“Do you know the moment I knew it was over?” Jonah Peretti says, with a half-nostaligic, half-stockholm-syndrome smile looking across the table at Ken Lerer.
Lerer doesn’t know.
“That last Christmas party we had as an independent company,” Peretti says.
“I don’t remember it,” says Lerer. The group around the table– former Huffington Post CEO Eric Hippeau, technical wizard Paul Berry and co-founder and viral whiz kid Peretti all laugh. I make a joke about stout egg nog. “I don’t think I went,” Lerer shrugs.
Peretti’s refreshes Lerer’s memory: “There were so many people there and everyone is getting their free sweaters – which is an Arianna tradition. So there are all these sweaters and I’m walking through them and I didn’t recognize 80% of the people there… Kenny and Arianna stood up to give a little talk. Kenny looked kinda miserable and Arianna was beaming ecstatically and talking to all the people wearing the sweaters.”
“As we walked out, I remember putting my arm around you,” he says to Lerer. “I remember saying, ‘We can’t do another one of these Christmas parties.’”
They didn’t. Before the month was out, they’d sold the company to AOL.
Two crest-fallen founders silently commiserating amid a sea of festive sweaters was an ignominious end for the biggest blog content company ever built. You can see why Lerer didn’t exactly cherish this memory.
But what has sprouted up since the Huffington Post’s decision to sell to AOL for $315 million might be even more remarkable.
Arianna Huffington has only become more powerful within AOL, but the rest of the principals who created the company bearing her name have moved on. Berry has started RebelMouse. Peretti has started BuzzFeed — the next great page view machine — with Lerer as chairman. And Lerer, his son Ben, and Hippeau have together formed Lerer Ventures, and Soho Tech Labs– which is run by Berry. To further compound all this incestuousness, RebelMouse, BuzzFeed, Lerer Ventures and Soho Tech Labs are all based in the same building. Thrillist, Ben Lerer’s company and a tangential member of the mafia, is across the street.
In particular, Lerer Ventures is on a tear. It became more than just a father-son angel firm after the acquisition, with a new fund and a partnership with Ron Conway’s firm SV Angel. Lerer’s deals would have an inside track to get funding from the Valley’s legendary Ron-father and the Ron-father would offer up an intro to Lerer if Valley companies had the slightest need to navigate the New York world. That was a nice endorsement.
Taking a page from SV Angel, Lerer Ventures has been busy. Their site shows investments in some 82 companies, and among the logos are the hotter recent New York names like Birchbox, Warby Parker and Rap Genius.
The Lerer Ventures gang lacks the rarefied air of the picky and prickly Fred Wilson, the undisputed don of the New York scene. But they beat most other firms in volume and breath and hustle.
Between all these ventures they are building a network of capital, specialized mentoring, incubation and contacts that Hippeau told Ad Age could collectively be “the largest infrastructure in New York for entrepreneurs.”
Not surprisingly given their roots, they also invest in a category that almost no other VC will touch: Content and tools content companies desperately need. (That includes a small investment PandoDaily.)
In a relatively young ecosystem like New York the SV Angel of that market needs to do more than widely invest in companies. It needs to be part-cheerleader, part-tough love dispenser. And above all it needs to do the thing that everyone says has made Ron Conway so valuable: Become the ultimate human router of the ecosystem, hooking entrepreneurs up with people they need to know to help make them bigger.
And it just so happens a lot of those contacts go back the Huffington Post days. In addition to Peretti, the Lerers, Hippeau and Berry, the Huffington Post’s head of advertising Greg Coleman is another key member, and Lerer’s other portfolio companies have used the PR services of Mario Ruiz– long the Huffington Post spokesman who spun off on his own late last year.
The only person noticeably missing from the rolling company reunion is the woman most associated with it by the general public: Arianna Huffington. (More on that later.)
I spend roughly a week a month in New York and the more meetings I do, the more I appreciate how deeply the Huffington Post alumni’s tentacles are extending into the New York scene. They missed the Tumblr/ Foursquare wave, as they were largely still busy building their own company, but since the AOL sale, they’ve more than made up for lost time. To further capitalize on that momentum, Lerer Ventures is in the middle of raising its third fund, according to LPs I’ve spoken with. It’s said to be in the $30 million range. (The company cannot comment mid-fundraising.)
It occurred to me that this may be the first real bonafide startup “mafia” the New York ecosystem has seen, in terms of size, reach and resources.
