Tech Crunch’s Michael Arrington explains why he sold his company:
The truth is I was tired. But I wasn’t tired of writing, or speaking at events. I was tired of our endless tech problems, our inability to find enough talented engineers who wanted to work, ultimately, on blog and CrunchBase software. And when we did find those engineers, as we so often did, how to keep them happy. Unlike most startups in Silicon Valley, the center of attention at TechCrunch is squarely on the writers. It’s certainly not an engineering driven company.
AOL of course fixes that problem perfectly. They run the largest blogging network in the world and if we sold to them we’d never have to worry about tech issues again. We could focus our engineering resources on higher end things and I, for one, could spend more of my day writing and a lot less time dealing with other stuff.
Can’t argue with that.
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A big congratulations to our friends over at 5Min: AOL acquired the video syndicator this morning. The company raised $12.8M… initial reports pegged the deal at $50-65M, at the high-end of the range it’s 5x the money invested (well, 12.8×5 = 64, round it up to $65M as a sweetener, I guess). 5Min has moved away from both UGC and how to content and licensed content from many companies (including WatchMojo) and redistributed it on hundreds of sites.
Ultimately, 5Min’s main asset - the bundled content, video player and ads - became, I would guess, a challenge. A lot of companies have a custom player, or use Ooyala or Brightcove, so having to use 5Min’s player closes as many deals as it opens… On the flip side, while online video is growing 50% per year, you need a massive sales team to really monetize the inventory properly, combining with AOL’s sales team gives 5Min a far better chance of delivering value to content owners who have ever-higher expectations.
This comes on the heels of StudioNow’s sale to AOL, for $36.5M. StudioNow had raised $3.5M, so they asked for 10x the investment.
AOL’s Tim Armstrong talks about offering users and advertisers an end-to-end solution… this reiterates that size matters and in that vein, expect many more deals.
AOL didn’t stop there, it also bought Tech Crunch for whom I’ve written a number of posts on online video. GigaOm’s Om Malik called this one last night… and Business Insider reported that this was the third time AOL tried to buy Tech Crunch.
No word on price… though Business Insider is quoting $25M (though with founder Michael Arrington being retained for three years, it’s safe to say there are earnouts pushing the potential final price higher)…
While AOL was limited to $100M on acquisitions, I believe that was $100M per deal… even though Tim Armstrong recently stated that that clause had expired. Either way, safe to say AOL dropped nearly $100M on two deals in one day.
Not a bad day at the office for Tim Armstrong, who’s building the Time Inc. of the 21st century.
And a great day for content and video…
Tech Crunch’s Erick Schonfeld is commenting on Daniel Lyons’ Newsweek piece, which laments the state of Silicon Valley:
“The old Silicon Valley was about solving really hard problems, making technical bets. But there’s no real technical bet being made with Facebook or Zynga,” says Nathan Myhrvold, the former chief technology officer at Microsoft who now runs an invention lab in Seattle. “Today almost everyone in the Valley will tell you there is too much ‘me-tooism,’ too much looking for a gold rush and not enough people who are looking to solve really hard problems.”
As a side note, that “invention lab” is widely considered to be a patent troll, but that is for a separate article.
A couple of weeks ago, Fred Wilson talked about two kinds of VCs, basically the ones who are investing in clean tech and the rest. The former are spending massive amounts of capital trying to do what the initial VCs (and entrepreneurs) were doing 20-plus years ago: trying to solve a massive problem that required massive amounts of capital. The latter have, in my opinion, picked a flavor du jour to invest in: video file sharing social social networking sites, link shortener, FB apps, Twitter ecosystem features, social gaming, location-based services, etc., all leveraging open source software, cheap hardware to drive down the cost of scaling a business.
Wilson’s observation wasn’t the first time that we’ve seen a “two kinds of X” motif, over the years, we’ve seen various iterations, be it:
- heavy investment startups vs. lean startups
- VCs vs. Angels
- IPOs vs. M&As
- etc.
Ultimately, I think the greater issue if that what is driving capital investments is the answer to the question: how do we get our money back?
When the Angelgate matter broke out last week, it was a side story to the real issue which was VCs have raised these massive funds that require grand slam successes to make their funds successful.
