All Things Digital

So what prompted TechCrunch Editor Michael Arrington to pen a pugnacious piece on how blogs should not be raising so much venture capital and instead roll themselves into a “Dream Team,” with the unusual title of “More Bloggers Raising Money. Here Comes Politics. And Here Comes My Rant” yesterday?

Well, besides garnering Arrington a big dollop of traffic and attention, which is perhaps one of the blog entrepreneur’s most impressive talents, could it have something to do with the fact that he’s been busy recently talking to several well-known tech blogs about joining a roll-up organized by TechCrunch itself?

Or that he has told several people I spoke to that TechCrunch was considering doing this by raising as much as $15 million, giving it a $35 million valuation?

Reached by email last night, the voluble Arrington declined to comment.

Thus, a BoomTown translation of his TechCrunch piece is Job No. 1!

Arrington wrote: More blogs are raising venture capital, we’re hearing from people they’ve pitched. Newcomer Silicon Alley Insider is looking for a $3 million to $5 million round, if reports are correct. And paidContent is pitching for a second round in that same range (paidContent raised a round of “less than $1 million” in 2006). We’re also hearing that paidContent is trying to sell the company for $15 million or more, and just bail out with some spending money.

Translation: If that scalawag Henry Blodget thinks he can steal even an iota of my thunder, he better get ready to rumble. And while it is entirely incorrect that paidContent is selling itself or raising that much money, I love the smell of napalm in the morning and FUD in the blogosphere!

[BoomTown actually contacted paidContent’s founder, Rafat Ali, who strongly reiterated that the site might raise a very small amount of money, nowhere close to $3 million to $5 million, and was not trying to sell the company at all.]

Arrington wrote: These rumored deals come as funding for bloggers is heating up in general. Just a month ago VentureBeat reported a $320,000 raise. In 2007 we saw Sugar Inc. ($10 million), GigaOm ($1 million), Xconomy, Blogher ($3.5 million) and The Huffington Post ($10 million) raise venture capital. That’s at least $25 million in 2007 invested in blogs and blog networks.

As far as we know, no significant investments were made in blogs in 2005. Weblogs, Inc. raised around $300,000 in 2004, but before they got around to spending it they had sold themselves to AOL (TWX) for an estimated $25 million. The investors, including Mark Cuban, received 15x on their initial investment.

Translation: And if that elfin Jason Calacanis can score, where’s MY payoff!?! I mean, I am the Jason Calacanis of Web 2.0, aren’t I!? The Mac Daddy of the widget economy! The Sultan of Zing! And did Calacanis ever have the chutzpah to pose for a picture lighting cigars with a handful of crisp, flaming Benjamins! I think not!

Arrington wrote: But apart from that first 2004 investment in Weblogs, Inc., there haven’t been any sales or liquidity events to suggest these investments will be a success. And back then blogging was a cakewalk. Most bloggers linked to each other constantly in a state of brotherly or sisterly love. No one was making any money or getting much attention, so for the most part people got along (with notable exceptions like engadget/gizmodo, who play to win).

Translation: The rain may never fall till after sundown./By eight, the morning fog must disappear./In short, there’s simply not/A more congenial spot/For happily-ever-aftering than here/In Camelot.

Arrington wrote: Those salad days are long gone. Writers suddenly want to be paid market wages, far above the $5 per post that they received two years ago. No, we’re talking a big salary, with benefits, and stock options. There went half your margins at least.

Translation: Wages?! Big salary!? Benefits!? Stock options!!!??? Half your margins!!? Who do these people think they are? The Web 2.0 shooting stars I write about incessantly in TechCrunch?

Arrington wrote: And writing good content is only half the battle. You have to figure out the complex, dynamic web of politics between bloggers and mainstream media before you post to know where to get support. And you’ll need support in the form of links from other prominent bloggers. An early push can take a post and make it a headline on TechMeme, which leads to page views and notice by sponsors. But since blogging is almost by definition a conversation between bloggers, fights tend to break out over emotional issues. Cliques develop. Can you count on them to support you down the road?

Translation: TechCrunch is from Mars, Valleywag is from Venus.

Arrington wrote: Personally, I’ve found that if a fight is necessary, fight clean and fight hard. Make it as bloody as possible and end it fast, with no loose ends dangling about. Leave no lingering emotional stone unturned. When everyone gets up and dusts themselves off, the issue should have been resolved one way or the other, and both sides should be happy to shake hands and tango another day, even if the handshaking is done privately. Those that aren’t capable of doing that tend to push themselves to the outskirts of the blogosphere, where their main job is to lob in attacks at random intervals, pursuing long-forgotten insults.