I sat down with the leaders of the HuffPo mafia a few months ago for a rare on-the-record discussion. It wasn’t so much about what they are doing now, but what happened in those early Huffington Post days that made this crew so tight and what makes their DNA distinct from other collections of former co-workers who just can’t quit each other. I came away struck by how different the Huffington Post mafia was from many of the mafias I’ve dissected in Silicon Valley like Fairchild, Oracle, Excite@Home, PayPal, and Facebook. And that speaks volumes of the DNA of the New York ecosystem versus Silicon Valley.
But before we get into that, let’s clarify what I mean by a mafia. The stunning results out of the PayPal “mafia” — and cover stories talking about them– made the word popular shorthand for groups of coworkers who move on from a company but can’t quite move on from one another.
But the concept of a mafia has since been bastardized by many a blogger to mean any time the alums of a company go on to do new things. People have talked about the “Digg Mafia,” listing people who weren’t founders or early employees and aren’t creating new things but rather people who simply worked at Digg but no longer do today. That’s like saying I’m part of the Chili’s mafia because I waited tables there in high school.
Most mafias share a few attributes. The companies stood for something or blazed some trail in their prime, but there’s frequently a sense of unfinished business or thwarted opportunity– frequently from selling rather than staying independent. There’s a tendency when members are together to wax on about the glory days, even exaggerating them the way marines tell war stories.
The bonds forged are stronger than what they feel for regular co-workers, and they outlive the original company. Mafia members continue to work together– whether its co-founding, advising, investing in or working for one another in a wave of next ventures.
In the case of the strongest and most enduring mafias, the sum of these distributed but connected ventures — influenced by heavy lessons from a shared past — wind up being larger than the original company that spawned it all. That’s definitely been the case with Fairchild, PayPal and Netscape– three of the most iconic mafias in the Valley. I’ve written before about how partial liquidations and secondary sales forged a unique Facebook mafia long before its IPO.
Most important, each of these mafias stood for something. There was a way of doing business– either because it worked or they react strongly from what didn’t work– that permeates them whether they consciously realize it or not.
To figure out what it was in the case of HuffPo, I sat down with Lerer, Peretti, Hippeau, and Berry for a several hour talk on what made the Huffiington Post succeed, what made them sell, and what had stuck with them. In the weeks since that meeting, I’ve filled the reporting out with half a dozen other interviews of people close to the group.
Noticeably missing from this story is Arianna Huffington. That’s mostly because she’s the only major figure from the story who stayed at AOL and is not an active part of all of the collective.
So what characterizes the Huffington Post mafia? Here are the five things that jumped out at me most:
They were total misfits. The HuffingtonPost sat on the outside of a lot of camps. It came up at a time when New York wasn’t nearly as startup crazed as it is today. Few people– including Lerer– thought it would turn into a business. His goal originally was to compete with Matt Drudge and get a Democrat elected president.
The Huffington Post decidedly did not fit within the East Coast media elite; and that same media elite always reminded them of that outsider status by dismissing HuffPost’s content as little more than unpaid blog posts, kitten photos, celebrity contributors and SEO. The recent Pulitzer was hard fought vindication by Huffington who always chaffed at these criticisms.
But we forget today just how polarizing the HuffingtonPost was to bloggers as well. Back in the early days of HuffPost, blogging was seen as the great equalizer and a tool for the common man. Arianna Huffington was anything but that. “Blogging was a tight knit community back then and she was that fancy socialite who ran for governor once,” Peretti says.
In Silicon Valley, entrepreneurs like to pretend they are rebels, but in reality entrepreneurship is the safe, accepted thing to do there. In the case of the Huffington Post there was no cozy ecosystem of funding, support and mentorship. They had to create it all themselves, which is one reason the crew is still so tight today.
Not Central Casting. Between Peretti, Lerer and Huffington the company was early on dominated by a collection of strong personalities that weren’t dormmates or best friends or even similar at all. Each of them had dramatically different skills, and none of the three had ever started a Web company before. This inherently gave the company a different feel to your typical startup.
We talked a great deal about how those dominant personalities all worked together– particularly as others like Hippeau were brought into the company. They paint a picture of people trusted to do their own thing well, who mostly stayed out of each others’ way. Many people couldn’t hang with this group, something they would typically realize quickly. When someone was out of favor Lerer would stop talking to them first, Berry said. When Huffington stopped talked to them, they were done.
They almost schizophrenically iterated. Yes, every startup talks about iteration. But at the Huffington Post it was a way of keeping the peace. These strong personalities all had very strong ideas of what the company needed to do.
Enter Berry. His job was to take all of these suggestions and task them to an army of outsourced Eastern European developers who’d build them all, see what worked, A/B test them and rapidly kill things that failed.