Ultimately, angels are having more apparent success than VCs. It’s definitely easier to invest in the $100,000 to $1,000,000 range and get back a 5x or 10x investment and boast impressive returns than invest $1,000,000 to $100,000,000 and aim for a similar return. This is more or less what Dave McClure refers to as VC’s IRR problems.
Part of that reason is that it’s easier to find a buyer willing to pay $10M to $100M than someone willing to pay $1B or, especially, IPO altogether. We can blame Sarbanes-Oxley but that is a cop out and over-simplifying things.
Investors nowadays won’t probably say it, but they invest not to solve big challenges, but in the aim of getting the existing big players (Google, MSFT, Yahoo! and increasingly Facebook, Zynga, etc.) to buy the company they invested it. Whether of not their investment was trying to solve a human problem or served as escapism is sort of an asterix in their eyes…
But it was also a sign of the times: too much money, too many bad investments at too many crazy high valuations and the desperation that many of these investors have in back-tracking.One way for VC to back-track is down rounds. Another is to hope that new investments make up for previous ones, though realistically most VCs are looking to
a) focus on winners in their portfolio at the expense of losers (consider why VideoEgg merged with SixApart) or
b) making a big Series C/D/E investment hoping for a quicker, larger exit.
The thing is, with angels raising outside capital and morphing into Super Angels (or Small VCs, basically), there is a bit of friction between the Establishment and those who want to take their place. Adding to the drama is that there is a dichotomy within classes across both VCs and angels. We’ve been hearing about the splits amongst VCs for a while, be it based on geography (East Coast vs. West Coast VCs) or stages. What Angelgate did is show that there not all angels are equal, either: traditional angels (Ron Conway) and the new players (McClure, for example).
More on Angelgate here:
- initial post on Tech Crunch,
- Ron Conway’s initial email on the matter,
- throwing one another under the bus,
- Dave McClure’s rant, and
- how the matter has somewhat split the Valley.
But taking a step back, the fact that Angelgate was even an issue is that, again, there is an echo chamber where investors fund companies for other investors and big companies to acquire, and not to build real businesses. Don’t get me wrong: Facebook and Zynga are generating massive top lines and Twitter is a modern day communications business that will eventually generate some kind of meaningful revenue… but the reason why they got the funding and backing had nothing to do with solving problems but that they would find a greater fool to come along one day and pay something for the company.
THAT, my friends, is what has been driving investments for the past 5+ years.
Since launching WatchMojo, I’ve bought more Apple gear than most fanboys will over 10 lifetimes. I still use a PC but have an iPhone and an iPad (iPad thanks to Business Insider, which I won at their conference this past year).
The following two articles highlight the difference between the myth of Apple and the true Apple.
On the one hand, after reading this article, you’d think that Apple truly believed that:
- Customer service is king: regardless of whether your clients are b2b or b2c, or internal (employees),
- Long term, retaining a tight grip of design and production of both software and hardware is paramount. Conventional wisdom is to outsource everything to do things cheaper or at higher volume. Though realistically, Apple outsources various elements.
The funny thing is that while Apple’s clients always believed in Steve Jobs and Apple, it’s only recently that Wall Street drinks his kool-aid, too.
But then there is the reality. Reading this article, you see some of the challenges that Marvel Comics and Wall Street Journal have faced when trying to launch iPad apps and syncing the features and client accounts to their web subscriptions.
There’s nothing wrong with Apple’s business decisions… they are in it to maximize profit and have done a great job of that, but to suggest that consumers are on top of their priorities is hogwash; they make superior products and offer “good enough” service because they can get away with it.
There’s a big difference.
Michael Arrington’s Tech Crunch apparently makes $10M a year according to a new article in Inc. magazine.
Posts like this one suggest he [and his team] earns every penny:
Yesterday I was tipped off about a “secret meeting” between a group of “Super Angels” being held at Bin 38, a restaurant and bar in San Francisco. “Do not come, you will not be welcome,” I was told.