Translation: Bloody tango? Ouch. Ew. Yuk. And handshakes after that seems unhygienic. But let’s solider on. Aha! Another Broadway musical clue! The Jets are gonna have their day/Tonight/The Jets are gonna have their way/Tonight/The Puerto Ricans grumble/”Fair fight”/But if they start a rumble/We’ll rumble ‘em right.

Arrington wrote: So today, at best, I’d describe the blogosphere as a frontier town with no lawman (I mean, O’Reilly has a badge on, but no gun and no jail). You can do just about anything you want, but the politically savvy folks tend to arm themselves to the teeth and gang together to protect their property. Everyone else is in the middle of chaos, either fighting blindly for attention or politely asking (by linking early and linking often) if they can join the big Gang.

Translation: Wait, now the metaphor has shifted to the Old West? OK, we can keep up: Anything you can do, I can do better./I can do anything better than you./No, you can’t./Yes, I can./No, you can’t./Yes, I can./No, you can’t./Yes, I can, Yes, I can!

Arrington wrote: And now that the big guys in the Gang are being injected with capital, hiring tens of employees and expanding their businesses, they suddenly have a lot more to lose. Linking is never done just because. Rather, links are your political capital that must be expended appropriately. Don’t link at the right time and in two weeks when you’re pushing your own headline, you’ll wish you had. When you stop seeing other blogs as people you admire and want to discuss things with, and start to see them as your competitor, your brain shifts and you stop linking the way you had previously.

Translation: Hey, how did we get to Washington, D.C. and the inside of Sen. Hillary Clinton’s cerebral cortex in the midst of yet another compromised political calculation? It’s like we’re on “Fantastic Voyage”!

Arrington: Luckily, the newbie bloggers are there to fill in the links when they’re needed. That’s why, if you are a mid-level blogger, you are likely courted by the bigger blogs looking to get your support. If you know what’s going on and are willing to play the game, you can see your blog rise very, very quickly. Choose the wrong blog, though, and you may find yourself alone and lonely in your forgotten blog.

As an aside, when I see a young but promising blogger, I’ll start linking to him or her constantly to build them up (others, like Winer, Scoble, Jarvis and Rubel did that for me). The goal is to help move them up to a position of influence as quickly as possible. The more non-crazy influencers in the game, the easier it is to ignore the noise generators and the better the overall conversation becomes. Over the last year, for example, Silicon Alley Insider, CenterNetworks, LouisGray and Mathew Ingram I’ve been pushing hard. These guys rarely agree with me, but when they talk I listen because they’ve put some thought into what they are saying and how they are saying it. Those guys haven’t hit the big politics yet, and tend to link out a lot to everyone. They are a very important part of the ecosystem–pushing their link votes toward stories they find interesting and helping those other bloggers get headlines and maintain their place in the Gang.

Translation: Next stop, the stylings of Mr. Michael Corleone! There are many things my father taught me here in this room. He taught me: keep your friends close, but your enemies closer.

Arrington wrote: So what’s the point of this rant? Well, all this money flowing into the blogosphere is disrupting the complicated and emotional, but also stable way things are done. Bloggers with money and employees and health care programs and boards of directors and shareholders have to play politics with a whole new group of people, splitting them away from what they do best–Fighting the Blog War. Their behavior can become erratic as they have to decide to tone down their writing to get a certain type of sponsor on board, which in turn lets them make payroll. Investors want to see growth, so more and more blogs are launched, but perhaps without the right talent to grow it into a long-term business.

If a VC hands you a check, their intention is not to hang around for 20 years while you build a nice lifestyle business for yourself. What they want to see is an exit, preferably a 10x or higher exit, within 3 to 4 years. But something tells me that few of these networks are going to be able to grow quite as easily as they think and reach those liquidity events. The talent is, increasingly, locked up. Even when new talent is discovered or trained, every niche has serious heavyweights already there with page views and advertising dollars to back them up for a long fight.

Translation: Finally, the point! Which is: Assimilate or Die!

Arrington wrote: At some point it’s going to become painfully obvious that the only way to get to a massive valuation is for the top talent to band together in a company where they each have an equity stake and therefore a reason to work all night on that next great story. They’ll each have their own space to stretch their legs and let their personality run around a little. Someone needs to pony up a big round of financing around an existing blog, or perhaps a new entity, and then start rolling them up into a big fat CNET-crushing $200 million/year in revenue business.

