Justin Smith and Ben Smith on Semafor's next chapter

0:00Hello and welcome to another episode of the Mixed Signals podcast from us here at Semaphore media, where we are talking to the most important and interesting people shaping our new media age. I'm Max Tawney. I am the co-host of this show. And for this episode, we're doing something a little bit different. We are going to be publishing our regularly scheduled episode later this week. But something unusual happened with Semaphore last week, which is we, including the co-host of this show, were actually the subject of a lot of media discourse and disclosure. That was after the Wall Street Journal reported that Semaphore had raised$30 million in a new fundraising round, valuing our company, Semaphore, at around$330 million.

0:45That's a pretty nice number for those of us who have a little bit of equity, such as myself. But it also raised a lot of questions. It got people talking. Why is Semaphore valued at$330 million after all of these years of kind of disastrous digital media companies being overvalued and later finding themselves to be quite diminished. So we wanted to have on the CEO of Semaphore, Justin Smith, and our co-host Ben Smith on this week's episode of the show to ask them some questions about this new round of investment, what it's going to, what it says about the current state of digital media, and a lot more.

1:24Usually it's me and Ben doing the interviewing. This week I'm going to be interviewing Ben and Justin both. A little bit different, but we thought it would be worthwhile. I'm going to stop rambling and we're going to get right to the interview. We will be back with Justin Smith and Ben Smith right after this. Hi, I'm Joshua Spania, VP of Marketing at Google. And you might assume I have all the answers when it comes to marketing. The truth, I'm just as curious to learn, discover the answers to everything as everyone else. We are living through a total reset of our marketing industry. The old maps don't work, which means we get to chart a new path forward.

2:04It's dynamic, it's fast-paced, and honestly, there's never been a more exciting time to be in marketing. That is why we've started a new podcast, Frontier CMO. It's from Think with Google, and I promise it's not just a bunch of corporate waffle. I'm sitting down with people who really know what's going on. CMOs, creators, technologists, the lot. And we're having a proper, unfiltered chat about what's working and quite frankly, what isn't. These are your notes from the frontier. So do me a favor, search for Frontier CMO wherever you get your podcasts or watch us and subscribe on YouTube. Ben, Justin, it's very exciting.

2:50It's not every day you get to interview your boss and your boss's boss or your boss's partner, who's somewhat maybe the boss. I don't really know exactly what the org chart is, but this is both extremely exciting and a little bit terrifying for me because, I mean, technically I could offend you guys. You could fire me. You already have offended me. You only called me his boss's boss. Come on, I'm the Capitacupium. That's true, exactly. I haven't paid fair enough deference. That's one strike and we're about 30 seconds in. This is really exciting. I personally am thrilled. And I think other members of the company who know that this is happening, who I've asked what I should ask you guys are thrilled to kind of get to do this, because in some ways, a lot of what gets said about semaphore is often defined by other people.

3:33I've had the privilege of having, you know, see this built from the studs, you know, getting stuck in the elevator at the old office above the clam shop. So I feel like I have some unique insights and it's exciting to get to kind of share that stuff with the broader listening public. So thank you guys for doing this. Really appreciate it. I wonder, I hope we've saved screenshots of the Slack, which was like to me, like so of that moment where you are stuck in the elevator posting to Slack, will someone rescue me? And everybody three floors up is just slacking to each other about what they should do until like finally somebody goes down and opens the door.

4:07But it was a real moment in our moment. Little Italy, New York City. So we're having you guys both on the show today because Semaphore has kind of reached this new stage, which we talked about in the Wall Street Journal. We've just raised$30 million at a$330 million valuation. Congratulations. You guys announced that Semaphore is profitable,$40 million in revenue last year. Let's just start with the basics here for people who are wondering, why did you decide to raise money now? Justin, I think that this is a question best suited for you. We set out at the beginning of Semaphore three years ago, we had sort of two North Stars.

