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Journey of a Child Entrepreneur: Scott Wainner (Part 4)

Posted on Sunday, Jul 20th 2008

SM: How old are you now?

SW: Twenty-nine.

SM: What happened between 20 and 29?

SW: The high point was the sale to EarthWeb, and it went downhill from there. The first few months they gave me $20,000 a month to run the site. Half of the purchase price was based on a traffic-based earnout. I had to hit certain targets at years 1, 2, and 3. In hindsight, that was a huge mistake. Due to the earnout, EarthWeb had an obligation to support the site no less favorably than their other sites. When they started going south, things got bad. Out of the blue they sold all of their properties, including my sites, to Internet.com. The only site they maintained was Dice.com, and they essentially became Dice.com.

I was flipping out because they had no right to reassign the asset purchase agreement and the earnout obligations they had signed with me to another company. I told them they owed me the earnout because they had messed everything up. Of course, Internet.com acquired the site and reduced the budget from $20,000 to $2,000. I did not know how I was supposed to get the earnout after that. ResellerRatings was caught up in all of this as well. It was smaller than SysOpt and did not make as much money. Internet.com did not understand the model so it was just pushed off to the side very quickly.

After a few months of the $2,000 budget they said they were going to lay me off completely. I now had no ability to affect the sites. EarthWeb was telling me that I did not hit the traffic metrics for the first year and Internet.com is on the hook for years 2 and 3. I was asking them how they knew I did not hit the traffic for year 1, and that they were not recording the traffic well. It was just a huge mess. I was upset about the earnout, and threatening legal action.

SM: You got your original bonuses so financially you were OK, right?

SW: I got cash and stock. The stock was a mess. I could not sell the stock they gave me for one year, and by then the crash happened. The cash I got was good. I also had the earnout lined up, but they were not willing to pay me. In a way I kind of knew going into it that the earnout was risky. It was icing on the cake. I was not really depending on it; however, it was there and was something I wanted to get because it was a lot of money.

A few months later, probably late 2001, out of the blue they decided to shut down ResellerRatings completely. They put up a splash page saying “Sorry, ResellerRatings.com has been discontinued”. The site had a few hundred thousand unique users, a community, and people were really mad about that. I immediately wrote them asking if I could buy the site back. They offered to sell it for $500,000. I came back and said, “OK, you paid $500,000 for all of EarthWeb’s properties a few months before. There is no way I am paying $500,000 for that single property back. I will let you out of the earnout obligation you inherited from EarthWeb, because legally I believe you owe me money, if you give me ResellerRatings and SysOpt back free”.

They came back and said they would not do that. However, they said if I let them out of the earnout they would sell me ResellerRatings.com for mid-five figures. I decided to go ahead and buy it. My lawyer, a great guy in New York, told me not to release them from the earnout because it was a bad deal. Internet.com’s lawyer was jumping up and down saying the deal had to be done today or the deal was dead. It was crazy, very emotional, and insanity. It was the only time I have ever gone against the advice of my lawyer, and I am glad I did.

SM: I think you were right.

SW: Well, at least I was the proud owner of my site once again.

This segment is part 4 in the series : Journey of a Child Entrepreneur: Scott Wainner
1 2 3 4 5 6 7

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