How Union Square Ventures Almost Invested In BuzzFeed—And Then Didn’t

fred wilson

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Last week, we took a tour of BuzzFeed and interviewed its cofounder and CEO, Jonah Peretti, and editor-in-chief, Ben Smith.The full story will run later this week. In the meantime, there was one mystery Peretti solved for us while we were there.

A few months ago, Chris Dixon posted an email Peretti sent to his staff. In the email, Peretti wrote:

Venture capitalists don’t like funding companies that have reporters on staff.  In the early days of BuzzFeed, I had several VCs say they were interested in investing if we could figure out a way to fire all the editors and still run the site. I’m not joking. Tech investors prefer pure platform companies because you can just focus on the tech, have the users produce the content for free, and scale the business globally without having to hire many people.

Which investors was Peretti talking about?

Union Square Ventures, for one.

Peretti says that when BuzzFeed was raising its first round of capital, outside of the money Ken Lerer and John Johnson had put in initially, USV nearly invested. Fred Wilson’s firm presented Peretti with a term sheet.

“There were things they didn’t love about the business. They liked me, but they didn’t like that we had editors,” Peretti said. “A lot of people [not just USV] were pro-tech, anti-human.”

Peretti ended up taking an investment from SoftBank instead. Eric Hippeau, who was a partner there, offered him a chance to stay involved in both The Huffington Post and BuzzFeed at the same time.

“Union Square Ventures gave me a term sheet. It wasn’t like they said, ‘We never back companies with reporters,'” Peretti clarified.

“But their thesis was strongly about a network of engaged users. Even a company like Zynga didn’t quite fit their thesis because it required hiring creative people to make content that could hopefully take off and be a hit, as opposed to making a platform where everyone could create content. That’s kind of the democratic vision of what [Union Square Ventures does], and they’re an amazing firm. But there’s always an initial reaction of, ‘Could you do BuzzFeed as a market for journalists to post stuff? Then it could scale to Brazil.’

“I think Fred Wilson was involved in [financial news site] TheStreet in its early days, so it’s not like he’s anti” media startups, Peretti continued. “But there is this [general investor sentiment that] it’s hard to build a real media business.”

We asked Peretti why Union Square Ventures didn’t partake in its latest $15.5 million round of financing. Peretti said they looked at it. “The truth is,” he said, “we don’t fit their thesis.”

“We think Jonah is a great entrepreneur and that he has built a great business,” Union Square Ventures partner Brad Burnham said. Burnham and Wilson looked at the BuzzFeed deal together. “We are thrilled that he is building this business in New York. We miss great companies all the time. For various reasons we chose not to invest in Airbnb, Uber, and Square. Luckily in the venture business you do not have to be right all of the time.”