4:44One was to build a phenomenal 21st century global independent quality journalism brand for global leaders around the world. But our second goal that we set for ourselves, the second North Star, was to build a real business. We brought a lot of intensity, I think a lot of urgency to figuring out a path to profitability as quickly as possible. Because I think the days of raising money and round after round after round, just looking for your model are obviously long gone. We were fortunate. We designed a model and across three years, 36 months, we built 40 billion in revenue annually and 2 million in profit.

5:26And we feel like it's a model that's a very strong foundation for our company. And that in many ways we can stamp out that model across different industries, across different categories, but most importantly, across different geographies around the world. And so the reason we raised those funds was to do just that, to take what has been a hard-fought but very successful, profitable, sustainable quality journalism model and to accelerate it and bring it to different parts of the world and to different parts of the information ecosystem. This is a question for both of you guys. When you guys were just starting to plan semaphore.

6:08I remember hearing stories about you guys, especially how you found the office at Umberto's Clam House. I think you were eating there or next door. But when you guys were planning out some of this stuff, obviously a lot of things happened that changed the trajectory of semaphore, whether that was Sam Bankman-Fried, one of our initial investors getting indicted, the kind of shakiness of Silicon Valley Bank, where we had some of our money. That stuff happened in the kind of early months. You said that you wanted to not just raise money and do round after round and eventually hope that you reached profitability.

6:40Did you have a timeline in your head when you were just starting out of when you wanted Semaphore to be a profitable company? Justin, take the timeline question. But I would say like just, you know, I mean, it was a big part of why I wanted to work with Justin. The speed of change in media right now means there are often opportunities to start something new. And I'd gotten to do that a number of times in my life, including at Politico and at BuzzFeed with people who I like really love and admire and think are brilliant and had not had experience in the media industry building businesses. I just finished writing a book about kind of what went wrong at BuzzFeed and thought like, if I ever do this again, I finally have internalized that it's very important to have more revenue than coming in, the money going out.

7:18Yeah. And just to answer your question specifically, I think the best way of describing it, we, I mean, we obviously of course had business plans and business plans, but we did our first raise on. I think most of them called for break even in years three, three and a half, four. Those are business plans that everyone sort of discounts them to some extent. For us, it was more about how serious and intense and how much we prioritized the economics of the business. And we did not want to find growth for growth's sake. There's a lot of businesses that view revenue growth as the main metric, and they want to capture market share.

7:56They want to capture audience. They want to capture dollars, and they grow into it. We obviously loved that and pursued that, but we really wanted to find profitable revenue streams in the media business, harder to find maybe than other industries. And I spent my career starting at The Economist and then The Atlantic and Bloomberg. I always wanted to be a journalist, failed at that. And the Constellation Prize was to help run journalism companies. And so I spent my career really doing this work. How do you make quality journalism profitable? What are the strategies? What are the tactics? What are the ideas?

8:32What are the innovations? And how do you do that in a sort of never-changing, completely disrupted media environment? And these three years have been good, but we do not rest on our laurels. This is just a moment in time. The media industry is changing as we speak and will be very different in 26 and 27. And so we've got to keep that intensity and keep that focus as we move into this next phase. So the$30 million investment, talk a little bit more about what it's actually going to be going to. Semaphore has grown in headcount somewhat significantly, particularly on the business side over the last few years.

9:08You guys have talked about building out the editorial side. Can you talk specifically about where you guys are going to be making investments? I think we started with about 50 employees or 45, 50, of which about half were journalists and half were business people or business publishing side. I think today we're well over 100, maybe 110. And I think that mix is still roughly the same. And so we have, in three years, doubled our headcount effectively, maybe a little bit less than doubled. Maybe the business side has grown faster than the editorial side. But overall, it's been, given the revenue growth, I think this is your point, it's been pretty modest headcount acceleration.

9:49And that's been very intentional because, obviously, headcount is about, what, 80 % of the cost structure of these companies. Yeah, I remember at some point there was a Tumblr that I think was called Who Did BuzzFeed Hire Today? Which is, on one hand, very fun, but on the other hand, not very responsible. And so I had sort of come out of that experience. I remember very early on, somebody was like, well, how many more journalists were we going to hire? And I was like, zero. My goal is to never hire, which I've come off a little bit. But I do think that as the industry shifts, we want to hire people who make a huge impact.

