The inside story of Business Insider's $442 million sale to Axel Springer

In 2009, in the middle of the financial crisis, Business Insider was running low on cash.

Over the prior year, the stock market had tanked as the economy plunged into the deepest recession since the Great Depression. Business Insider, a newly formed website that had grown out of a two-year-old tech publication called Silicon Alley Insider, only had six months of cash in the bank. And investors weren't banging the doors down.

"I didn't feel as close to death then as we were in hindsight," Business Insider CEO Henry Blodget says now. "I don't remember being terrified, but it's a miracle we made it through that."

In those days, even apart from the financial crisis, the common wisdom was that digital media was a lousy investment. Blodget frequently joked that the quickest way to clear a room full of venture capitalists was to tell them you ran a media startup.

"Investors would say, 'The two of you have no media background,'" Business Insider's former chairman and cofounder Kevin Ryan recalls. "Secondly, they'd say, 'There has been no online media company started in 15 years - no example where anyone has built up even a remotely successful company worth even $100 million. You are great people doing a terrible business that can't be done.'"

In the end, after many meetings and some begging, Blodget and Ryan cobbled together a $1 million financing from a hodge-podge of investors including Allen & Co. The round valued Business Insider at a measly $7 million, nearly flat from the $6 million valuation Business Insider received from venture capitalists one year prior.

Blodget has since described the $1 million as a "bailout" disguised as an "investment."

Six years later, that investment paid out nicely for all involved.

In late September of 2015, global media conglomerate Axel Springer shelled out $343 million to acquire most of Business Insider, valuing the company at $442 million.

The valuation raised eyebrows. It was more than AOL paid to buy The Huffington Post in 2011, and more than Jeff Bezos paid to buy The Washington Post in 2013 (the Amazon founder is also a Business Insider investor). At $442 million, Axel Springer valued Business Insider at 6X its forward revenue projection, which is roughly in line with how AOL valued The Huffington Post. Like Huffington Post in 2011, Business Insider has no profits as it invests for growth.

While we rarely write about ourselves, we decided to report the story of our sale to Axel Springer because readers usually enjoy these stories. We spoke to half a dozen people involved in the transaction to get the inside scoop. It should go without saying, but disclosure: The author and editor of this piece work at Business Insider, and work closely with many of the people in this story, so we are conflicted out the wazoo.

Here's a look at how Business Insider was built, and sold.

Finding Henry

In April 2007, Kevin Ryan met a lot of business journalists with the aim of starting a digital tech publication, but he left each meeting frustrated. None of them felt like the right person to start his next venture with.

Ryan is a serial entrepreneur who served as the CEO of DoubleClick - an advertising platform that went public in the 1990s and then eventually got gobbled up by Google. He has gone on to found a half dozen startups with DoubleClick's cofounder, Dwight Merriman, including flash sale fashion site Gilt Groupe and enterprise software startup MongoDB.

In 2007, Ryan and Merriman had an idea for a new company. It would be a digital publication dedicated to covering New York City's rapidly-growing tech scene. Increasingly, people were reading news online instead of in newspapers. Ryan craved a high-velocity blog that would be easy to skim and understand.

He called an old acquaintance from his DoubleClick days, former Wall Street analyst Henry Blodget. Blodget had written a book and launched a blog, Internet Outsider, while writing occasional articles for Slate. He wasn't a traditional journalist, but maybe that was what Ryan's site needed.

Within the first three minutes of their meeting, Ryan knew he'd found his co-founder and CEO.

"He was like, 'I get it, this is a good idea, yes, we should do this,' which was encouraging," Ryan says.

Blodget says it only took him ten seconds to get on board.

"I had always wanted to start something," Blodget says. "I saw so many cool companies when I was an analyst and I thought I would learn a ton."

The only thing left to weigh was Blodget's controversial past.

In the 1990s, Blodget's star quickly rose and fell as a top Wall Street internet analyst. When the dotcom bubble burst, he found himself in the middle of a securities fraud investigation. The investigation, which involved some of Blodget's personal emails, got him banned from the industry. He was also hit with a $4 million fine. His reputation and career were destroyed.

Ryan, who says he always felt Blodget was "unfairly tarred," brought Blodget onboard anyway. If they built a quality product, Blodget's past wouldn't matter to readers.

"One thing I said to Henry at the time was, as a secondary goal for the startup, I hope when people say the words 'Henry Blodget' they'll know you for this, not for the 90s," Ryan recalls.

AOL came close

After a few years of early experiments, small fundrasings, and some turnover, Blodget's site landed on a formula that worked and eventually drew mass readership.

