How Mic, a digital media darling that raised $60 million, wound up firing all its staff and selling for $5 million

Mic

• Millennial media darling Mic was sold for a fraction of its onetime presumed value.
• The company's cofounder Chris Altchek blamed Facebook for its failure to continue as a business to his staff.
• But Mic's leadership team built the company on an unwavering faith in Facebook that investors funded again and again.

On November 29, an emotional Chris Altchek stood before the 100-plus person staff of Mic.

Altchek, CEO and cofounder of the millennial news site, said Facebook had canceled a lucrative video agreement.

The 7-year-old company, which had raised $60 million and was once rumored to have been courted by Twitter for $90 million, was going to be sold to Bustle Digital Group, which had been buying media companies at bargain-basement prices. The price: a scant ~$5 million.

Pausing to gain his composure, Altchek told the staff assembled that Mic was laying off nearly all its employees.

Facebook has become the favorite whipping boy of many publishers. First, it provided a welcome firehose of cheap traffic, and publishers eagerly drank from it. Without Facebook, some wouldn't even have come into being.

As early as 2015, Facebook throttled the traffic it sent publishers, making them pay more to reach its audience while encouraging them to spin up videos for its platform, revenue TBD.

After a series of quiet cutbacks in traffic, Facebook dropped a bombshell in January 2018, telling publishers outright it would cut their content in the news feed in favor of friends and families' posts. It's changed its video strategy multiple times and hasn't delivered meaningful video revenue to publishers.

But the demise of Mic is not Facebook's fault.

Business Insider spoke to multiple former executives and employees at the company and those close to the operation. They described a more complicated story of poor leadership decisions that seemed to stem from an unblinking faith in just that one platform, Facebook, and just one product, video, while the once-booming media market turned sour. This Facebook-heavy vision was enabled by growth-thirsty investors.

When you're a business that is solely reliant on another business to survive, things don't usually end well.

Enduring faith in Facebook

Altchek and Mic cofounder Jake Horowitz were prep school buddies who started the company in 2011 at age 24.

Mic (then PolicyMic) was part of a wave of upstart news sites formed on the belief that millennials are interested in the news, but they want it presented from their own point of view in grabby, digestible formats. (Early Mic posts included "An Open Letter to Vladimir Putin: You Suck," and "16 Incredible Facts Will Change the Way You Think About Africa.")

It found an audience on Facebook, with its huge distribution power, and grew to publish 75 articles a day, mostly tailored to the platform.

Mic eventually dropped the "Policy" from its name and expanded into social justice and lifestyle coverage. Bolstered by Facebook, three years in, the site had around 45 full-time employees and 19 million monthly uniques. The site scored tons of press and even landed an interview with then-President Obama.

Marketers like GE and Walmart spent money with the site, hungry to win the loyalty of coming-of-age consumers.

Read more: Mic says it's doing just fine, despite talk of an industry Armageddon

When Facebook signaled it wanted short newsfeed videos, Mic delivered, churning out videos with text overlaid in the style of NowThis, another investor-backed digital publisher. When Facebook decided to test live video in 2016, Mic delivered again. Facebook decided it wanted longer, stickier videos, and Mic, with $17 million in fresh Series B funding closed in 2015, pushed into more highly produced video.

By September 2017, Mic had done 3.5 billion video views on Facebook, from under 1 million the year before. Most of those views were the short kind that Facebook didn't allow ads to run in. But Altchek, who ran Mic day to day while Horowitz took a lower-profile newsroom role as editor at large, believed having that big Facebook audience would still pay off. Facebook's massive platform could be a profitable way to distribute branded content Mic made for advertisers.

"That was absolutely a prevailing thought: 'Facebook will figure this out because there's too many publishers making too much of this to not make it worth something,'" said a former employee.

"For Chris, there was rarely a moment of doubt," a former senior editorial employee said. "There were meetings where he was not that positive about the written side. He would talk a lot about the promise of video. But he was never anything but bullish about the future of Mic."

Investors were supportive

Altchek wasn't operating on his own. He held his cards close to his chest and was headstrong in his interactions with Mic staff, according to people around him, but he was a talented salesman. He courted the press in Mic's early days and insisted the company was on solid ground, calling talk of a shutdown "categorically false" just weeks before it materialized.

People with direct knowledge of the situation said there was every indication that the investors who sat on Mic's board agreed with Altchek's assumptions about Facebook and plan to grow the company. In email updates Altchek sent to management, the message was, "The board really loves us; they're really impressed with everything," a former executive said.

One of Mic's first and biggest investors was Jeremy Liew, a partner at Lightspeed Venture Partners, who gained fame as Snap's first investor and has invested in other media companies like Cheddar and RockYou. He also backed LittleThings, another media company that went all in on Facebook and cratered after Facebook's big 2018 algorithm change.

"That audience reach, combined with its credibility, positions Mic to win on tvOS, just as it has on social," Liew said in a statement announcing the 2015 funding round. "We're excited to double down on this investment."