Rather than fight with the personalities, they’d build it, try it and kill it once they had data. “That tension and passion could have lead to fights, but if we were able to iterate we could try two ideas simultaneously and that eases the tension,” Berry says. “That’s why I started building a global team immediately, because I thought, ‘Well, my God, Kenny wants this and Arianna wants this and Jonah is right about this, and then Eric would add from the board level too.’ We had to execute all of the ideas rather than choosing one.”
It doesn’t sound like an enviable job, but Berry loved the challenge. He gives the example of Lerer’s pronouncement one day that they needed splash pages on each individual story page. “There was a joke I would always tell about Kenny– and I never told you this,” Berry says turning to Lerer before continuing. “The joke was that Kenny is always right because he’s never specific enough to be wrong.”
When he told Berry to have splashes on every page, Berry had no idea what that meant. “I’d have a designer come up with something and he’d say, ‘This is boring! It’s boring!’ ” Berry says. The designers would try to interpret it again. Eventually this yielded a page layout with three stories running across the top. It’s a layout that’s widespread across news sites today, but it was considered crazy to put promotions over a specific story before HuffPost did it. Berry attempting to keep peace between these forces yielded hundreds of little innovations for the blog world. “There was this feeling of if we made a decision on Monday and it’s Thursday, why aren’t you looking at it?” Berry says.
Importantly, this meant that no one really “owned” product, it was shared by everyone and integrated tightly with editorial. “Even when we had the resources to have a product group, we made sure we all owned the product,” Hippeau says. “The content and the technology guys lived in the same room and if they disagreed they absolutely had to hash it out.”
They had a strong mission, but not necessarily a shared mission. Everyone around the Huffington Post’s management and founding team had a strong sense of mission– of conviction of how important this thing they were building was for the world. That was crucial given the uniqueness of what they were pulling off and what outsiders they were in both new and old media.
But unlike Google’s central and clear mission of “organizing the world’s data,” the mission of the Huffington Post was a Rorschach test. Everyone saw a bit of themselves in what it was, and everyone thought it was something different. Lerer’s original ambition to elect a Democrat president was never shared by Hippeau. Beating Drudge got boring for Peretti once they scaled to a certain size. Huffington clearly became obsessed with being accepted by the New York media elite. And while Hippeau was inspired by his heritage of being from a family of journalists, he believed Huffington Post could be a huge independent media business.
“It can be incredibly lucrative,” Hippeau says of why he likes journalism. Lerer makes a dramatic face. Hippeau continues, ”Journalism attracts a highly educated, affluent audience and advertisers will reach a premium to reach them.”
Then he shoots Lerer a look.
“Don’t mind me,” Lerer says with an eye-roll.
This individualized sense of mission was good for a time. It allowed all of this different personalities from different backgrounds to put their egos aside and build something they thought was so vitally important to the world– even if everyone had a unique view of why it was so vitally important. But that wouldn’t always last.
They had a pragmatic, business-centered approach. While many tech startups fixate on getting to a $1 billion valuation, the Huffington Post crew focused on more attainable goals. When they got to a certain level of traffic or revenues, that became the new minimum. But the maximum wasn’t the end goal; it was something just a bit bigger. “If you get hundreds of millions of visits, that should be your new low point forever,” Lerer says. “If you can get to that on Monday, there is no reason you can’t get to that on Tuesday.”
It’s easy to see how this approach drove the aggressive SEO nature of the site. But while it kept the company on a traffic and growth treadmill traditional media companies may find distasteful, it was a more achievable way to build a company than a company that raises a seed fund and says it’s going to change the world. “It was both humble and ambitious,” Peretti says. “If we knew we could get here, we could figure out how to get one level higher. People would say, ‘I don’t see how this thing will scale to become gigantic,’ and it was like, well, duh, we’ll figure it out when we get there.”
Part of this was a result of being misfits that neither old nor new media was rooting for. “If you did it in bite-sized pieces, you didn’t get depressed,” Lerer says. Because of the diversified backgrounds there was a pragmatic business approach that also scaled up step by step along with the product.
* * * *
In the end, what had made the Huffington Post so strong was also its undoing: The clash of personalities who had fervent missions that weren’t exactly the same. It became too much for one site and Berry and his team of foreign engineers to handle. More to the point: It wasn’t fun anymore.
Some 18 months later, Lerer can’t emphasize enough how thrilled he still is with the sale. When some founders say this you can tell in their body language they are over-compensating for a pang of regret. They unspool elaborate arguments as if they are trying to convince themselves as much as me.
Lerer does neither. “I was so certain it was the right time to sell and looking back I am so certain it was the right decision,” he says leaning back in his chair confidently. “It was 1000% the right thing to do and the smart thing to do. Hopefully everyone is happy with the outcome and if they’re not, they are wrong.”