10:24The sort of era where you try to sort of compete by hiring a cast of thousands. That's just not how journalism works. That's certainly not how the journalism we do works, where we really most want people who can break news. and then have the expertise to explain to you why it's important. We're going to be looking for folks like that in Washington on the global business beat that Liz Hoffman has pioneered for us and built a huge space. And then particularly in the Gulf, we're filling a couple of roles in Africa that I'm excited about right now too. We have ambitions in Asia. So we are going to add some people this year, but we're going to do it slowly.

10:57I'm going to be obsessively careful about these hires and we're not in a huge hurry. It's just so important not to grow too fast in these businesses. I mean, that's really what I feel like I've learned. It took us a while to figure out exactly how to do what we're doing. And I think it's taken both our audience and the industry a little while reasonably. I think news brands just don't grow overnight. And to sort of take their measure of us and understand what our intentions are and where we're going. I kind of like the speed at which we've been going. I don't think we plan to just like pour a bunch of gasoline on the place.

11:26And specifically for semaphore readers who are watching McSignals. We don't even know if they're literate, Justin, but they are listening. We're specifically taking our Semaphore DC news briefing, and we're going to be doubling the frequency of that. That's going to go from five days a week in the morning to actually twice a day, once in the morning, once in the evening. We're going to extend Liz Hoffman's Semaphore business to five days a week. And we're also going to extend our Semaphore Gulf news briefing to five days a week and launch Semaphore China next month, which will be our first editorial product focused on the Asian market.

12:03Obviously, we're here. We're talking. I'm looking at a camera. We're doing this on video. A way in which my job in particular has changed over the last year is we're just doing a lot more video and audio content. I guess, Ben, this is more of a question for you. How are you thinking about the ways in which this stuff is changing? Is it smart for us to be investing more in kind of newsletter, written word kind of content? Are you looking for people who are going to be kind of podcasting or doing kind of multi-platform stuff more? Talk a little bit about how the changing media landscape, the thing that we talk about on the show, is influencing how you're thinking about hiring for these roles.

12:40I think what you see, and actually, you know, Rula Kalaf, the FT editor, said this and really stuck with me on this show a few months ago. I think we want to hire great journalists who can break news and who can tell you what it means. And I think I have I'm sort of bullish on newsletters still. I think that, like, particularly our audience mostly remembers how to read, is very interested. Mostly. is taking in a lot, is trying to understand the world, trying to sort of connect dots, wants this kind of information density, the speed that we're operating at. I think we have great feedback on the newsletters.

13:13I do think there's going to be more and more competition. There's a lot of competition in that space we have to do really well. I don't think that's going away in the immediate future. But as you say, things are changing really fast. Video and podcast, the things we used to call podcasts, are a complicated bit of a puzzle, I think, commercially and editorially. What Rula said was they'd basically gone around their newsroom and found all the most attractive young FT reporters and thrown them in front of the camera on the theory that that's how TikTok works. And then it just turned out Martin Wolf.

13:45Isn't that what we did with Big Signals? Yes, that's right. We took the best-looking member of the office and we decided to give them a show. I want to ask about the events, the convenience, what we used to call summits. We'll get to that in a second. You hate the word convening, don't you? Sorry. I may have mentioned in a meeting or two, I like it as a verb, but as a noun, I find it to be, especially in the plural form, I have my doubts about it. We'll take this feedback back to our marketing department. I want to shift back to kind of the news of the day. I want to ask more questions about the most recent investment.

14:16There's a few people out there who, when we announced this news, kind of wondered whether it was because we really needed the money and because even though we had said that we were profitable, we were spending a lot. I'm curious, is the reason that Semaphore raised money because we're in trouble, because we're spending all of our money and we needed more? The answer is no. And I won't give you the specific facts just because I don't think that's appropriate publicly. But our first round that we raised in 2023 was$34 million. We actually did not spend the entirety of that first investment round.

