OK, so I've been perhaps overly focused lately on the blogging business and how it has morphed into big lucrative sell-out prospects for all the successful bloggers out there. But, I sense a change, a tipping-point if you will, in whether the big bloggers themselves are ready to cash in their chips. It's not just CNET and TechCrunch (a totally manufactured rumor). As sure I'm sitting here I know that talks are underway by dozens of bloggers to sell their sites to big Internet or traditional media companies.
The blogging business has matured to the point that GigaOm, TechCrunch, Techdirt, Paidcontent.org, Ars Technica, Seeking Alpha and maybe a dozen other blogs are undoubtedly beginning to field offers from mainstream publishers who are still mystified about how to jumpstart growth on the Internet and seek to annex the wisdom or luster of these sites.
As a public service to all those soon-to-be-multi-millionaires among these ranks, I have drawn up five rules that you should follow before you sign on the dotted line. I sincerely hope to impart any wisdom I can to help you avoid the anguish, anxiety and, well, bitterness, that might come to dominate your day-to-day lives if you don't heed my words.
Most of these rules are common sense, or should be to anybody who isn't a babe-in-the-woods. But they bear reiteration because in the courtship that surrounds acquisition talks, it's easy to kind of fall in love with your acquirer, no matter how many hard-bitten VCs or attorneys you rely on for advice. Love, as they say, is fleeting. Remorse, however, can last a lifetime.
Rule Number One - Get All the Cash Upfront
This almost goes without saying, but be forewarned. Publishers in particular are adept at pushing the pay-out model of compensation. Let's say you've negotiated a sale price of, I don't know, $100 million, and Big Acme Media Group offers you $25 million upfront and a payout of the rest over three years.
Chances are that Big Acme Media Group will attach conditions to the payout that leave them with many ways to stiff you on the balance. And chances are that Big Acme Media has on retainer a fleet of big Acme Law Firm attorneys whose sole jobs are to figure out how to stiff you.
Even if you have an airtight contract and Big Acme Media wouldn't stand a chance in court, huge legal bills are chump change to Big Acme Media, so go ahead and sue them. You'll just end up saddled with heart-stopping legal expenses and will probably settle for something less than what they owe you anyway just to end the hideous expense and mind-numbing nightmare of litigation.
Rule Number Two - Seriously Avoid Working for Your Acquirer
Chances are that any acquirer will attempt to make a condition of the sale an agreement that you become an employee. They'll say "What good is GigaOm without Om Malik (or TechCrunch without Michael Arrington, and so on)," or "We're making this acquisition because we need exactly the kind of entrepreneurial spirit you would bring to the company" or "You can just keep doing what you're doing and leave all the headaches to us" or, most deceptively of all, "We'll stay hands-off and let you do your thing."
Some publishers really mean this when they say it, only to later realize that, no, entrepreneurs don't fit in with the company or that they'd actually prefer you do things differently or that they'd wish you handle the headaches or that they simply don't like you. On the other hand, some publishers don't mean a word of what they say when they say it -- they just want you on board for a limited period of time to teach their people the ropes. After that, you're useless to them.
Whatever they promise before you sign the contract, after the deal is done you're just an employee. They own you. You'll have bosses, most of whom could never in a million years do what you do or have done. You have to deal with the dysfunctions that every corporate culture bears.
All this is actually fine. Most people are owned by their employers and most people have less-than-competent bosses and most people deal with corporate pathologies. But, Big Acme Media promised you something different and you might slowly (or suddenly) realize that they lied to you. That's just hard to handle.
Rule Number Three - If You Do Become an Employee, Don't Sign a Non-Compete
If you're in California, as most of the desirable bloggers are, and your acquirer is headquartered or primarily located in California, you're probably golden. California doesn't recognize non-competes and for good reason: they're despicable.
Otherwise, you're screwed if you sign away your rights to work again. No matter how many safety clauses you build into the non-compete provisions of your contract (you agree not to do this particular thing but are free to do that other thing), when push comes to shove your employer will interpret any non-compete covenants as utterly binding and totally comprehensive. They own you, remember.
It does no good that most judges, most courts, hate non-compete provisions as much as you do, and your employer stands little chance of enforcing the restrictions. Big Acme Media has on retainer Big Acme Law Firm attorneys whose sole jobs are to sue you if you do anything after (voluntarily or involuntarily) leaving the company unless it's to become a barrista at Starbucks.
The scythe of a non-compete swings faster and harder if you've managed to make your living as a writer, journalist or analyst. Big Acme will consider any form of writing, reporting or analysis off-limits to you for the length of the non-compete period. Unless you feel capable of performing skilled manual labor, or can become a salesperson, or possibly a venture capitalist, or can get a job that requires only oral discussion, you're unemployed for the duration. A bad situation made even worse if Big Acme happened to have also stiffed you on your payout and you blew the upfront cash on a private jet or something.
Rule Number Four - Make Doubly Sure Your Acquirer Isn't Secretly in Turmoil
Sure, Big Acme Media needs you because they can't figure out this Web 2.0 or blogging stuff on their own. And yes, they're starting to show signs of strain, but they're basically giant cash mountains that will never crumble.
That's what Big Acme Media would have you believe. And your own investigations (checking out the 10-Ks, conducting Google searches, reviewing requested financial statements) might reinforce that idea.
Go the extra mile and talk to everybody you can about the health of the company. Have they lost any big contracts lately, something that hasn't yet shown up on the financial statements? Are any big advertisers getting ready to bail? Are rumors afoot that the CEO will step down?
Nobody will be more vulnerable than you are if Big Acme Media is about to suffer a serious downturn, or if a management crisis kicks in or a corporate reorganization occurs. If you're an employee, you're the new guy on the block and chances are you're pretty expensive relative to the other employees. Someone will inevitably ask why, amid all the trouble and disarray, you're raking in the dough and calling the shots over your little piece of the business.
If you managed to avoid becoming an employee, then it's obvious: they'll find some way to stiff you of what they owe you (see rule number one).
Rule Number Five - Make Doubly Sure That Your Patron in the Company Isn't On the Way Out
As was the case with Rule Number Four, do your homework and make sure that the man/woman/team within the company responsible for buying your blog and possibly bringing you on board will be there for a while. If his/her/their status in the company is shaky, so are you.
If he/she/they are booted out of the company, you'd better believe that his/her/their successors will view you as either an expensive mistake (and you won't get your payout) or part of the old regime or, even worse, a threat, in which case your life will become miserable and you'll possibly get fired. A situation made all the worse if they stiff you on the payout, you blew your upfront money by taking everybody you know to Paris for a week and they sue you for violating your non-compete when you do try to work again.
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I know what you're thinking. These rules, while reflecting nothing more than common sense, are also a little bit alarmist. Granted, some of these dire outcomes could conceivably happen, but won't, in all realistic probability, occur.
Well, they have occurred to many people, not only in the publishing world, although I am most knowledgeable of instances where these kinds of horror tales came true in the publishing world. You just don't hear too much about them because nasty outcomes are usually settled by legal agreements that bear non-disclosure clauses.
You might also think you're too smart, or too important (watch out for that attitude!) to get enmeshed in a bad deal. Think again. No matter how good the deal looks on paper, enforcing the deal, or defending against bad interpretations of the deal's provisions, requires attorneys. Big Acme Media is more than willing to spend millions with Big Acme Law Firm to get their way. Are you willing to spend millions in legal fees just to get what you were promised?
The bottom line, of course, is not to let any dazzling big-bucks offer blind you to the possible horribleness that selling your blog might trigger. If you follow the rules, you should be fine.
Cynthia Brumfield at 1:00 PM|Comments(0)
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