In 2007, I first began to assemble a database of publishing startups and released my initial findings in a report published in 2017. In November, a new, expanded report will be published by Publishers Weekly. The 50-page report will offer an overview of the English-language book publishing startup scene in the United States and around the world as of the fall of 2022. At the center of the effort is a live database of some 1,300 companies, almost all founded since Amazon launched the Kindle in 2007.
Each database listing includes:
- A brief mission statement and a description of the type of product or service provided, classified by category
- The amount of funding received since founding
- Current operating status—whether still in business or merged or acquired or publicly-listed
Just as importantly, the report includes summary data that defines the scope of the book startup community, including:
- The percentage of startups with declared funding
- The total funds raised by all the startups and the average (and median) per funded company
- Business outcomes
This provides a measure of the extent of startup activity within the larger book publishing industry, and across the broader startup scene in the U.S.
What is a startup? In theory, of course, it’s a new business of any sort. But I also recognize a kind of existential notion of a “startup” versus just a new business (“startupedness”?). For example, dozens of new indie bookstores have opened in 2022, but they’re not included on the list. Nor are new publishing imprints. Startups tend to see themselves as a new type of business, with new approaches to old challenges. The definition can be loose.
An essential aspect of startups is technology that can scale. Think of it this way: an editorial services company is hands-on. Each new author and each new manuscript requires personal care. One editor might tackle two or three projects at a time, but if more projects arrive more editors need to be hired. Meanwhile, a tool like Authors.AI can process hundreds of manuscripts simultaneously, with roughly the same-size staff. That’s scalability.
The majority of the startups in the report, over 60%, are U.S.-based. There are two categories of international startups. First are the large group (over 200) from other English-speaking countries, mostly the U.K., Canada, and Australia. Second are the international startups that include support for English-language users in the U.S., marketing their offerings beyond their home country. Both India and China are well represented on this list.
When Amazon launched in 1994, it disrupted book retailing. When Amazon turned its sights on electronic books and launched the Kindle (15 years go this November!), it legitimized the concept of disrupting publishing itself. Numerous startups followed Amazon into the e-book and self-publishing space. Since the release of the first iPhone in 2007 (just a few months before the Kindle), the explosive growth of mobile devices has enabled an even wider range of startup activity—just about everyone owns an always-on reading and entertainment device.
The broad picture
Here are a few observations about the summary data analyzed from the information collected for the report.
The total funds raised by all the startups is over $4 billion. A lot of that cash has gone to about a dozen companies—Wattpad garnered $118 million (before it was sold for $600 million). Inkitt, a competitor, has raised $80 million. Scribd now boasts over $100 million in outside funding. The median investment for all funded companies is $2.5 million.
A solid 22% of companies have received at least some funding (sometimes less than $100,000), while 10% have attracted $1 million or more.
Nearly 40% have gone out of business, but that’s in keeping with the rate of business failures across all industries.
A respectable 10% of the companies have managed an exit of some sort: merged, been acquired, or listed on a stock exchange.
The return on investment from companies that went on to be acquired is 1,200%.
2021 was by far the most active year for large-scale acquisitions of publishing startups. Wattpad earned the largest price, purchased by South Korea’s Naver in January 2021 for $600 million.
In response to that deal, in May 2021, Kakao Entertainment, also from South Korea, bought online comics app Tapas and serialized fiction app Radish for $510 million and $440 million, respectively. By all accounts, Naver and Kakao are fierce competitors in the international online cartoon, serialized fiction, and e-books markets; there’s nothing like competition for goosing acquisition target pricing.
With only one in five of the startups attracting early funding, the companies are mostly bootstrapped. Some of these publishing startups are not just lean: they’re emaciated. In numerous cases, there is no startup, per se—just a website and some good intentions. The marketing and promotion is scant. Too many of these startups are trying to fix a problem that doesn’t in fact exist. “Room for innovation” is quite different from “ripe for disruption.” While few of the startups aim to disrupt the entire publishing business, several make claims to disrupting the editor’s role, the agent’s role, or the balance of power between writers and publishers or publishers and resellers. We shall see. As one observer puts it, too many startups “think incumbent companies are using broken models because they’re idiots and not because the problems are not easily solved.” Startups might better seek to innovate, not recreate.
Book publishing has never been a technology-adept industry; indeed, it is historically technology-averse. This is a challenge for tech-focused startups targeting existing publishing operations. Selling technology to publishing companies demands lots of costly hand-holding. Authors, too, are notoriously clumsy around technology, and there are limits to the complexity of products and services that can be directed their way.
The book publishing startup community has come of age. The publishing industry is strong; the Covid sales bump remains largely in place. The bulk of the companies recorded in the database are viable small businesses. Many have already successfully exited by merger or acquisition. At the same time, this is a marketplace begging for consolidation. Some offerings, like book discovery and author services, are besieged with players. Smaller operations should be looking to partner or to be acquired.
The possibilities for publishing startups are many. There are some exciting new opportunities surrounding NFTs/blockchain/Web 3.0, AI-enabled text generation (GPT-3) and image generation (DALL·E), webcomics, and “user-generated content”. The creator economy is blossoming. The next round of innovation could be the most disruptive yet seen.
Thad McIlroy is a contributing editor at PW. He also runs the Future of Publishing website and is a founding partner of Publishing Technology Partners.