So I did what any self respecting blogger would do – I drove over to Bin 38, parked my car and walked in.
in the back of the restaurant in a private room was a long oval table. Sitting around the table, Godfather style, were ten or so of the highest profile angel investors in Silicon Valley. These investors, known as “super angels” because they have mostly moved on to launch small venture funds of their own, are all friends of mine. I knew each person in the room very, very well.
I certainly didn’t think anything was amiss and I expected a friendly hello and an invitation to sit down for a drink or two before being shooed off while they talked about whatever they thought should be kept off record. But instead it went something like this:
Me: Hey!
Person who was talking: oh, oh no.
Me: Hi. I heard you guys were here and I wanted to stop by and say hi.
Them: dead silence.
Me: so….
Them: Deafening silence.
Me: This is usually where you guys say “sit down, have a drink.”
Them: not one sound
Me: This is awkward. I guess I’ll be leaving now.
Wait, it gets better from there. Read the rest on TechCrunch. It doesn’t take a genius to realize this kind of thing is happening.i. I mean, every time a startup raises money from a so-called “super angel” the entire group jumps on board… the surprising thing is that Arrington will write about it, which is cool.
The irony of it all, for those who care, isn’t about the startups or the investors… it’s that a few years ago a lot of people criticized Arrington for favoring startups and allegedly even owning shares in startups.
Today, TechCrunch has grown so successful that Arrington clearly doesn’t need, want or care about equity in the companies he covers (not that he ever did, it was always just something the critics suggested or implied).
The fact that Arrington could write this without any real repercussions from the so-called super angels is a testament to the power of the company and brand he and his team have created.
August might be known as the dog days of summer, but don’t tell that to us. August was another fine month for WatchMojo.com: not quite the record-setting July (where we hit 9.7M total views across the Web), but a very respectable 8,532,164 monthly views, which is our 5th best ever month:
We also set a record for the fifth month in a row with 4,079,993 views on YouTube:
And while most content producers have all but given up on building a destination (which isn’t a bad idea), we did set records for uniques and pageviews on the WatchMojo.com property:
Last but not least, we also set two other notable records for our Distribution Network:
- best quarter ever (Jun/Jul/Aug) = 26,267,011 views
- best trailing twelve months = 94,611,649 views
That last stat is mind-boggling as it took us
- 40 months to hit 50,000,000 all-time streams
- 9 months to hit the next 50,000,000 streams
- 6 month to hit the next 50,000,000 streams.
All time, we finished the month of August with 168,878,756 aggregate views and should hit 175,000,000 all-time views by the end of September:
Hats off to the team and a testament to the persistence, focus, hard work… and a lot of luck!
Not surprisingly, HP is suing to block Mark Hurd from joining Oracle. Here’s the full complaint. This one is tricky: if Hurd was fired, then he can logically do what he pleases, unless of course he was compensated in order not to take on a job at a competitor. It’s not whether you or I think HP and Oracle are competitive, it is what his non-competition agreement says.
Back in 2006, I was sued by News Corp. for allegedly violating my non-competition. They had no case, I represented myself and won. Today we work with News Corp. via IGN, MySpace and Hulu. Anyway, while I am no lawyer, I learned more than enough about how Non-Competition Agreements and Injunctions work.
Non competition agreements outline three parameters: 1. Scope of Business, 2. Territory and 3. Term.
1. Scope of Business
Realistically, no employer can forbid you to gain an income. But sometimes a court will uphold a concise, clear, fair and valid non competition agreement. The key is that it cannot be so vague that there is room for interpretation and debate. If a court finds one to be unclear, they will not strive to clarify it, they will simply strike it down.
But, if you are a key employee who has a reasonable, valid and enforcable non-competition clause, then non-solicitation clauses might indeed be upheld if the courts feel that you can earn an income in a way that does not violate your contract.
2. Territory
In offline settings, territory is usually limited to a city, state or country, even a continent. No one can forbid to work in a competitive business around the world. If you are an employer seeking a global Territory, good luck. Of course, if you operate online, it is reasonable, in all fairness, to ask for a worldwide clause for territory, but then to avoid the courts striking it down, you need to have a very specific Scope of Business or short Duration. If an employer is greedy, the court will decide that they are being unreasonable and strike down the non-compete. This is risky for employers and as such, an employer better not be greedy with regards to one.