It ditched its New York focus, and decided to go broad. Business Insider included a mix of in-depth industry analysis, visual story telling, original reporting, and fast blogging - all coupled with entertaining and often provocative headlines. The site grew quickly, but its penchant for slideshows and grabby headlines were often mocked by media industry pundits.

Marco Arment, one of Business Insider's fiercest critics, lambasted the site in 2011, saying, "It has nearly everything that offends me as a web reader and writer: linkbait headlines, more ads than content, more sharing buttons than original words, top-list 'slideshows' that make readers click for every item and defraud advertisers into thinking that their pageviews are legitimate, Tynt messing with copy and paste, Vibrant Media's double-green-underline ads, generic images slapped next to each post (often poorly Photoshopped®), and tabloid coverage of every rumor and inflammatory non-event so they can fight all of the other tabloids for Google's pennies."

The criticism stung, Blodget says, but it also helped Business Insider learn and get steadily better. He adds that the company's willingness to experiment and "be misunderstood" also helped it figure out a native digital approach that eventually made it a success.

By 2011, it had become clear that digital journalism wasn't a fad and that some companies would build big, successful businesses.

AOL paid $315 million to acquire The Huffington Post. Ryan says it was a "breakthrough" moment for Business Insider.

"The venture capitalists said, 'Oh my God, this works!' Who else is doing a business like this?'"

Shortly after, Business Insider raised a major round of financing, $7 million led by Institutional Venture Partners and RRE Ventures.

Traffic and revenue continued to grow, Jeff Bezos invested in the site a year later, and by late 2013 Business Insider entertained some significant acquisition discussions.

Tim Armstrong, AOL's CEO, had acquired The Huffington Post and later TechCrunch, a digital publication about technology based in San Francisco. He was looking to add Business Insider to his portfolio.

The deal talks were serious but never progressed to a term sheet. Ultimately the discussions fell apart over price. Armstrong reportedly offered about $100 million, a generous multiple on Business Insider's annual revenue, but Business Insider's board felt the company had a great future and wanted more. AOL did not respond to a request for comment.

So Business Insider remained independent. Traffic soon reached more than 50 million unique readers per month. Business Insider expanded to Australia, India, and other countries with partners producing local editions. In October 2014 it launched its first international edition, BI UK. Its quest for further global expansion led it to Axel Springer.

Axel Springer

Business Insider's president and chief operating officer, Julie Hansen, joined the company in 2008, as employee number five. A former Conde Nast, CBS, and Time, Inc., executive, Hansen led Business Insider's sales and technology teams, overseeing the development of a proprietary publishing system and growing revenue from a trickle of tens of millions of dollars.

Hansen and Rich Kennedy, Business Insider's head of business development, built the company's international partnerships. Germany was a priority, and in 2014, Hansen reached out to Axel Springer and other German media companies to discuss a licensing partnership.

Founded in 1946, Axel Springer had grown to become one of the largest publishing houses in Europe. Its brands include national daily paper BILD, DIE WELT and finance portal Finanzen.net. In 2014, the company began making a series of investments in U.S. digital media properties, including OZY and Mic.

Hansen flew to Berlin to meet Axel Springer's executive vice president Christoph Keese in the summer of 2014 and came back energized. The company's headquarters, next to where the Berlin Wall once stood, was breathtaking. An always-on doorless elevator shot employees up to any of the 19 floors in Axel Springer's sleek headquarters. An exclusive journalists-only club made of wood from an old castle was perched on the top level. Hansen raved to Blodget about the Axel Springer team, and how Business Insider might fit into their future plans.

Axel Springer wasn't only interested in a licensing deal, Hansen reported. It might also want to explore an acquisition. Blodget met with some members of Axel Springer's team in London that fall, while visiting Business Insider's new London office. They vaguely discussed Axel Springer's acquisition strategy, but ultimately both parties decided a strategic investment in Business Insider would be best.

In January 2015, Axel Springer led a $25 million round in Business Insider at a $225 million post-money valuation. Axel Springer put in $20 million for 9% of Business Insider and a seat on the board.

In June, Blodget first met Axel Springer's CEO Mathias Döpfner. He had been invited to speak at the NOAH Internet Conference in Berlin. Döpfner met Blodget in the bar of the Crowne Plaza next door.

The conversation they had left a lasting impression on both CEOs.

They discussed business strategies, career missteps, and the futures of their companies. Blodget described his long-term vision for Business Insider, which included heavy investment in video and the launching of properties beyond business. If the company were ever to sell, he explained, he wanted a partner that had a similarly long-term view and cared deeply about journalism, not just short-term profit maximization.

"There's no way he could have known it, but that was exactly what I was hoping to hear from him," Döpfner now says of that afternoon.

"It happens so rarely that you meet somebody who thinks like you. I think that emotional factor tied us together. It plays a role [in an acquisition]. I mean, people think business is all about rational criteria, numbers and quantitative things. In the end, empathy, intuition, - you like somebody, you don't like somebody - it all plays a role."

