Bootstrapping Pays Off For Michael Arrington

Michael Arrington is seeing a nice payday today as AOL buys TechCrunch, reportedly for $25 million, with a possible $15 million more in earn outs. Arrington has maintained control over TC and owns the majority of the company. The company is at about $10 million in revenue, so this is a 2.5X to 4X multiple.

A few years back, when several blogs started going out and getting venture funding, I said that blogging is not a venture business. Scaling a $100 million or $500 million business out of blogs is not possible. [Ref: Deal Radar 2008: GigaOm and Deal Radar 2008: TechCrunch]

In 2008, I also wrote extensively about the possibility of roll-ups in the blogging space, something which Henry Blodget resurrected today on Silicon Alley Insider.

To recap: “I am personally not in favor of venture funding for blogs, since they are essentially small businesses, not venture scale enterprises. The only way to build an “enterprise” out of this business model is to put a lot of successful blogs under one banner. So, if GigaOm, TechCrunch, VentureBeat, paidContent, etc. could come together as a “network”, that could, conceivably, build critical mass. They would still need to graft more properties, but the only way I see in which venture-style “bulk” can be built in this niche of the media business is through a roll-up.

(This, by the way, is nothing new. Time, Inc. is a cluster of magazines, after all.) Michael Arrington has been talking about this, but Tom Foremski raises the question: would Om Malik ever work for Arrington or vice versa? Yes, the ego issue remains paramount, as does the “too much venture money” issue. I wrote about these issues back in 2006 when Om first got funding from True Ventures.

Much water has passed under the proverbial bridge since these lines were written. Rafat Ali sold paidContent to the Guardian Group. Om Malik did take a lot more venture capital.

Blodget says:

“But there’s something else that AOL is buying in TechCrunch in addition to the leading tech blog: A big-company M&A specialist named Heather Harde, who is now TechCrunch’s CEO.

One of the next phases of the evolution of the online media business will be consolidation: There are dozens of small but successful properties out there that would be much more successful if they were part of a major company. Just as Time, Inc. and other traditional media companies were assembled via both organic growth and M&A, the new media conglomerates of the future will be assembled this way.

Heather has wanted to pursue a roll-up strategy at TechCrunch for several years now. TechCrunch alone hasn’t had the resources or opportunity to do it. But AOL does.

And AOL, meanwhile, just lost one of its big premium content executives, Marty Moe. Heather could presumably run AOL’s Weblogs business and/or manage a roll-up strategy. She used to do M&A at News Corp, so she not only has these skills but is also presumably equipped to navigate the politics of a large organization.”

This makes a lot of sense to me. At this point, Om Malik, Richard McManus, and many other bloggers who own small but successful sites/families of sites are looking for exits. The egos may have become tamer, perhaps even somewhat tired. If Heather Harde can use the AOL platform to bring together a compelling collection of high-quality technology blogs, AOL certainly has the ad sales force with which to monetize them nicely.

Will such a roll-up produce a billion dollar revenue stream for AOL? Absolutely not.

Will it produce $50 million? For sure.

One more thing: Notice that Michael Arrington has largely bootstrapped TechCrunch, maintaining control and ownership. As a result, the lion’s share of the $25 million–$40 million is ending up in his pocket.