Rafat Ali on Mike Arrington: “You Just Have to Move On”

Right now, the future of TechCrunch seems a calamitous sideshow for Silicon Valley watchers. But the powerhouse blog isn’t the first to lose its dear leader in a lucrative sale to a major media company. Before TechCrunch founder Michael Arrington, there was Rafat Ali, the inimitable founder of PaidContent, a powerful digital media blog in its own right when it sold to the Guardian in July 2008 – also for a reported $30 million.

Earlier today, I spoke with Ali, who left PaidContent two years after its sale and is now months into a new “travel-related” business venture in which “publishing will be one small part.” We talked about his own experience in selling his baby, as well as what Arrington’s reported dismissal from AOL may ultimately mean for TechCrunch — and Arrington. Our chat has been edited for length.

It looks like Michael Arrington was fired. Are you surprised?

To expect operational independence after getting $30 million for selling your company is foolhardy, to say the least. Of all people, Arrington and his operations team know how these acquisitions go when they involve large companies. I don’t know why they thought they’d be an exception. Of course, we thought we’d be an exception, too, even though I’d been covering M&A for a long time and should have known better.

That’s interesting. How, or maybe why, do you think you deluded yourself?

I think [an entrepreneur’s] vision gets clouded by a mix of money and ambition when it happens to you.

Are we talking about earn-outs here?

[With regard to earn-outs], I think first-time entrepreneurs don’t know enough; the second time, you’re wiser about taking them. All earn-outs are deliberately aggressive in order to incentivize founders to stretch themselves. I’m guessing that most are not met. For us, we were bought in July 2008, just months before the financial collapse. If our earn-out was aggressive to begin with, it became impossible after the economy crashed. Most of it was not earned.

Do you think it’s safe to say that Arrington is probably leaving money on the table here?

I don’t know. Being a lawyer and having extremely powerful lawyer friends in Silicon Valley, he’ll probably get something. But I wouldn’t be surprised if Mike walks away from the earn-out entirely.

For me and many other entrepreneurs I’ve spoken with, it isn’t as hard to walk away from an earn-out as you might think. What drives entrepreneurs is motivation. It was true in my case, and it’s probably true for Mike as well. Entrepreneurs walk away, even from hefty earn-outs, because they don’t feel motivated enough. Also, most entrepreneurs know that if they’ve done it once, they can do it again. Why not put that effort into making money on a second sale?

Are you friends with Arrington?

He and I have had ‘incidents,’ as have hundreds of people [who’ve entered Arrington’s sphere]. Still, I’m surprised by how much the other reporters who worked for him are protesting. I can understand to some extent what he’s going through. Meanwhile, [these] writers who are claiming to have helped build TechCrunch into what it is, that’s completely bull***t. [Techcrunch co-editor] Erick Shoenfeld, the guy who has kept silent throughout this whole thing, and [TechCrunch CEO] Heather [Harde], can claim with some legitimacy that they’ve had a hand in building the company. Everyone else is a writer for hire, and they were riding the wave when they came in.

Should AOL have known what it was entering into with a personality like Arrington?

I think that nobody expected this much drama to happen at the end of this. I don’t think AOL expected this kind of drama. But they aren’t fools; they probably realized a three-year lock-up was too long for someone like Mike. Usually a lockup for these acquisitions is two years. That’s probably why they gave him three years; they expected him to leave at the end of two.

There’s obviously a lot of concern by those left at TechCrunch that the site won’t maintain its editorial independence. What are your thoughts on that? What happened when PaidContent sold?

I say watch what you wish for. We got the other end. We were so independent from the Guardian that we were completely ignored. The physical distance didn’t help. [The Guardian is based in the U.K.; Paid Content is in New York.] And during the economic crisis, they were busy trying to rescue the mother ship. But also, we were very small in terms of the organization, so trying to get headlines on the Website so that we could get traffic from it, or just generally working with the rest of the company on joint stories, was painful. We didn’t really get any help, except that they sent us [our checks] when they were due.

Everyone associated PaidContent with you, before you sold the company. Can you speak to how it has done without you?

It’s hard for me to say without sounding biased about it or self-important. It seems to me, as an outside observer, that it’s lost its luster. It’s not breaking any major stories at all. It doesn’t have the bite or immediacy it used to have. Also, there’s just tons more competition. We were at our peak in 2007. [In recent years], TechCrunch, AllThingsD and numerous other outlets have sort of stolen the spotlight.

Do you doubt that TechCrunch can maintain its edge with Arrington?

I think Fred Wilson probably hit the nail on the head this morning in his post. It’s Arrington’s attitude and bite that turned TechCrunch into what it is. Other journalists there say that they get breaking stories, but they’ve mostly been given those stories by PR people. No [other writer] there has the [same] bite and killer attitude, and partly, that’s because you really don’t have the hustle unless you’re the owner. If you aren’t the owner, you’ll never have the passion that the owner has.

For you, did that passion diminish once you sold?

It did. It’s like a switch in your brain. The moment you sell, that switch goes off – [then] the light dims slowly. That’s what has happened with every entrepreneur I know. And I think that’s what happened with Arrington, too. TechCrunch hasn’t been the same since he sold it.

I can’t imagine he’d rebuild his blog, but assuming his non-compete is ending soon, do you think he could if he wanted to, using a new domain?

I think he still has a chance, because they’re still at the top of their game right now. TechCrunch is still king of the land when it comes to startup coverage. And [the last week] has attracted tons of media attention, so it’s not like they’d have problems getting traffic.

How soon would he need to act, in your view?

Within six months. After that, the industry will have moved on. But I don’t think Mike will do it unless AOL tries taking back the money it committed to his new venture fund. Even then, for his personal sake, I hope he doesn’t. It’s easy to say, “I’m going to F them,” and try and prove it. But at the end of the day, you just have to move on. It’s like any relationship you have.

Wow, you think AOL would pull the plug on the fund, too?

They haven’t said anything about it yet, but I’m sure lawyers on both sides are probably looking [into that possibility]. I’d be highly surprised if AOL doesn’t consider it or try it. There’s too much bad blood there now, and [AOL CEO] Tim Armstrong has to save face somehow.