A Closer Look at the Knight Foundation's "Venture Capital" Fund for Local News Outlets

Technology has democratized the field of journalism. As we've seen in recent events across the country, anyone with an iPhone can raise a story to the level of national consciousness.

This reality is one of the foundational principles of the Knight Foundation's embrace of the "hospital" model of journalism. It's the idea that news can be created by a collective group, leveraging emerging technologies and channels like social media.

But every hospital also needs to pay its bills, which brings us to the foundation's Local Media Initiative. It identifies promising new journalism outlets and provides them with the necessary funding to achieve long-term sustainability. The initiative includes $3.5 million in grants to more than 25 local online news organizations that have demonstrated potential for growth. And the foundation's INNovation Fund promotes newsroom innovation.

One organization that best exemplifies this new model of watchdog journalism is Seattle's InvestigateWest, which has a mission to "strengthen communities, engage citizens in civic life, and help set the policy agenda in the Northwest by producing powerful, independent investigative and explanatory journalism."

As we've previously noted, InvestigateWest seems to have nailed one part of the new journalism equation. They're an innovative leader in local reporting, looking at issues ranging from ethics in government to urban sustainability. The only missing element is good old fashioned financial sustainability, which brings us back to Knight.

The grant will be used to fund what is perhaps the most important piece of the sustainability puzzle for any nonprofit — diversification and growth of the revenue base. We're eager to see how it plays out and to what extent organizations like InvestigateWest rely on sources like corporate donations versus, say, subscription models or fundraising events.

And given the current state of the industry, creating a sustainable model is no sure thing, thanks in part to a potential glut in the market. Nonprofit media is one of the fastest-growing sectors of American journalism, and as a result, lots of money is sloshing around. For example, Pierre Omidyar, founder of eBay, launched First Look Media to keep an eye on the NSA, political corruption, and other public interest topics. Meanwhile, former hedge fund manager Neil Barsky announced that former Times executive editor Bill Keller will lead a 30-person newsroom on the American criminal justice system.

These are heavy hitters with big agendas trying to carve out their own piece of the pie. And as is usually the case in the private sector, foundations like Knight are acting like venture capitalists, investing in organizations with models that show promising long-term potential. Is there enough public interest to sustain all of these outlets? Or will the market inevitably contract or consolidate?

Knight's prognosis thus far can be described as cautiously optimistic. Its most recent analysis of nonprofit news startups found that most have increased revenue, diversified their revenue sources, and rolled out innovative engagement models. The downside? Most organizations devote a higher share of their resources to editorial expenses. Furthermore, they lack the needed technological capacity to enable them to effectively adapt to rapid shifts in today's digital world.

Knight exists to address these challenges. But unless a "rising tide lifts all boats," the influx of Wall Street and Silicon Valley money into the nonprofit journalism field won't make things easier for the little guys.