Last month, SAGE announced that it has taken a minority investment in Publons, a start-up that collects and validates peer reviews to help researchers gain credit for them. I interviewed Publons co-founder Andrew Preston and SAGE Deputy Executive Chairman David McCune after the deal was announced, and I’ve published the transcript of that interview here. It answers some background questions about how Publons works, addresses some general concerns about opening up reviews, and touches on the use of firewall and NDAs between SAGE and Publons to protect confidential publisher information. Here in the Kitchen, though, I’m sharing broader thoughts and conjecture about why deals like this get done.
An obvious question is why Publons would take money from a “strategic” investor, i.e. one operating in the same industry (rather than, say, investment from angels or venture capitalists with no direct involvement in the sector). Business veterans will tell you consistently that strategic investment is risky. You might find it hard to sell your product to competitors of your new investor. Next time you are raising money, you might find other possible strategic investors unwilling to share a bed with your existing partner. If you end up wanting to sell your company, potential purchasers will question why your existing partner isn’t choosing to buy the rest of the business — and your existing partner, knowing this, will have you over a barrel on the sale price. So why might Publons have taken investment from SAGE? Conjecture, your honor:
- Confidence. Maybe they know they’ve got a gold dust product and they know people will be clamoring to buy it, and / or to invest in them, regardless of a strategic investor.
- Security. We’re not in the best climate for raising income. A strategic bird in the hand is worth two more neutral birds in the bush.
- Funding gap. Another thing business veterans will tell you is that there is a yawning chasm between the maximum amount you can manageably raise from angel investors, and the minimum amount that a venture capitalist will be interested in investing. If you’re looking for something in the middle, a strategic investor may be your only option.
- Funding strategy. Alternatively, perhaps Publons don’t expect their next round to involve strategics. Perhaps they don’t plan to sell but to float. (See point 1).
- Domain expertise & connections. Shared vision. Alignment of chakras.
One way or another, the obvious answer to the obvious question is that Publons couldn’t continue to grow without an injection of cash, and they took the best option available to them. And obviously what they will say publicly about this is mostly point 5.
Now let’s look at this from the other side. Why would SAGE want to take a minority stake in Publons? Because the future’s bright; the future’s workflow. For publishers, it’s a smart move to make the transition to tools. Read a few of their annual reports and this new positioning is clear. Springer’s got its Papers, Holtzbrinck its Digital Science, Elsevier its Mendeley, its SciVal, its PURE. Even non-behemoths are making moves, such as ASPB’s launch of Plantae. Given how difficult it is to reinvent from within, investment in workflow tools is not only about gaining footprint, but also about embracing disruption (albeit at arm’s length). In my email interview, David McCune gives a passionate explanation of why SAGE is putting an egg or two in this particular basket:
“I think increased transparency and less anonymity and confidentiality is good for scientific discourse and research. I understand the need for anonymity and/or confidentiality of reviews in some cases, e.g., the case where a junior scholar is reviewing the work of a senior scholar who might exercise influence over the junior scholar’s job or funding prospects. However, I would like anonymity or confidentiality to be the exception, not the rule. I believe that the quality of reviews would go up if they were published. To be sure, public reviews would probably take longer to write than hidden ones. It is already hard to entice enough scholars to do the ever increasing number of reviews required to keep up with the ever growing stream of scholarly research. But this is precisely why Publons is necessary. If scholars get credit for the work they put into reviews, then they might be more incentivized to participate in the review process. My hope is for a world with ever more research, evaluated by ever more scholars, in an ever more open and transparent way. Anything that increases the amount and transparency of scientific discourse is a good thing. Publons does that. That is why I wanted to encourage and invest in Publons. “
Meanwhile, what are the immediate, practical advantages for Publons?
- The sum is undisclosed, and the stake is sufficiently minority that SAGE is not even in the top 5 in terms of holdings in Publons. But it’s likely still a sufficient amount for Publons to be able to accelerate its product development, sales and marketing substantially – meaning it can increase uptake, and move closer to financial viability
- The investment demonstrates market confidence that will attract other investors (for example, it could play well in a venture capital round) and, while those Publons publisher prospects that compete with SAGE may be more wary, other prospective customers may find themselves more confident of the company’s longevity and viability.
- Meanwhile, publishers are only one of Publons’ target customer groups. Institutions seem keen — Publons gives them greater visibility of a previously hidden activity, such that they can not only credit academics for their reviewing activities, but also guide them more closely (“don’t waste your time reviewing for that journal — aim for these ones instead”). Institutions (who I think find SAGE more palatable than some other possible publishing investors) may also therefore be reassured by SAGE’s backing.
In summary then, Publons gets a bit of time to focus on building its business rather than chasing funding, and the trend for publisher investment in workflow tools continues. SAGE has planted an acorn that may one day be the biggest tree in its wood — or perhaps to stretch the sylvan metaphor, it’s setting the fire that will enable future seeds to grow.
Thanks to my colleague David Sommer for that final analogy!