among them are cloud-computing provider Nodejitsu and programming-tutorial site Codeacademy.
Bloomberg Beta exists as a separate legal entity from its parent company. Bahat says this structure will prevent ethical breaches such as preferential coverage of the startups in its portfolio by reporters in Bloomberg's news division.
Ian Finley, a vice president of research at Gartner, a technology research firm, disagrees. "The legal entity thing doesn't actually change the picture," he says. A "side benefit" of Bloomberg Beta may be that it can provide Bloomberg News and Businessweek reporters with "some visibility into reporting areas that their competitors might not have," says Finley. Bloomberg came under fire last month over news that its reporters routinely spied on the activity of people who were using the company's Bloomberg Terminals, a computer system used widely in the financial industry.
Finley doesn't doubt that Bloomberg journalists are forbidden from showing favoritism to startups in which Bloomberg Beta actually invests. But he says that won't necessarily stop the venture capitalists from passing tips to reporters about other startups they have examined. "A typical VC firm of $75 million is not going to make that many investments, but they will review thousands of startups a year," he says. "So there may be a huge amount of value there, with a very low chance for ethics problems."
But Bahat says his firm won't provide inside information to the parent company's news division. "The way that I'll work with Bloomberg journalists is exactly the same way that I would work with journalists anywhere else," he says. "I will protect the confidentiality of the companies that we invest in, and of the companies that we don't invest in."
For a company with a current market capitalization of $1.25 billion, $75 million may seem like a small bank account for a venture fund. But Bahat says it's "just the right amount of money" for working with early-stage companies. "A fund of this size actually enables you to do a lot," he says. "We'll be writing checks at a range of different sizes."
Bloomberg is not the only big media company to cultivate startups. The New York Times Co. also invests in digital startups. What's more, the Times Co. opened an incubator earlier this year for early-stage media companies. Its inaugural class of three is halfway through the four-month program.
"The Times has some of the smartest people in the industry, working on some of the same problems that we are," says Andrew Whalen, co-founder of Delve, one of the timeSpace startups. Delve is a social news reader and recommendation engine designed to keep organizations on top of crucial news in their industry. "Having access to the knowledge inside this company has been pretty incredible."
Whalen calls his tenure so far at timeSpace a mutual learning experience, in which he and his seven coworkers met with "a good cross-section of teams at the Times, everyone from design to product to tech to the newsroom." Times staffers have provided crucial insight and feedback as Delve redesigns its product, Whalen says.
Whalen would not confirm whether or not the Times Co. is interested in investing in Delve. But he did say his eight-person startup will be launching a private beta with pilot companies this summer, and is planning to do a "broader public push" in the fall, at which time the company will seek Series A financing.
Bloomberg Beta and other recent efforts by large media companies to cultivate startups have a predecessor in IDG Ventures, the venture-capital arm of International Data Group, the American company that owns the PCWorld and Macworld media properties. The company launched IDG Ventures in 1996.
Why is now the right time for a Bloomberg venture-capital fund? Bahat cites the falling cost of starting a company, which gives rise to exciting investment opportunities for large companies. "Sometimes the best inventions come from outside your walls, and you have to embrace that," Bahat says.