What Do Medium’s Acquisitions Mean for the Platform?

Is Medium changing directions or doubling down?

The goal of every venture-backed startup is to get acquired (or do an IPO.) But acquisitions are almost always by industry giants that can afford to pay cash or tradeable stock for a fresh high-flyer.

Startups rarely acquire other startups. What little cash startups have in the bank they need to fund their own operating losses, not buy up other money-losing startups. For the acquired company, exchanging their own company’s stock for an acquirer’s non-tradeable stock rarely makes sense.

And yet, in 2021, Medium made 3 acquisitions: Projector, Knowable, and Glose.

Why did Medium make these acquisitions, and what do they mean for the business?

I’ve put together a venture capitalists’ analysis of these 3 acquisitions. It’s all speculation based on very limited public information, but I’ve applied my 30 years as a startup founder and venture investor in Silicon Valley to analyzing what’s going on behind the scenes.

In normal times, my speculations would be limited to office chatter around the kombucha cooler. But in these cooler-less WFH days, I’m posting my speculations here. Feel free to jump in and tell me I’m wrong — my wife does that every few minutes anyway.

Big companies have many reasons to acquire a startup. Startups have only 4 reasons to acquire another startup:

Rollup: Combine a bunch of tiny startups into 1 big startup to gain critical mass. This is mostly about financial engineering and doesn’t apply to Medium’s acquisitions.

Strategic: Take over a competitor to corner the market. This would be Medium acquiring Substack. Not applicable here either.

Aqui-hire: Need more devs? Grab the entire development team of a struggling startup. It’s expensive, but for a fast-growing startup finding devs with specialized skills can be worth it.

Firesale: Buy up a startup that’s out of money and salvage whatever it can from the team and technology.

Now let’s take a look at Medium’s 2021 acquisitions:

Glose: Acquired by Medium on Jan. 14, 2021. Glose is a social ebook platform based in France. It sounds like Kindle with embedded chat.

Glose raised €3M in Dec. 2018, mostly from European venture funds. That date is significant.

Most funding rounds are designed to give startups 12–24 months of “runway” — enough money to reach their next milestones when they come back for more funding at a higher valuation.

If they don’t reach those growth milestones, the investors don’t fund a next round and the company quickly runs out of cash.

When Covid hit, Glose’s existing business dried up. They started to pursue a new focus on education, but that would require fresh funding to pivot to a new business strategy. Instead, they sold the business to Medium.

At the time, the press release quoted Ev as saying: “We look forward to working with the Glose team on partnering with publishers to help authors reach more readers.”

Does Medium really want to get into eBooks and compete with Amazon and Kindle? Really?

Short blog posts by thousands of amateurs and professional book distribution may both be “publishing”, but they’re worlds apart. Medium’s previous run at book publishing lasted exactly one book. (Though I love the only book Medium published— Jessica Powell’s The Big Disruption.)

It’s been almost a year since then and we’ve yet to hear a peep from Medium about books and eReaders. It sounds like the usual b.s. that gets thrown into press releases.

Most of the news about the acquisition focused not on Glose’s product, but on their becoming Medium’s first European office. It highlighted that Medium can now recruit and manage a European staff.

What does it mean: This looks like an aqui-hire. They get a team in France to build upon where developers are far cheaper than Silicon Valley. The eReader will quietly get dropped sometime soon. Glose founders and investors get their stock replaced with Medium stock, which is far more like to turn into cash anytime soon.

Projector: Acquired by Medium on Nov. 9, 2021. Projector makes a browser-based graphics design tool.

Projector raised $23.5M, with $10M of that in a Series B round just last December. They should have plenty of cash remaining in the bank to draft in the tailwinds of Canva’s $40B valuation. They had no need to sell out.

Does Medium want to compete with Canva and Adobe? I doubt it. But it’s hard to argue that Medium can’t use serious design enhancement. We’re starting to run out of Unsplash images that haven’t been used to death.

Of particular note is the CEO of Projector, Trevor O’Brien, becomes Medium’s chief product officer. How did Medium not have a head of product? Luke Miller, another co-founder of Projector, is now Medium’s VP of Engineering.

This looks like a wholesale upgrade of the engineering management of Medium.

What does it mean: Not sure what to call this other than a strategic aqui-hire. The Projector team takes over Medium’s development and integrates Projector’s design capabilities into Medium. Development of Projector’s own product gets axed.

Since the Projector founders and investors weren’t desperate for a sale, this one must have cost Medium some serious coin. They probably had to pay out real cash along with an attractive stock package. Painful for a startup, so Medium must have been desperate.

It’s notable that at exactly the same time the Projector deal was closing, Medium raised another $31M. I suspect a good chunk of that $31M went to acquiring Projector.

Projector’s latest valuation was probably somewhere around $50M based on raising $10M in their last round. If Medium was about to raise the $31M at a valuation of $2 billion or more (the previous round 5 years ago was at $600M valuation), paying 1.5% of the business to overhaul the user experience and engineering leadership may be cheap.

Knowable Universe: Acquired by Medium on Nov. 16, 2021. Knowable makes an audio learning platform with podcast-style lessons.

Knowable raised $4M in funding. Their last round, in Oct. 2019, was just over 2 years ago, and led by Andreessen Horowitz. Remember that name.

Does Medium really want to get into the audio learning business? Seems doubtful, though there is a case to be made for adding an audio component to Medium. After all, Audible and Spotify are worth billions.

Still, it’s not a great strategic fit. Knowable isn’t a way to convert Medium’s content to audio but a platform to make educational materials available as podcasts.

Considering that 2 years have passed since their last funding round, it’s likely Knowable was running out of cash. They’re in a crowded space and hadn’t had much traction against well-heeled competitors. There’s plenty of content already available for free on YouTube, Soundcloud, and others.

Now recall who provided the biggest chunk of Knowable’s funding — Andreessen Horowitz. Who is one of the biggest funders of Medium? Andreessen Horowitz. Who sits on Medium’s board of directors? Ben Horowitz.

When a portfolio company is failing, their venture capitalists try to arrange a firesale acquisition. Even a small, all-stock deal is better than writing off the company. It’s not uncommon for the VCs involved with the company to push another company in their portfolio into a shotgun marriage.

Best guess is this was a firesale forced on Medium by Andreessen Horowitz. They may have even paid for it by funding much of the new round. Medium gets a few more developers and gives up a small amount of Medium stock so Andreessen Horowitz and the other VCs that invested in Knowable can claim a win.

If my analysis is correct, all 3 of these acquisitions are about expanding the Medium team and capabilities instead of expanding into new markets.

I hope this is correct because it implies that Medium is expanding quickly, and the venture capitalists are willing to fund continued growth at an ever higher valuation.

It may also mean Medium is starting to consider an IPO in the near future (another year?). If so, I hope they’ll start paying out writer bonuses in shares of Medium stock.