Kevin Rose: Digg Turned Down $80 Million Acquisition Offer

http://www.readwriteweb.com/archives/kevin_rose_at_disrupt.php

by thiele • 16 years ago

83 105 16 years ago

readwriteweb.com

noodle2• 16 years ago

can't say i'd blame him, in digg's heyday, it was likely worth a good bit more.

justin• 16 years ago

Clearly not, considering the price should reflect the future revenue opportunities.

noodle2• 16 years ago

fair enough, although i think most people thought they would do better than they have.

wriq• 16 years ago

"While he was personally willing to take this offer, the Digg board decided to turn it down." He wanted to accept it.

bond2• 16 years ago

They had $40million invested so i guess that's a little low to accept...

On the other hand this raises some questions for founders on getting funding and what to expect down the road...

TamDenholm• 16 years ago

I bet the digg board are regretting the decision since the launch of v4.

rishi• 16 years ago

The board probably wasn't making any money with a $80M offer. It is a top 100 site... why not go for it? They could have built a ton of other revenue models... and they still can. They just need to start believing in it themselves.

kqr2• 16 years ago

Any estimates on the current valuation?

mahmud• 16 years ago

Not to start a bidding war, but I am willing pay $250 for the domain.

dchs• 16 years ago

I think the real story here is that he is "burned out" at Digg but excited by his angel investing. Where might that lead?

RBr2• 16 years ago

I'm shocked that the Digg board turned down $80 Million. Unless it was an overly complicated deal, that sounds like a lot more then it was / is worth.

The real value in Digg was always the unpaid community that powered it. Programming, I.P. and tangible assets are worth a fraction of what Digg is worth. In essence, someone offered $80m for the opportunity to put their hands on the steering wheel of the once powerful group of people who contributed, dugg and evangelized everything Kevin and crew did.

As Digg has proven, communities are fickle and without proper management, motivation and reward, they fail. In retrospect, neither the Digg community nor the assets it has are worth that much money. However, with a carefully crafted goal, properly motivated community and importantly a plan that includes a way to monetize the community, community based services could very well be worth $80 Million or more.

ojbyrne4• 16 years ago

I don't see why you would be shocked. The digg board is made up of VCs playing with other people's money. Their compensation is based on hitting home runs.

It would have been roughly $3.5 million dollars for me (without the earnout).

RBr2• 16 years ago

That makes a lot of sense. However, a home run would be the highest value possible.

With an aging service so deeply rooted in an online community (which are inherently fickle), a 2x value price would seem reasonable if not generous. I have to think that investing in community centered services is a fast game where smart investors get in early and out while the community is still engaged.

Then again, everyone needs more yachts to water ski behind.

bkrausz• 16 years ago

Ouch...

Don't worry, I'm sure your other investments will earn you at least that much ;-)

bond2• 16 years ago

I was too but after seeing they had $40million invested, that puts things in another perspective...

http://www.crunchbase.com/company/digg

mikeryan• 16 years ago

According to crunchbase digg has taken $40M in funding. A multiple of less then 2 on the investment doesn't seem to be the kind of deals to get VC's excited.

At the time there was really no reason to not try to hold out for an extra $40M or so.

Of course Kevin wanted to take it he's walking away with a significant amount of that $80M in his pocket.

Heh it makes the Reddit deal ($100k in and sold for $20M) look effing brilliant - and with the uptick in traffic its getting from digg v4 its making that look like the much smarter play.

points4• 16 years ago

Agreed @ Reddit. Maybe a winning formula.

  1. Find a startup in a new area that is over funded (digg)
  2. Copy it, on the cheap.
  3. Get bought for a "cheap" price compared with what the
     over funded startup would request.

ojbyrne4• 16 years ago

Over half of that $40 million is Series C. I'm pretty sure the offer he is talking about actually came before the series B, so there was around $5 million invested.

tlrobinson• 16 years ago

With $40 million in funding a $80 million exit would barely repay the investors (they would break even if they owned 50% of the company, right? notwithstanding >1x liquidation preference, of course)

aresant• 16 years ago

"Rose wouldn't go into details, but said that he was getting "burned out"

Nail in the coffin statement there, uncommitted leadership during crisis mode is when all is lost.

I don't blame Rose from being burned out, bringing him back was more terrible decision making from board.

troymc• 16 years ago

Amber MacArthur and Sarah Lane interviewed Kevin Rose during net@night for August 11, and he said he misses the days when Digg was small and they could come up with an idea, and have it live by that night. Now Digg has 40-50 full-time engineers, two data centers, and hundreds of servers.