14:53We had plenty of cash in the bank. We had a lot of optionality. There's actually an option to not raise money, but given the ambitions that we have, given the long-term desire to build a truly global news operation, we thought it was a good time to add to our cash reserves and be able to have that gunpowder, if you will, to spend on profitable projects that come up down the line. One of the other things that you hear also out there is we're a company that does a lot of these convenings, these big events. Obviously, we have Semaphore World Economy coming up, which has grown from this kind of bespoke event into, as you guys have talked about, the largest convening of CEOs in North America.

15:39I was part of it last year. I got to interview some really cool people. It was really fun and interesting and exciting. But some people out there believe that events are not a good business. They're not particularly scalable and they're difficult. And you guys have been much more bullish on events than some of our peers, some of our competitors. Explain what people are missing. Put it this way. When one listens to a podcast or an interview with a CEO or executive from a competitive organization who's talking about how terrible events are as a business, I sort of smile inside and think that's, I'm really thrilled that this competitor doesn't think this is a good business because my entire experience across, you know, several decades, again, from The Economist at The Atlantic to Bloomberg, is that events actually are one of the highest margin businesses adjacent to quality journalism.

16:30And not only do they have some of the highest margins and generate profits, but they provide all sorts of other benefits. They build the brand. They connect you more closely with readers. They bring on more readers to the brand. They allow you to get closer to your commercial clients. Event sponsors oftentimes then become advertisers. It's a very, very, very productive channel business model-wise and frankly, one of the most profitable, which is why you're seeing pretty much every global news company right now, I'm not saying necessarily inspired by us, but maybe the moment that they're all building events companies right now or accelerating their events investments.

17:12So maybe it depends on the part of the industry you're from. I think mass consumer brands doing the events economics in those businesses might be different. I've never really worked in those industries or areas, So I'm not sure, but it's absolutely the opposite experience from our perspective, and it's the opposite experience from the results that Semaphore has generated these last three years. One of the consequences of success, particularly in this field and talking about that success, is a lot of competitors, some of whom are more resourced than us, are going to look and say, well, why can't we do something like that?

17:50I am curious, both, what do you think about the space getting more crowded, more media companies getting involved in the events, the convenings, space and business? And what is to keep a company like The Economist or The Financial Times or Bloomberg, places you've worked, places that we've said pretty explicitly are our competitors, what's to keep them from swooping in and scooping up this business? Listen, I don't think that these are state secrets. Certainly, maybe it's new information in terms of the growth of our business, the revenue, the profitability, the high margins. But ultimately, these are kind of well-known facts in the industry.

18:27What it comes down to, when markets get crowded, and by the way, the market, the entire news media market is extremely crowded. Look at the Washington, D.C. news market that we entered. Everyone said Seminfo is crazy. You've got Axios, Politico, Washington Post, Punchbowl. The answer is always only one thing. And this sounds like a trope, but it's actually true. It's innovation. It's fresh, new, modern, different thinking that is driven by consumer needs and consumer interests. So in Washington, the most crowded news market in the world that everyone was laughing at us about, what was our innovation, our fresh idea?

19:07Well, we actually had the idea that even though it's the most polarized political town in the world in history, perhaps, that actually maybe the leaders in this town quietly do want balanced information. Maybe they do want fact-based information to make their decisions. Maybe they don't want to operate every single day in this world of opinion-stained news on the left and the right. And it turns out, oh my goodness, we're right. It turns out people on the right and in MAGA and on the Bernie left and the center all really appreciate Semaphore because we separate news from analysis and news from opinion, and we showcase alternative voices and perspectives to create ideological balance.

19:53Globally, we create geographic balance by bringing in international voices. So on the event side, it's the same thing. Innovate, innovation, innovation. Events need to have a constant, constant renewal sort of spirit, if you will. An event will die a slow death after one, two, or three years. To do that, you need the people, you need the culture, and you need the execution capabilities. And I think that that's the economist and Bloomberg and the FT can get the people, the culture and the execution abilities, then they can go right at it. I do think this is something we did very deliberately. But by making, you know, we roped you.

