A group of unnamed private investors are discussing plans to support independent media, especially in Central and Eastern Europe.

As a response to the deteriorating state of independent media and journalism, a group of private equity and venture capital management companies are in talks to create an investment fund for independent journalism, according to a source in the consortium. Plans are for the fund to invest in Europe, with a focus on Central and Eastern Europe.

The agreement among the participating companies is to create an early stage fund, which would provide seed capital for projects that are in the prototype stage as well as start-up capital for media companies that have just begun their operations. Given the highly captured media environments in Europe, particularly in a number of Central and Eastern European countries, the planned fund will most likely not target existing media outlets as most of them are controlled by powerful groups of politicians and affiliated businesses. “We might take into consideration smaller media outlets that are not yet controlled by such structures, but whether we will want to buy into those remains to be seen,” the source told MediaPowerMonitor.

As outlets in highly captured media markets in Europe are hardly profitable, the group is expected to target enterprises and prototypes whose main area of business is not necessarily journalism. “Commercial potential will certainly be the most important criterion,” the source said. Except for media companies focused on tabloid content or some large broadcasters that base their business model on advertising, there are very few examples of independent, public interest journalism platforms that turn a profit, especially in Central and Eastern Europe. Those that do rely on subscription models.

Solving the tension between the low profitability of journalism and the return of investment that venture capital companies are seeking is thus the main conundrum investors are struggling with.

According to Marius Dragomir, a media expert who has advised a private equity company that is part of the newly emerged investors group, the key is to fund profitable digital companies that can include journalism in their overall product offer. “Media content on its own is not a profitable affair unless it’s highly popular tabloid fare or entertainment production,” Dragomir said. “Public interest journalism is either funded by philanthropies or from public money. If you want it to be commercially viable, you have to embed it into a bigger, profitable digital platform, be it an e-commerce portal, a digital payment service or else.”

The Covid-19 pandemic had significant consequences on the venture capital investment market in Europe. The pandemic slowed down fundraising processes in 55% of the cases, according to data from Arthur D. Little, a research company. In 2020, the Central and Eastern European region attracted the lowest share of investments, a mere 12.6%, according to the same source. No country from the region was among the 10 largest recipients of venture capital investments in Europe last year. The largest was Sweden with a 14.4% share followed by Belgium and Denmark.

The planned investments in supporting journalism are expected to fall into the information and communication technology sector, the largest area of investment in Central and Eastern Europe in 2019, both in terms of amount invested and number of companies. A total of €1.3bn was invested in the Central and Eastern European ICT sector in 2019, a share of nearly 44% the total investment, according to data from Invest Europe, the world’s largest association of private capital providers.

Cases of private equity and venture capital investment in independent journalism are rare. One of the most prominent players in this area is Media Development Investment Fund (MDIF), a New York-based impact investment fund focused on independent media. MDIF has provided in the past 25 years funding to over 100 media outlets in 44 countries worldwide. Earlier this month, it launched EMOF I, the world’s first private equity fund for independent media that closed at US$ 12.9m.

Several other efforts to establish funds for public interest journalism have been made in recent years but, bungled by unrealistic planning and poor due diligence, none eventually took off.

The interest in funding journalism, unusual for venture capitalists, seems to have been prompted by the harmful impact that declining press freedom in countries led by autocratic and corrupt governments across Europe has on business and investment.