Rose: "It's a big operation. To be honest it's bigger than I'm comfortable with... and I'm very excited to hire a new CEO very soon ... I'm not cut out to be a CEO of this size of company."

Inspired by 37signals, he wants his next company to be a small group of 10-15 people "based out of Portland or something... Chillin' in the woods, drinking tea, chopping wood..."

Sarah Lane: "Are you still on that Portland thing? ... I've been hearing about that for 10 years."

http://twit.tv/natn163

pyre3• 16 years ago

I'm in Portland, and I don't think that "chillin in the woods, driking tea, chopping wood" accurately describes it.

jdp232• 16 years ago

with good investors, entrepreneurs usually have a lot of leverage in sitautions like this as long as the board sees them as crucial to the company's success going forward. so i wonder how much kevin pushed it.

my 1990s startup got an early acquisition offer for $30M when their was only $400K in; the VC left it up to us, and we decided we wanted to build a company. a few years later we hit the wall and the board could have forced us to take a lowball offer but we decided to see it through and managed to turn things around. in the end with $16M invested, we sold to Microsoft for around $60M ... the investors were split, but the executive staff (including me) wanted to do the deal so after some discussion we did. we had great investors, of course; not sure what digg's board is like.

aaronbrethorst• 16 years ago

This was PREfix, right? (Hi Jon, haven't seen you in a while :)

jdp232• 16 years ago

yep, it was -- good to see you too, Aaron, and apologies for the belated response!

DevX101• 16 years ago

A lot of people are here laughing at digg for turning this down, but hindsight is 20-20.

Zuckerberg turned down $1Billion from Yahoo, and at least on paper is worth an order of magnitude more now.

At the time, digg was a leader in a new take on publishing distribution. If executed well, it could have very feasibly been worth more than $80M.

gnaritas8• 16 years ago

> Zuckerberg turned down $1Billion from Yahoo, and at least on paper is worth an order of magnitude more now.

Just because you won the lottery doesn't mean it wasn't stupid to not take the cash. Zuck should have took the billion as a first time entrepreneur. It was the better bet. Playing against the odds might be exciting, and you might even win, but it's still not smart.

rewind2• 16 years ago

Depends whether or not you believe Zuckerberg genuinely wanted to build a world-changing business. If that's his main goal (and the more I hear him talk, the more I start to believe it), and he genuinely believes he can do it, then taking the money isn't necessarily what's most important to him. I read a lot about entrepreneurs getting shit on for not swinging for the fences, but then they get shit if they turn down a billion dollar offer when they only see that as a triple.

It remains to see how this all plays out, but when you turn down a billion dollars, I think there's a good chance you're doing it for more than the money.

neilk2• 16 years ago

Zuckerberg had the Facebook platform in his pocket during all those negotiations. It seems like a great bet to me. If Facebook is worth a billion just for audience share of relatively traditional social networking, it should be a billion plus with the release of the platform and a marketplace.

I can't stand FB, but I have to say that was the right move.

danilocampos3• 16 years ago

Digg is boned. Product is at a dead end and users are losing interest in the community.

Meanwhile, they're funded up their ears. $40 million? For what? It's a bunch of user-submitted links and discussions. You need a couple of developers, a sysadmin, a designer, some sales guys. Am I missing any other roles?

100 employees for such a simple product is insane to me. I couldn't believe they topped out at that number. I am biased – I prefer small, lean teams over bloat, but come on, anyone can see this.

And now, yeah, they're boned. You're not going to get any significant multiple of $40 million out of that business. Boy, the investors would have been fortunate to get their money back period.

I guess that's just how the VC game is played.

mey• 16 years ago

I'd love to see

* Number of Employees

* Monthly Active Users

* Server Operating Costs

* Monthly Revenue

for

* Reddit

* Fark

* Slashdot

* Digg

I'd assume the other sites would bury Digg (no pun intended) on at least several of those fronts.

SwellJoe5• 16 years ago

reddit has more daily pageviews than digg by a few tens of millions, reportedly. So, their 6(?) person team is outperforming 100+ digg employees in the most important metric (revenue might be more important, but I'm not so sure...if I could pick a site to own, I'd choose the one that is bigger, growing faster, and has dramatically lower expenses).

mkramlich• 16 years ago

also for HN

hop2• 16 years ago

At what valuation were these VC's putting $40M into Digg? If it was around $100M, then they would only have 40% of the company and 40% of an $80M buyout is $32M. And I can surely see why they wouldn't want to do that.

bl4k• 16 years ago

Liquidity preferences give investors first dig at any cash with a multiple (ie. we get 2 or 3x what we put in before you get your first dollar).