20:32We roped Liz. And this is when we started talking about coming to work for Semaphore into building these awesome events where you do a ton of work on the front end. But then it is very much a place where, you know, where the journalists are on stage doing great interviews, breaking news. The newsroom feels, you know, some ownership of these, doesn't feel like, as is true sometimes in media companies, you're like, somebody on the business side calls you up and is like, hey, mind coming over to this stage and doing some stuff for a commercial reason? I mean, I think we've been very intentional about keeping the kind of excitement of journalism around the events.

21:05We have a lot more that we want to get to, but we have to take a short break. So we'll be right back after this. In this week's branded segment from Think with Google, I spoke with Google's VP of Marketing, Josh Spanier, about what he saw at CES. So Josh, you were at CES at the beginning of this year. Why does that event matter for CMOs? So CES gives us a real view into how people are going to be living their lives and spending their money in two, five, even 10 years' time. I know from the outside, it looks like a giant toy show. There's smart rings and foldable laundry robots and flying cars.

21:44But I was chatting with Shelley Palmer, who I interviewed for my new podcast. He's an AI visionary and tech leader. And he swears by, and I agree with him, that the ability to see patterns amongst all the gadgets is actually really, really compelling for near term and into the future. So what did you learn from that conversation? Well, the gadgets aren't really the thing. Stuff gets announced. Some of it launches. Some of it doesn't launch. What you're really looking for are business model changes, the new paradigms that are emerging. So two that I saw and we spoke about, one is around agentic commerce.

22:20Google announced during CES and just after CES a whole bunch of partnerships with Shopify, with Walmart, with Target around agentic commerce. super interesting building the new protocols for machines doing the shopping for you where appropriate. And then separately, I also saw a lot of expansion of what you might call intelligent ecosystems. These are technologies from different companies coming together, meshing together to enable you to do more interesting and engaging things. And again, with Google and Gemini leading the way, they're really fascinating forerunners of where we're all going to be in the near and medium term.

22:58And where can people listen to the whole thing? You can listen to my conversation with Shelley Palmer in my new podcast, Frontier CMO, on YouTube or wherever you download podcasts, or you can sign up for my weekly newsletter over on LinkedIn. Great. Thanks, Josh.

23:19One other element that took people by surprise was our valuation. Semaphore is now valued at $330 million. How did we get to that? Some people were saying that the multiple is kind of crazy and obscene. I definitely got some texts from some people who were surprised. It's honestly, it's relatively mathematical. And I think some of the commentary in the media sort of missed a few sort of basic venture 101 points. The biggest one that people missed is that Semaphore is 36 months old, just been operating for three years and has an annual compound growth rate of almost 100 % revenue growth every single year.

23:57So it's three years of effectively doubling the revenue of the business. And we expect in 2026 that I'm not sure we're going to double, but we will certainly be growing at a very, very rapid clip. Young businesses like that, that are growing so rapidly, are always generally measured from a valuation perspective on future revenue growth. I'm not talking about future like in the next two, three, four years, but the next 12 months of revenue. A lot of the multiples that people were throwing back at us and criticizing our valuation were 2025 last 12 months multiples. But if you look at, let's say our growth would slow down to 50 % next year, just as a hypothesis.

24:40And that means we would grow to, instead of growing to 80 million, we grow to 60 million next year. Then a$300 million valuation is only a five times multiple. And that makes it actually cheaper than the exit multiples of the two most relevant predecessor media brands, Axios and Politico, which traded at 5 plus, 5.3 next 12 months revenue. But here's the big difference. They were 14 or 15 years old and their growth rates were declining and they were probably, you know, the growth is relatively anemic. Axios was seven or eight years old when it's sold at a five times next 12 months revenue. So if you put it in that context, actually, the semaphore valuation, given it's so young, growing so rapidly, has a lower multiple than these exit multiples of these very relevant comparables, actually looks like a very fair assessment.