At the time, those “wrong” people included Hippeau and Oak Investment Partners’ Fred Harman who thought they it could be a $500 million company and an IPO candidate. “At the time they were happy to keep going, but I was so hellbent on selling the company it wasn’t even funny,” Lerer says, while Peretti giggles across the table. “I don’t mind leaving money on the table. I was very happy where it was.”
He says a variation of these statements about ten more times. In 15 years covering entrepreneurship, I’ve never quite heard an entrepreneur be this happy passing his company off and walking away — and still be happy about that move years later. And let’s be clear: Ken Lerer bled into this company as much as any entrepreneur in its formative years. “I used to get up at 5am for the first two and a half years and write every headline,” he says.
Ok, so I finally, ask why. What was he so miserable about on stage at that Christmas party that made such an impression on Peretti? What was so awful that the company had to be sold at the peak of its power?
“Because even the Beatles broke up,” he says. “Partnerships don’t last forever. People change.”
“Does that mean it wasn’t working between you all anymore?” I ask.
“No, it was working beautifully but you know, it was time for me to split. When I looked into the future I didn’t think the group there would hold together for the long term, and I didn’t want to deal with it. That was going to be someone else’s problem.”
“Why would the group not hold together?” I ask.
“Because even the Beatles broke up,” he says. More Peretti laughter. It sounds more like he’s sharing an inside joke than it is nervous laughter, but I’m not totally sure.
Finally, a bit more clarity: “The new Huffington Post fits the current management’s ambitions and what they want to do certainly didn’t fit mine.”
Peretti says it more cleanly, “One of the key’s to Huffington Post’s ability to do so many things well was Paul’s ability to have Arianna suggest an idea she was into and then Kenny and then others, but it started to get too crowded with a thing that didn’t really share a voice. The brand was growing up and it’s hard to be three or four things when you want to grow up. You can be a doctor or a fireman or a policeman but you can’t be all three.”
He adds: “Having Huffington in the URL made us be able to punch above our weight and build a brand much quicker. I realized how much harder it was at Buzzfeed. But now that we have built and scaled and our brand is known, there’s a lot more freedom because it’s not tied to an individual person.”
At the end of the day, what made Huffington Post so strong limited its upside. It was no longer a wild growing company and those many missions and that endless iteration had to be brought under control. In part because Huffington owned the name, she owned the heart of what the company was. And the other personalities were too strong to subjugate to that single mission or single personality.
Of the four I spoke with, Berry is the only one who stayed after the others left. And it was clear to him– even though Lerer’s vague feature requests could make his life hell for a moment– the magic was gone. He left the company and joined the mafia. “We have much bigger things to do as a group,” he says.
Like all good mafias, Berry’s comments hint at unfinished business. You can see the seeds of unfinished business in the companies that have come next, and a nostalgia for the old Huffington Post they miss in the way the four laugh, taunt and clearly enjoy one another’s presence. There are the lessons they hammer their portfolio companies on– insisting their content companies do more with product, encouraging them to approach a huge mission in bite-sized chunks and iterate constantly.
You can see a reaction against the Huffington Post most clearly in Buzzfeed– not surprisingly since its CEO is Peretti and its chairman is Lerer. In addition to not centering the site around a celebrity this time, Peretti made a clean break from the ineffective banner ads that never made sense to him at Huffington Post, helping to pioneer sponsored content instead. And he gladly embraced the science of generating massive page views through social media over generating massive page views by writing headlines and stories for Google’s robots.
So what does all of this say about the New York ecosystem in which Huffington Post mafia is increasingly investing and influencing? It’s very different from Silicon Valley, and it reflects a lot of things we’ve seen out of New York. While being an entrepreneur is the thing you do in San Francisco, it’s still more of a misfit pursuit in New York. Entrepreneurs need a stronger sense of mission– not just lifestyle– to make it work, and the good ones approach it more pragmatically because the resources are more limited. The most successful founders out of New York don’t tend to be the dropout developers from Harvard or Stanford, but those from a more diverse backgrounds, particularly including media content and sales.
But another factor may be bite-sized ambitions. So far, the largest exits in New York — aside from the Huffington Post– have been DoubleClick for $3.1 billion, BuddyMedia for $745 million, and OMGPop for $180 million. Not bad, but not near enough to sustain a reputation as the second most thriving startup ecosystem in the US.
What was remarkable about the PayPal mafia was that its second acts all added up to so much more than the first. For the Huffington Post mafia to live up to that, it’ll have to become less content with leaving money on the table in the future. That goes for the rest of New York’s entrepreneurs too.
by: Sarah Lacy @pandodaily