Translation: This is my sneaky but clever way of floating a trial balloon of an effort I am already trying to organize. The existing blog? Mine! The new entity? Run by me! The $200 million a year? Mine, again! Now, enough about me–what do you think of me?

Arrington wrote: It can happen. In fact it’s almost certainly going to happen. But if you bloggers go out there and raise $3 million to $5 million on say a $10 million valuation, you’ve just priced yourself out of the roll-up. That option will be closed to you, and you’ll be stuck out in the cold, taking life-support payments from Federated Media or another ad network, and having a generally awful time running your business.

Translation: Luca Brasi sleeps with the fishes.

Arrington wrote: What I’d like to see, and even be a part of, is the blogger equivalent to the 1992 U.S. Men’s Basketball Dream Team. That team could take CNET apart in a year, hire the best of the survivors there, and then move on to bigger prey.

Translation: After we are done bloody-tangoing with Neil Ashe at CNET (CNET), Owen Thomas and his evil overlord Nick Denton better sleep with one eye open.

Arrington wrote: Just the thought of being a part of something like that has held us back from raising any outside capital at all. I believe we have the beginning of a team that can play a role in this new Dream Team.

So think twice before taking that venture money, guys. You may be shutting more doors of opportunity than you realize.

Translation: By saying we have held back from raising any outside capital at all, what I really mean to say is that I am going to do it.

Resistance is futile.

Here are two articles from The Wall Street Journal’s online site you might have missed in your holiday stupor.

One looks at the newfound fervor in India for Lord Balaji (pictured here), an incarnation of the Hindu Lord Vishnu, because of his apparent pull in getting adherents visas to the U.S. and other Western countries. Well, that’s one way to win an H-1B.

Another is a piece about investor Peter Thiel, who made the first significant investment in Facebook, and his maverick theories on how venture capitalism has to change. That includes letting entrepreneurs cash out early–praise the Lord and pass the Porsches!

(If you want to hear Thiel in action, see below the video interview BoomTown did months ago, in which he discusses his approach. And, yes, I know I say “right” too much.)

Here’s an interesting idea if you don’t want to get bought and you can’t quite IPO yet and you need to have a tidy war chest for expansion or perhaps a choice acquisition or two: Bring in more investors and raise more money at a huge valuation.

That’s a concept that the top dogs at Facebook are seriously mulling over now, according to sources, after getting so many inquiries from investment funds and several bigger companies–such as its ad-serving partner, Microsoft–about grabbing a stake in the fast-growing social-networking Web site.

While who and how much is still unclear and, most importantly, in what form, sources said a deal could come together quickly if the numbers are lofty enough for the site, which has about 40 million members currently. But the investment could be quite large, well beyond its last $25 million one in 2006, for little dilution.

“There are several B’s involved in the discussions,” said one person interested in the possible round, referring to a multibillion valuation for the Palo Alto, Calif.-based start-up.

Those kinds of valuations have already been bandied about for the site, from a just-under-$1-billion deal from Yahoo that fell apart last year and rumors of a $6 billion interest from Microsoft.

And in a widely read interview with the Deal in July, board member and early investor Peter Thiel (pictured here) of the Founders Fund floated a more massive figure.

“If we got an offer from someone for $10 billion, we probably would listen to them,” Thiel told the Deal’s David Shabelman. “I don’t think we’re going to get that offer, and we’re not going to solicit it.”

Thiel initially invested $500,000 in 2004 in the company, which was followed by two more rounds, for a total of about $32 million. The last one was more than a year ago for $25 million, giving Facebook a $525 million pre-money valuation.

Other major investors include Accel Partners (Accel’s Jim Breyer is also on the board, along with Facebook founder Mark Zuckerberg) and Greylock Partners, as well as Meritech Capital Partners.

In the Deal interview, Thiel also said that Facebook would not go public until its business was stronger and not until at least 2009, following the successful tactics once employed by a pre-IPO Google.

But that’s a lot of time for the company, which needs to keep growing at a rapid pace, both from a technology and innovation point of view.

While it is on track, Thiel and Breyer have both said publicly, to have revenues of $150 million this year, half of that comes from its guaranteed ad deal with Microsoft.

While its revenues are growing strongly, insiders report, so are its costs, as it ratchets up headcount and features and services.

Thus, it will need a lot of investment to keep competitive, including increasing its international profile.

For example, top Facebook execs are now in London, meeting with the British press and also announcing the opening of a spanking new office there. London is Facebook’s largest member city, in terms of geography, and Britain is its third biggest country, after the U.S. and Canada.

In addition, Facebook might need a pile of moolah to buy smaller companies to help build its business, such as its very first acquisition in July of Parakey (mostly for its star techie duo, Blake Ross and Joe Hewitt, co-founders of Mozilla Firefox).

But in order to do more acquisitions, Facebook might want a larger established valuation for its stock and also cash to use.

“If Facebook can do this without significant dilution, it’s a great deal for the venture investors,” said one person familiar with Facebook. “And it could give Facebook a lot of flexibility.”

But who gets to invest is another story, especially given that the company is the latest hot ticket since Google in Silicon Valley. An obvious candidate is Microsoft.

But some close to Facebook worry that aligning itself so closely with the software giant is a mistake, believing that it should not be too closely linked to any one company.

In any case, given the heat surrounding the company, there is no lack of moneybag suitors, all waiting to rain down copious cash on Zuckerberg and his team.

There’s is nothing lovelier than a sun-dappled summer night, terrific food and drinks and a giant gathering of khaki-wearing venture capitalists.

OK, strike that last one, but the valet parking was nice.

Last night, it was hearty partying in Silicon Valley, with two big events that attracted the digerati in numbers. Tech folks, for all their earnest seriousness about changing the world, like nothing better than schmoozing (and, last night, bellyaching about the iPhone price cut).

That was all to be found at the luxe affair thrown by August Capital at their even more luxe offices in the heart of Sand Hill Road last evening after work. It has long been one of the industry’s favorite events.

This is your quintessential top-line Silicon Valley party–heavy on VCs talking deals, entrepreneurs sucking up to them and also reps from big acquiring companies like eBay and Google and a passel of press drinking mojitos and being alternately snarky and annoying. Not so trendy, as the later iLike bash, but classic tech festivities.

Ah, it’s a grand life here.

But see for yourself:

I have known Larry Kramer since I was a college student in Washington, D.C., and he hired me as a stringer for the Washington Post’s Metro section–even after I insulted him about the newspaper’s terrible coverage of students. At the time, Kramer was running the section.

Since then–back in the dark ages and after a stint at the San Francisco Examiner–he has spent a lot of his time over the past decade building the financial news site MarketWatch, which was owned in large part by CBS and then sold to Dow Jones (owner of this site) in 2005.

He stayed on for a bit at CBS, working on its digital initiatives, but recently signed on as a senior adviser to Boston-based Polaris Ventures. There, he’ll be advising them on digital-media issues and helping their portfolio of companies.

Kramer has always had a lot of fast-forward opinions about the changes–or, more accurately, the turmoil–suffered by old-media companies in the wake of the digital onslaught. He talks about all that here, as well as making a prediction about the end of search as the big power in the sector.

Here is the video:

I have known Simon Levene for a long time–he’s been working in the European operations at a handful of Web companies, such as @Home, Time Warner and Yahoo, over the years and is now working as a venture partner at the European branch of Accel Partners, the Palo Alto, Calif., backer of Facebook and other Web 2.0 companies. The London office has about $500 million under management.

Levene always has a sharp view of the scene and is often sharp-tongued–exactly how I prefer my VCs. In our talk, he liked mobile–one must in cellphone-heavy Europe–but not so much widgets, which earned him my undying gratitude for saying so.

Here is my video of him talking about the venture landscape in Europe:

I motored on out to Stinson Beach, the lovely coastal community about an hour’s drive north of San Francisco, yesterday for the annual get-together thrown by True Ventures, a venture firm.

I missed the clambake part of the event–my kids need tending, so I can’t be all Elvis-acting!–but had a nice time chatting with its partners on the sand.

True is an interesting and highly eclectic fund, and much less formal than other more stodgy outfits. Hence, a beach party rather than a gathering at some pricey resort.

Some of its better known companies are Automattic (CEO Toni Schneider is also a True partner and its main product is the WordPress open-source blogging software, used here, btw); GigaOm, Om Malik’s blogging empire; IM apps maker Meebo; blog search apps maker Sphere (also used on this site); and scanR, a start-up that allows digital cameras and cellphones to scan, copy and fax.

I chatted with some partners in this video, as well as an interesting new entrepreneur that True is backing from Chesspark. It’s a little long, and there are some unfortunate wind problems caused by the Pacific Ocean, but you also get an exclusive BoomTown tour guide of the scenic trip.