News discovery app SmartNews nabs another $38M, now valued at $500M-$600M

As large platforms like Facebook and Apple position themselves as the new go-to places to read news, an independent app that started in Japan has landed a new round of funding to raise its own game. SmartNews — a news aggregation app that works with some 1,500 publications and selects stories for you based on your reading activity in the app — has raised another $38 million in a Series D round of funding.

The startup is now approaching 20 million downloads and will be using the funding to continue growing that user base, as well as its overall revenues, especially outside of its home market. It will also use the investment for hiring and expanding its machine learning-based news-combing technology.

The investment — led by the Development Bank of Japan, with SMBC Venture Capital and Japan Co-Invest L.P. participating — brings the total raised by SmartNews to about $90 million. The company isn’t disclosing its valuation but I understand from reliable sources that it is between $500 million and $600 million, post money. That’s a considerable bump on last year, when it raised funding at a $320 million valuation. 

Interestingly, when SmartNews raised that previous Series C, co-founder Kaisei Hamamoto told me that it was in part to expand into the U.S., where it would likely be raising money next. As it turned out, Japan has remained SmartNews’ single biggest market with 10 million users, and so that’s where investors seemed most interested.

“Just as important as the funding is the continuing expansion of the Japanese business and the ramping up of our U.S. business,” said Rich Jaroslavsky, the startup’s VP of content and ‘chief journalist.’ “We’re feeling very good about things.”

He added that while the U.S. and other international markets are still advertising-free, the Japanese operation is big enough that it makes sense to monetize.

“Business has been doing so well in Japan that it has diminished any pressure to start monetizing in the U.S., and that’s wonderful,” he said. 

It has thrown itself into that model with inline advertising, video ads, and deals with publishers to sell ads against “SmartViews”, which is SmartNews’s zippy-loading equivalent of Google’s AMP or Facebook’s Instant Articles. (“We had AMP before AMP,” is how Jaroslavsky describes it flatly.)

While the printed newspaper industry has undeniably been in decline, today we’re ironically in something of a news renaissance that is being carried out in the digital world. We get news instantly; and there is a lot of it to read, sometimes too much.

Some of the biggest newspaper brands have recreated audiences online, but the bigger development has been about how we discover that news today, and that has been about shifting the consumption platform away from those direct news sources and towards aggregators bringing in several sources at once.

But just as there are a ton of primary news sources, there are also a hefty number of aggregators, all taking slightly different approaches. SmartNews competes against biggies like Facebook tapping into its vast social network user base (and shifting priorities as a platform, it seems); Apple News, which found an instant audience by virtue of being preinstalled on its iPhone and iPad devices; and Flipboard, a first-mover with a loyal and large number of readers.

That’s before you consider a number of interesting smaller and newer services like Nuzzel, Quibb and Owler that also aggregate, recommend and surface things people are writing and talking about.

SmartNews is somewhat distinctive in that sea of competition, in that the company has built all of its algorithms for sorting news from the bottom up. As such it lets those algorithms do all the legwork to surface, suggest, and curate. This is not the case, for example, at Facebook or Apple News, where humans are very much involved in the selection process, sometimes to controversial ends.

“My title is chief journalist, and we chose that rather than editor in chief for a specific reason,” Jaroslavsky told me. “If I were to call myself EIC it would imply editing. But while I am a journalist and employing journalistic skills, it’s not to select stories but to work with engineers to recognise the algorithm and make it smarter and recognize how to find good stories.”

In fact, it’s done the same with its ad products, and that is another unique selling point for SmartNews in Japan. “Most publishers to do not have an easy plug and play for ads, and so we’ve really become one of the more prominent ad networks for news space in Japan.”

All this adds up to a good business for SmartNews at home. As it continues to build that business there, we’ll continue to watch to see if it will be enough to break through in more oversaturated markets like the U.S.