Monday, July 27, 2009

Bubbles, Slogs, and Selling Out: Part 13

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To recap: Rupert Murdoch had paid a quadrillion dollars for MySpace in the summer of 2005, and investors were all bubbly about Web 2.0 - an innovation I'd unwittingly anticipated years earlier (just trying to get folks to swap food tips, for chrissakes) and which threatened to make my web site a hot property. I viewed this reversal with ambivalence, coming after a heinous eight year slog that had left me yearning with every cell of my body to close down Chowhound.com, a labor of love which had scaled into a high-maintanence monster leaving me exhausted and bankrupt. Parties of varying degrees of nefariousness had come out of the woodwork, plus I'd pitched the Washington Post, but CNET Networks had swiftly approached me and flown me out to California, where a business development drone I've called "Clay" made me a viable-sounding offer. The previous installment was a shocking tale of venture capitalism, but to really get back in the mood after the long gap, I'd strongly suggest reading from a couple of installments back!).


Everyone at CNET had bent over backwards to emphasize that Chowhound would be handled with a light and sensitive touch; Clay kept repeating his mantra that "if it ain't broken, we're not gonna to try to fix it!" On this one point, I believed them. CNET seemed duly impressed by the quality of our data, and understood that entropy only runs one way: if the focus and smarts of our community were to erode, those qualities would be impossible to reacquire. So our formula could be tinkered with only at great peril. I was confident that this truth had registered.

And the financial offer had been satisfactory. Once all was said and done - after splitting proceeds with Bob, paying off debts, taxes, lawyers, etc, I'd be left with good, though by no means spectacular, salary for my aggregated (not to mention aggravated) eight years of work. I'd essentially endured the world's most demented austerity savings plan. Try it yourself! Here's what you do: work 100 hour workweeks for the better part of a decade, and have someone hide all your paychecks. Live like a cockroach, foregoing most human pleasures, then, at the end, toss all the cash on your bed and exclaim "Wheee! Look at all the money!" Anyone could do it, really. It's the masochistic moron's route to financial security!

There'd be no premium to repay my gamble, but I certainly couldn't complain. Just two months earlier, after all, I'd been on the brink of shutting it all down and rustling up temp work.

The amount, really, was immaterial. Literally. Below a certain point, publicly traded companies need not disclose acquisition costs. Our price was never announced (and I'm sworn to secrecy) because it was below that threshold. The official term really is "immaterial". It's the businessman's way of saying "pocket change".

In fact, here's a flash-ahead. Our law firm, which had racked up a five-figure tab for nothing much more than handling our incorporation (a $200 job), and against which we had a dandy potential malpractice case for breathtaking incompetence and egregious overbilling, owned a chunk of our equity in exchange for allowing us to defer payment. We had hired a new lawyer to handle the CNET closing, and he and the old lawyers were at the point of brawling when the latter stopped for a moment and thought to ask how much this impending deal was actually FOR, anyway. Informed of the figure, they immediately and summarily dropped all claim to equity. They told us, with a derisive smirk, not to sweat it (we did, however, have to pay off their bill).

Of course, an amount laughably immaterial to the business world is material indeed to a jazz trombonist/freelance writer. If I remained modest in my overhead, I could, post-CNET, enjoy a few years off to handle long-deferred personal maintenance. I would never again be forced to take crap from clueless authorities (which I hate), and could concentrate exclusively on doing quality work (which I love). And I'd be able to afford as many pizza slices and secondhand dvds (here's my library!) as I want. Awesome!

If I were some hot-shot operator, and had energy left, I might have ferreted out a higher price from CNET or other parties. Values of companies like ours were increasing daily. That's why they call it a bubble!

In fact, Clay, who had other deals progressing in parallel, was distraught over the fast-inflating price tags he was seeing. From my position at the leading edge of the bubble, I could feel our value escalating from the moment Clay had made his offer. But those who've read this tale will understand that I was in no mood to be a wise guy. It was time to grab an in-hand bird.

But there was still one bird left in the bush. I hadn't spoken to Washington Post since CNET's approach, so I informed them of the offer, and awaited their reply. Clay knew that we'd been talking to other parties, and that we needed to tie up loose ends before deciding on his offer. In fact, it was in CNET's interest that we remain on friendly terms with those media players, because we'd need positive press to relaunch the brand post-acquisition.

Bob and I also needed time to process the situation. Sudden reversals are hugely disorienting, and in our bedraggled state, these developments felt downright surreal. We needed to consider all factors, and understand the potential pitfalls in this unfamiliar landscape. It was time to consult with lawyers and accountants, read up extensively on CNET, and generally try to get a handle on things. All while running Chowhound, of course. Between all this and waiting for Washington Post, a couple of weeks were slipping by.

Clay had worked hard to put together this offer. We were to be a keystone for CNET's upcoming lifestyle division. The rising valuations of Web 2.0 companies were making him queasy with anxiety, and he let us know he didn't appreciate our delay. I mean he REALLY didn't appreciate it. I began seeing the Mr. Hyde behind the honey-toned, agree-with-everything-you-say Dr. Jeckyll facade, and the sight of Clay's fangs coming out was not pretty.

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