A lot of folks have been asking me to comment on the shocking shutdown of the tech publication, GigaOm.
It is shocking for three reasons:
1. We are in a booming market right now.
2. GigaOm is widely respected.
3. The company had three revenue streams: conferences, research, and advertising.
For background, I’ve been friends with Om for decades and I consider him one of my dearest friends. We have spent many holidays together and he is one of the kindest, most considerate people I know — he’s also a fantastic writer and clever conversationalist (two compliments I reserve for very few).
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I haven’t talked to Om about the shutdown in detail. I did send him my condolences and tried to get him to come have a drink with me. Whenever any of my friends get their asses kicked, the first thing I do is reach out to them, because I’ve learned over time that the true nature of friendship is seen most clearly when things are most dark.
Here’s what we know about the situation at GigaOm:
a. Om hadn’t been involved in day-to-day operations for some time.
b. The company raised over $20m from investors.
c. The company had massive debt.
d. The company had a research product that was, reportedly, not clicking.
e. The company had 70+ FTEs.
f. The company had taken on loans (a.k.a., ‘debt financing’).
g. The employees had no idea this was coming.
h. No austerity measures were taken (i.e., cutting the staff in half).
This leaves a few major possibilities of what happened:
1. The company had the ability to draw down additional debt, but the bank pulled that option. Banks can pull funding agreements if you break what’s called “the covenants.” These tend to revolve around the financial health of the business and can include things like the ratio of earnings, revenue, etc., to the debt or to the debt service (the quarterly payment).
2. The investors had consistently bailed out the management team, creating a culture of “one more bridge!” I’ve seen this happen many times — it gets ugly.
3. The business was wildly mismanaged.
4. The business lines deteriorated rapidly and unexpectedly.
5. Some combination of the above (likely).
There are a few lessons to be learned and observations I can make based on all of this:
a. DO NOT TAKE ON DEBT. I did this once, at the tail end of Silicon Alley Reporter, right before the market crashed. When things came apart, the bank had us by the, well, you know… and having your “future” squeezed in someone’s grip is just not a fun way to go through a tough time.
b. B2B media businesses are not good venture investments. Red Herring, Industry Standard, and Upside all got serious backing in Web 1.0 and all got demolished. These business are great as part of a big company (the D conference/AllThingsD), or as a boutique operation (The Information).
c. ASSUME THE WORST. How the management team at GigaOm didn’t cut 2/3rds of their staff, shut down the worst of the three business lines, and rent out their office six months ago is beyond me. If you know things are bad, you need to cut hard and deep, trying to avoid the bone. However, like we’ve seen in The Walking Dead, it’s better to chop off your arm than to become a Walker!
d. B2B media and trade publications are fun, high-profile, and rewarding to run and own — but they suck as venture investments historically.
e. When the editorial soul of the brand leaves, it is, generally speaking, over.
I’ve decided that LAUNCH, which includes the LAUNCH Festival, This Week in Startups, and the LAUNCH Ticker, should run as a “break-even business” that I run very, very lean. We bring on six part-time people before the event, we outsource a bunch of things (HR, accounting, design, etc.) and we don’t have a fancy office space. ($600 per desk baby!)
What should happen next
I’m doubtful anyone will buy the GigaOm brand without a team and without a massive flagship conference. Someone might buy the archives because they get a little traffic, but I doubt it. The best thing the creditors could do right now is meet with the top five writers and offer them the brand for free along with $250,000 in seed money if they can find another $250,000 in seed money. That $500k would buy 20% of the business, leaving the other 80% for the five “founders.”
Previous investors who don’t participate get washed out, as this would simply be an asset sale to a new LLC called “GigaOm is Back Baby LLC” (or something clever like that).
To Om Malik we should all raise a glass, because he created something epic at a quality level few have ever come close to — or ever will. Every publication has its run, and like my Silicon Alley Reporter, Kurt’s Spy, Esther’s Release 1.0 and Battelle’s Industry Standard, GigaOm will always be remembered fondly.