Red Herring Founders Hatch Plan To Relaunch Mag

When Red Herring was declared dead last week, someone neglected to check its pulse.

Turns out the founders of the magazine, which once had a heavy emphasis on startups and venture capital, are trying to assemble an investor group to purchase its assets and re-launch the magazine. Chris Alden, co-founder and onetime CEO of Red Herring, says he and former Editor-in-Chief Tony Perkins “plus all the original founders and most of the top execs through the years are working on putting a bid together.” The other two co-founders are Ron Conway, founder and general partner of Angel Investors LP, and Zachary Herlick, a former general partner of Seattle venture firm Maveron.

Red Herring officially closed its doors last Monday, just shy of its 10th birthday. It burned through as much as $64 million in venture capital and once had a post-money valuation of $200 million, according to Venture Economics, publisher of Private Equity Week. The biggest loser in the magazine’s failure is Broadview Capital, which sank at least $45 million into the company, according to a knowledgeable source.

“I believe this can be a cash-flow positive business,” Alden says. He declined to say what the revenue run rate would need to be to reach profitability, but a source close to the company says that Red Herring was able to turn a profit with sales in “single-digit millions” of dollars.

Alden adds that he has found no shortage of people interested in putting up money to restart the magazine, but he’s open to hearing from others. “If people want to participate and want to be a part of the rebirth of the Herring, have them send me an email,” he says.

Alden and his cohorts aren’t the only ones that see value. Paul Hale, who is handling the sale for DeSilva & Phillips, a New York-based media investment banker, says: “There’s a lot of interest,” and he’s received inquiries from more than a dozen parties, including non-U.S.-based companies and non-media companies. “You name it, it’s in the mix,” Hale says.

Asked whether the magazine’s founders would be given any special consideration, Hale said: “I think it’s just a question of money.”

DeSilva & Phillips was hired by Broadview to sell Red Herring’s assets – its name, mailing list and old content. Hale hopes to have a deal completed by the end of March, although there is no hard deadline. Published reports say the price tag is $2 million, but Hale says he doesn’t know where that figure came from.

A source close to the magazine says he believes the assets can be purchased for about $500,000. Hale declined to say if that figure was too low. “The fat lady hasn’t sung yet,” he says.

In this depressed economy, it is unlikely that Broadview will get a premium. Light Reading, an online publication, purchased Redherring.com’s subscriber list for less than $100,000, according to a source familiar with the transaction. “There are lots of these assets [both print and online mailing lists] around and they are generally priced in the thousands not millions of dollars,” the source says.

Broadview officially shut down Red Herring last Monday, asking the remaining employees (less than 35) to clean out their desks. The employees were given two-weeks severance, regardless of how long they had worked for the company, according to a former employee who asked not to be named.

Broadview was the single largest shareholder. It participated in three of Red Herring’s rounds, initially putting up more than $25 million of a third round totaling $31 million in February 2000, according to an informed source. It then put another $15 million into a $23 million fourth round in May 2001 and, finally, $5 million as the sole investor in the magazine’s fifth and final round in October 2001, according to Venture Economics.

Steven Bachman, a Broadview general partner who once sat on Red Herring’s board, declined to comment on the amount that Broadview invested.

The other key investor was Ziff-Davis Publishing (once part of Softbank), which put up $2 million in the Herring’s first round in December 1997, $3 million in its second round in December 1998 and an undisclosed amount in the $31 million third round in 2000.

Red Herring has been struggling for several years, after living large during the dot-com boom. At its peak in 2000, it employed more than 300 people and ran three businesses: the print magazine, a Web site with a staff in excess of 30 people, and an events department. To accommodate such a large staff, it leased two offices in San Francisco and one in New York. The pricey leases proved to be its undoing: When the bubble burst, the magazine cut its staff several times, but it still had to make large lease payments. Finally, last October, the company went through a reorganization known as an ABC (assignment for the benefit of creditors), and Broadview bought all of the assets, renaming the company RHC Media. That allowed RHC to get out of its onerous leases. It appeared to be hanging on, but once word leaked that Broadview had hired DeSilva & Phillips to sell the assets, advertisers grew skittish and Broadview pulled the plug.

Although it was born in 1993, Red Herring has been painted as another “New Economy” flameout. One oft repeated story has it that its owners were so greedy for dot-com riches that they turned down a $200 million offer from Time Warner back in 1999. Alden calls the story a “complete falsehood. “Time Warner” never made a bid for Red Herring when I was there, and we never discussed anything remotely close to $200 million when we had discussions in ’99,” he says, but declined to go into specifics.

A knowledgeable source says that the real story is that Time Warner was trying to “bottom feed.” In an informal meeting at San Francisco’s Boulevard restaurant, Time Inc. Editorial Director John Huey tossed out a figure in the low tens of millions of dollars, but Alden and Perkins said the number wasn’t close to the magazine’s value, the source says. No formal offer was ever made, he adds. Over a year later, Red Herring was given a post-money valuation of $200 million in its fourth round of venture funding, according to Venture Economics.

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