Mic's other investors include Time Warner Investments and former AOL and News Corp exec Jon Miller of Advancit, who said in 2015 that Mic's growth is "really about having a distinctive point of view and having a quantity of quality content." Other investors have included Lerer Ventures, which also backed BuzzFeed; and Business Insider parent Axel Springer.

Backed by wealthy investors who wanted the company to go big, Mic stayed relatively aggressive on spending, especially against video, despite uncertainty in the business model, said someone with knowledge of the investors' thinking.

The approach of these VCs was typical of those that funded media upstarts during that time, said another former startup operator. The backers place multiple bets on different types of companies, and urge the operators to lean hard into the growth opportunity, which in this case was Facebook."You're supposed to spend as fast as you can because that will lead you to the next round and valuation," this person said. "That helps the VCs raise their next round. The key is, you can never stop your growth."

Mic's big bets on Facebook video coincided with Mic's big 2015 and 2017 infusions. By 2015, a former exec recalled, social video on Facebook was blowing up, and Altchek had told managers that this growth was instrumental in closing the $17 million in June that year, led by Lightspeed. "It was because we had such a massive growth story," one former executive said.

In April 2017, Mic raised $21 million in another Lightspeed-led funding round.

Mic's website audience dwindled

In early 2017, the company made yet another video bet, forming a five-person team called Mic Productions to spin up ideas based on its journalism that it could sell to streaming video platforms like Hulu and Netflix. Altchek was directly involved as one of the team members.

Mic Productions sold a news show to Facebook Watch, Mic Dispatch. Hulu picked up a documentary on the disastrous Fyre Festival, with Mic as a co-producer. But documentaries typically have razor-thin margins and Facebook owned the news shows it funded, which limits the amount of money the publisher can make off such content.

Meanwhile, Mic's website traffic was dwindling. In the summer of 2017, it laid off 25 people to accelerate its shift into video. A search team, led by Mike Cahill from another millennial success story, Bleacher Report, that had been set up to mine Google for traffic, was laid off.

Mic's traffic plunged to 5 million uniques earlier this year, a fraction of its 19 million peak.

That direct traffic is used as a site's barometer of health by advertisers, and falling direct traffic is a reason to knock a site like Mic off the consideration list for big branded content deals. Those big branded deals accounted for two-thirds of Mic's revenue.

So when the big video dollars didn't materialize, Mic didn't have much web traffic to monetize either.

Timing also didn't work in Mic's favor. In the polarized Trump era, advertisers have gotten increasingly sensitive about having their ads appear near hard news. Mic already was at a disadvantage with its small audience and lack of differentiation in a sea of similar competitors. But the political climate made Mic, with its left-leaning brand of journalism, an even harder sell. (One day after Donald Trump was elected president, Altchek wrote an opinion column, "This is not our America. Here's how we'll fight to fix it.")

A few days after the 25 staff were laid off as part of the focus on video, Mic threw a day-long, companywide event at its headquarters that it called "The Future of Mic." A meditation guru kicked off the day. The rapper Common made an appearance. Altchek and his publisher, Cory Haik, who oversaw the newsroom, tried to sell the staff on the gospel of video. A massive shift to video consumption was coming, and when the advertising would follow, Mic would be ready to capitalize on it, they said.

But those in attendance, still raw over their colleagues being laid off just days before, felt the executives sidestepped questions about the company's dwindling web traffic.

The money was running out

By this year, the company was running out of money. Mic was on track to generate $14 million in revenue this year, but it was on track to burn between $5 million and $10 million. Mic had to pay salaries for more than 100 people and had leased the 82nd floor of the Freedom Tower in lower Manhattan, which proved expensive.

Mic was scrambling to raise money and look for a buyer. There were whispers that The New York Times, The Washington Post, and Viacom each took a look this fall. The Facebook show, Mic Dispatch, was getting an uneven audience, and Facebook had been favoring more entertainment-style shows as a way to get users to stick around anyway. Some lucrative branded content deals Mic had been counting on to stay afloat that year also fell through, someone with direct knowledge of the situation said.

When Facebook called just before Thanksgiving and said it would cancel Mic's $5 million in funding for Mic Dispatch, Mic's most visible manifestation of its push into high quality video journalism video, investor and buyer interest evaporated, Altchek has said.

The morning Facebook pulled the plug, Altchek, groggy from just getting off a redeye, assembled the board by phone to talk through alternatives to save the company. There were none.

It was then that some staff realized just how the company's fate was tied to not just Facebook, but that one video series. "I don't think most of us realized how much the rest of the company was reliant on just this show," the former editorial employee said.

Altchek called his friend and advisor, Bustle CEO Bryan Goldberg, who cut short a visit home to California and flew back to New York to sell the deal to more than 20 investors, top lieutenants and lawyers in just 48 hours. The timing was critical; the Bustle sale had to be done before Mic ran out of money it would need to pay severance. The deal was completed over Thanksgiving weekend.

It's not uncommon for venture-backed startups to fail, and the media industry is struggling across the board to forge a sustainable business model.

But that is likely to be cold comfort to the casualties of the flawed $60 million bet on Facebook and video.