People think business is all about rationale criteria, numbers and quantitative things. In the end, empathy, intuition, - you like somebody, you don't like somebody - it all plays a role."

Döpfner's team watched Business Insider closely over the next few months as Blodget's team spun out two new websites, Tech Insider and Insider, and the company's overall traffic reached nearly 90 million monthly unique visitors.

Meanwhile, digital media competitors like Vox, Buzzfeed, and Vice raised massive amounts of capital at multi-billion-dollar valuations. Business Insider began to receive inbound interest from venture capitalists for large amounts of financing, and - despite the company still having $30 million in the bank - the board kicked around the idea of raising another large round in the fall.

Axel Springer wanted to attack a larger market than just Europe. It spent years dedicating itself to digital journalism by selling off print publications and investing in media startups. It also tried to buy some global media brands, but those bids fell through. It made a bid to buy the Financial Times in July and lost the deal at the last second to a $1.3 billion bid from Nikkei. Axel Springer also reportedly had a term sheet to acquire The Huffington Post for over $1 billion, but Verizon/AOL opted to keep it.

On August 5, two weeks after the Financial Times deal fell apart, Blodget had breakfast with Springer's Christoph Keese in New York in a quaint Gramercy restaurant, Maialino. Keese expressed Axel Springer's interest in acquiring Business Insider. Blodget said he'd be happy to talk, and relayed the conversation to his board.

The company wasn't looking to sell, and some board members felt there would be money left on the table if Business Insider sold now. Some felt the offer needed to be at least $500 million. Others felt a lower price would be acceptable because Blodget felt great about Axel Springer's strategy and team and viewed Springer as a great home for the company.

Would Blodget stay?

Ryan was vacationing in Europe when he learned of Axel Springer's interest. He cleared his schedule and flew to Berlin in July to meet with Axel Springer's CEO. After the visit, Döpfner invited Blodget to Potsdam, a suburb of Berlin, to discuss a potential deal over a breakfast of cheese, grapes, bresaola, and lattes in his family's home.

Blodget and Döpfner's discussions boiled down to one question: Would Blodget and Hansen stay if Axel Springer bought the company?

Many entrepreneurs enjoy building small startups, not running big companies. Sometimes, they're contractually obligated to remain at acquiring companies for a year or two, then they leave to start something else.

For Axel Springer, a year or two wasn't enough. The company wanted Blodget and Hansen to commit to a much longer timeframe. Springer also wanted Blodget and Hansen and the Business Insider team to remain motivated to make the company a big success.

Blodget gave it a lot of thought and ultimately decided to make a major long-term commitment. But he told Döpfner he didn't want to be contractually obligated to stay. He'd be sticking around because he wanted to keep developing Business Insider and seeing it grow, not because he had to.

Blodget ended up exchanging a significant portion of his equity ownership in Business Insider - cash he might otherwise have taken out in a sale - for a future equity incentive that would vest over ten years. Blodget reportedly owned 10 to 15 percent of Business Insider at the time of the acquisition. When asked about his ownership percentage, Blodget declined to comment.

With Blodget and Hansen's continued employment assured, Business Insider's board sent Ryan to work out the financial details of the sale with Döpfner.

Since Blodget would be staying at the company, the board felt he had a conflict of interest.

When a startup gets acquired, there are three parties to consider: the sellers, the buyer, and the employees. Blodget's ongoing leadership role and equity ownership made his interests different than those of the other investors. So Ryan took over the price talks.

The whole process took about 45 days, and the bulk of the deal was hammered out in just three weeks. Business Insider then signed a 30-day exclusivity agreement so no other bidder could come in while Axel Springer performed due diligence. Axel Springer wasn't eager to see another deal slip away.

In the end, Axel Springer agreed to buy 88% of Business Insider for $343 million in cash, bringing its total stake up to 97%. Jeff Bezos' investment firm would keep the remaining 3%. The deal valued the company at $443 million.

After a long meeting in Business Insider's board room on Monday, September 28, the deal was finalized. Sixteen Business Insider and Axel Springer executives went to dinner at Barn Joo, a nearby Korean restaurant, to celebrate.

The next morning, Blodget rode the subway to work, mentally preparing to tell his staff the good news.

When he emerged from underground, an email from a Business Insider editor Sam Ro was waiting in his inbox. Ro had seen the acquisition on a Bloomberg terminal, and wanted to write the news.

Blodget quickly found a park bench, pulled out a wireless modem and his laptop, and sent an email to Business Insider's 35o employees at 7:14 AM titled, "Big News!"

Disclosure: Axel Springer is Business Insider's parent company.