When blogging pioneer Six Apart announced in September that it was being purchased by ad network VideoEgg and being folded into a new company, Say Media, the deal confirmed what many had been saying for some time: the once-hot startup had been left in the dust by competition from the likes of WordPress (see disclosure statement below), Twitter and Facebook.
For a few years during the Web 2.0 boom, Six Apart seemed like it was heading for major league success: Its founders made the cover of Fortune; it raised more than $22 million in funding, signed a string of deals with major media companies and brought in tens of millions of dollars in revenue through its TypePad platform. It even made some canny transactions — such as buying and then selling competitor LiveJournal for what insiders say was around $25 million in profit.
But all that money seems to have been burned up as the company struggled to stay relevant. According to merger documents shown to me by a source, Six Apart’s finances had become so bad that it was even forced to ask VideoEgg for a $2 million loan just to help it stay afloat while the deal was prepared.
In more than 100 pages of documentation sent out to the Six Apart shareholders ahead of a legal hearing due on Wednesday, the merger details are laid out in full. Highlights include:
- Six Apart executives asked for a $2 million bridge loan from VideoEgg to help pay “liabilities and operating expenses” in the run up to the merger announcement. This goes beyond third-party expenses, and presumably included cash for items such as salaries.
- The purchase is an all-stock deal
valuedthat values the assets at around $3.9 million, marking a major writedown for those who invested $22.6 million in the company between 2003 and 2006 — and it doesn’t include the bridge loan.
- In addition, the merger agreement contains a clause that reduces the purchase value of Six Apart each day until the deal is completed, chopping as much as $200,000 more off the price if the deal isn’t complete by the new year.
- VideoEgg and Six Apart shareholders will take a 72/28 split of Say Media. One fifth of Six Apart’s portion will go to executives Ben Trott (who founded the company with his wife, Mena), Andrew Anker and Jeff Ash. The rest is distributed among the rest of the Six Apart’s shareholders.
- In a typical move, David Hornik of August Capital, the investor who pumped millions into both companies and sat on both boards, was recused from the committee considering the merger — but so was Mena Trott, Six Apart’s other co-founder.
All in all, the files make for a depressing read — and mark a soggy end for a company once dubbed “the blogger’s weapon of choice”.
A fairness hearing on the merger will be held in San Francisco on Wednesday. Neither company had any comment on the deal’s specifics.
Disclosure: Automattic, the maker of WordPress.com, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.
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