3. Term/Duration
The length of time that an employer forbids you to work in a given industry, or for a given competitor needs to be reasonable. You cannot, for example, expect a judge to agree that ”forever” is reasonable. This depends on the industry, sometimes 2 years is valid, sometimes 1 year is not. It is not a black and white matter. In one case affecting Earthlink, a judge decided that even six months was too long due to the rapid changes in the online industry!
A very important consideration is whether or not an employee left voluntarilty (and not as a result of constructive dismissal) or was dismissed outright. In cases of voluntary resignation, non-competition can be valid. In the case of constructive dismissal and outright firings, non-competition agreements tend to be invalid, because the main pillar is that one should be able to earn a living.
Furthermore, a very important consideration, proven time and time again is that competition is welcome (if one exists, that is) and only illegal or unfair competition can be prevented through a fair and valid non-competition agreeements. There are easily dozens of cases that support these statements.
Because a lot can happen and cases take a while to reach the courts, sometimes an employer who feels they were wronged can choose to file an injunction. An injunction - depending on what kind of injunction it is - effectively prevents you from doing something. In the context of an employee joining a competitor, an injunction will prevent an employee from joing that competitor until the case heads to the court. In the context of an employee launching a new company, an injunction will prevent an employee from starting / operating the company until the case heads to the court.
Injunctions: Provisional, Interlocutory, Permanent
A Provisional Injunction, if granted, shuts you down for 10 days.
An Interlocutory Injunction shuts you down until the Trial.
A Permanent Injunction, well, that’s the kybosh on your business.
Those who seek injunctions do so hoping that it proves so expensive and costly that a Provisional turns into a de facto Permanent one.
In the case of Injunctions, the system is clear: you are guilty until proven innocent. Well, not quite. Here is how it works. With injunctions, the party moving (making the motion) swears on the face of the record, through affidavits, that there is some harm being caused by the defendant. They submit affidavits, along with documents supporting their claims. Since they swear that these are all true and accurate (though sometimes, we presume, they are not), a defendant can only argue his or her case using the documents that are submitted on the face of the record.
This seems draconian, and at face value it is, but the truth is that the party seeking the injunction needs to pass some tests. And to pass these tests you need a good lawyer, and well, facts!
In other words, when the matter is frivolous and lacks merit, the Judge will see through it and laugh the plaintiffs out of court. We’ve never seen this happen, of course, but we’re sure it must happen at some point.
The Judicial system, as complicated and costly as it might be, makes sense in some ways.
The burden of proof remains with the plaintiff.
To obtain a Provisional Injunction, the plaintiff/petitioner must pass four tests:
- Urgency: there must be an urgent need to shut me down. In laymen’s terms, you get to your gas station one morning and someone is bulldozing the neighbor’s lawn to erect a competing gas station, but that might not be enough, since that is competition only, what would be cause for an injunction is if it’s an old employee of yours with whom you signed a non-competition; or if they are not an employee, it is someone who is using your trademark.
- Clear Right: Here the plaintiff needs to prove that there is a material similarity in business, or that they have a clear right to get an injunction. This sometimes is used interchangeably with Clear and Apparent Right. If it is Clear Right, it it harder for the plaintiffs and easier for the accused, if it is Apparent Right, it is the opposite.
- Balance of Inconvenience: The key here is not who is bigger or smaller, but rather, who suffers more from the Judge’s decision.
- Irreparable Harm: In the fourth and final test, the plaintiffs must prove that by staying open for business, I cause irreparable harm to them. Loss of clients, traffic or revenue was their argument.
I’ve not seen the agreement, but to me it seems logical that Mark Hurd should not be allowed to work at Oracle due to the size of his severance package.
From Marc Suster’s article on Tech Crunch:
I finally got around to writing it having read Fred Wilson’s post about what a CEO does. He says it basically comes down to three key functions:
Matt Blumberg, who runs one of Fred’s portfolio companies, Return Path, follows up with an additional three:
And I’d add to the world of “lists of three” the old adage that many VCs quote about boards having only three roles:
