Allyson Shontell of Business Insider writes Tuesday about how Michael Arrington’s tech news site TechCrunch made him an estimated $24 million when he sold it to AOL.
Shontell writes, “Arrington says he nearly accepted VC money for TechCrunch four times. He initially didn’t raise money because it wasn’t an option. In 2005 investors were less willing to write checks.
“‘When I started my first company, Achex, we raised $18 million in venture capital in 2000 from DFJ,’ Arrington wrote to Business Insider in an email. ‘The company later sold for $32 million, but due to a 2x liquidity preference (common in those days), the founders essentially got nothing, just a few hundred thousand dollars to not block the deal.’
“Arrington says he raised so much then because it was nearly impossible to build that kind of business without a lot of capital. ‘These were the days when you had to buy Oracle database stuff, and there were no easy hosting options like Amazon and Google offer…Today, most startups don’t have multi-million dollar infrastructure costs just to get the service launched. So there is less need for capital to get to market.’
“Raising a lot of money at a high valuation has its benefits. It can mean overtaking competitors, which are prevalent in early stages (GroupMe had to battle Fast Society before selling to Skype, Foursquare had to beat Gowalla, etc). It can also make a difference in hiring.
“It’s easier to attract engineers and other talent when you have brand-name investors tied to your business and you can offer attractive salaries. Arrington recalls his difficulty luring his business partner, Heather Harde, away from News Corp where he says she was making $1 million. All he could offer was a $150,000 base and stock options.
“Arrington sometimes wonders how much further he could have taken TechCrunch had he taken funding. ‘I often wonder if we could have grown faster, expanded in other ways, if we had raised money and were less frugal,’ he wrote.”