Digg had raised a little over $10M at the time of the acquisition offer - which would have been a decent return. The $30M round was raised in lieu of the acquisition.

They placated Kevin by partly cashing him out as part of the $30M round.

With that additional investment, the de facto decision by the board and management was that Digg is a billion dollar business, not a hundred-million dollar business.

eli• 16 years ago

You need a couple of developers, a sysadmin, a designer, some sales guys. Am I missing any other roles?

Don't get sucked into the fallacy of thinking something has little value just because the core idea is very simple.

aswanson• 16 years ago

I don't think he was saying that. He was saying that a simple idea didn't need dozens of people.

danilocampos3• 16 years ago

The absolute best ideas are simple ones.

Complexity is often a mask for bullshit. Value from simplicity is huge – easy to pitch to anyone from investors to press to new hires to your family. It also makes the success conditions clear – "Am I accomplishing the simple thing I set out to do? No? Let's fix that."

The ultimate merit of simplicity means that roles are very, very clear and you don't need many people to make magic happen. The more people you add to a system, the larger the chance for complexity to creep in and ruin everything.

Which, incidentally, is what seems to have struck Digg.

If they'd stayed small and nimble, the size Kevin liked, they'd not be stuck in quicksand right now.

codexon2• 16 years ago

Reddit had quite a bit more downtime and lag problems (frequently 12+ hours) than Digg before Digg went to v4.

So while 100 employees for Digg might be overkill, 6 employees is too few.

points4• 16 years ago

I don't think you can draw that conclusion. The Reddit guys (IMHO) have made some bad decisions (Using Amazon for a start), but that doesn't necessarily mean there are too few of them.

antidaily2• 16 years ago

Boned? We're adults here; you can say fucked.

danilocampos3• 16 years ago

I curse pretty freely on HN. Boned is just such a great word.

Say it out loud. That deep "own" sound. It's rich, like a chocolate bar. You use "fuck" when your pacing places you in a real hurry, like a using an unstable old log for balance while you cross a brook.

So if you say "Digg is fucked" you end on this gaspy note, waiting for more, which sucks. The quick "kt" sound at the end is most suitable for connection, maybe to say "up its own ass." But that's just crass, and not what I was going for.

On the other hand, if you say "Digg is boned" you can just let it sit there for a moment, sinking in. You've planted the sound of the word firmly. Fuck is for urgency. I wished to convey finality.

It's a Twain thing - "The difference between the right word and almost the right word is the difference between lightning and a lightning bug."

chopsueyar• 16 years ago

broadcast.com?

wiks• 16 years ago

they need to work more on their own concept and should stop being inspired from reddit.

fletchowns3• 16 years ago

This article on digg claims it has 293 comments: http://digg.com/news/technology/digg_redesign_tanks_traffic_...

After clicking "Load More" a couple times until it says there are no more comments to load, $(".comment-body").length in the firebug console says there are 104 comments. Am I missing something here or are they lying about comment counts to make the site seem more active than it actually is?

thinkalone• 16 years ago

Did you count the replies and hidden comments?

fletchowns3• 16 years ago

As far as I can tell, they are all being counted with that jQuery selector.

trustfundbaby2• 16 years ago

You needed to click load more for the comments right? Stands to reason that you'd probably have to do the same thing for hidden comments etc.

pigbucket• 16 years ago

Discussion about whether the board should have accepted the offer would benefit from knowing when it was made. In Digg's "heyday" is a bit vague. 80m is a biggish bird in the hand but 20m of that was earn out and given that Google were reportedly on the verge of a 200m offer in 2008, it's not clear that whoever thought 80m was lowball was altogether insane.

code_duck3• 16 years ago

This reminds me of Yahoo on one hand (should have taken the money before they started tanking!) and Etsy on the other hand (70 employees was already far too many, next they went on a VC fueled hiring spree and now have about 130). In another similar move, Etsy recently brought back their old CEO/founder, to the horror of many members who were around for the first three years.

Mrdev4• 16 years ago

So i guess the BW cover was bullshit.

http://en.wikipedia.org/wiki/File:BusinessWeek_cover_14_Aug_...

Kevin Rose: Digg Turned Down $80 Million Acquisition Offer

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