I guess Morlex management thinks if American Capital blew $160 million in this space then the average American is dumb enough to buy this stock.

Ann: You can speak for yourself as to what you do and do not know. I spoke to lots of people involved with both American Capital and Geosign. I’m pretty clear on how this went down and came to my conclusions based on the comments from these sources.

I wasn’t guessing at anything.

The real story here (ok, imho) is Google’s profound hypocrisy. If I search for “dining room tables” and the only “results” that appear above the fold are paid links, that’s called good business when they do it. But if you buy a Google ad and do the same it’s called garbitrage. If you announce to the world that that is worth 100s of millions you get whacked like a mob snitch.

And Gary, of course, any kind of an investment is always a “bet” to a certain extent, no matter how much due diligence you do. However there are bets and there are bets — and taking a $160 million flyer on arbitrage continuing to be a viable revenue source for an extended period seems like a mighty foolish bet.

And do I contradict myself? No, I think American Capital was pretty much clueless all along about everything including the arbitrage. That’s a little different from insisting that they knew the business they were buying into through and through, but still decided — even with all the known high-risk factors — it was worth it.

And yes, of course, I could be wrong. And if I am, I won’t have been duped.

Google’s changes affected him, but without the pressure of outside capital he’s been free to take the business wherever he wants. And he’s still making a lot of money.

What may be “somewhat contradictory” is to say that there was a ton of public discussion about the risks of arbitrage in 2005 and 2006 while believing that somehow American Capital went ahead with a $160 million investment without being aware of this.

Public companies make investments in private firms all the time without disclosing the investee’s financials, so, no, there’s nothing problematic there at all. There are some things about American Capital’s disclosure record that can be questioned, but that certainly isn’t one of them.

And you’re absolutely right that you have no idea how much of that cash was actually spent. It’s never been disclosed. Anything that’s been written about American Capital’s losses on the deal are speculation.

I run across the paid listings for industrial101.com all the time. While investigating search rankings on a recent campaign I stumbled across some obvious arbitrage on two former geosign domains: worksafely.com and industrial101.com

A quick search for emergency lighting will reveal both sites, with the PPC leading to unrelated ad filled pages.

Looking between the lines, provides a clear view into the future. They are hiring, they are growing. James Naisbitt’s book Megatrends describes how to find clues to define trends or an opportunity, perhaps counting them out is a clear strategy.

http://www.thestreet.com/story.....winds.html

Just look at chatboards from 2005 and 2006 and the TechCrunch announcement of the original investment to see how many people knew arbitrage could be over in a flash.

Also, isn’t it somewhat problematic that the American Capital’s announcement of the deal said nothing about the real revenue and profit stream? Geosign may not have public disclosure requirements but certainly American Capital does and that release was, in my opinion, misleading.

Finally, who knows how much cash was left in Moxy? There were rumours of a huge payout to Nye and SWI presumably cost a chunk of change and lawyers fees can add up pretty fast…

And of course American Capital knew what it was getting into. For a deal of that size, they probably even had it reviewed by a third party. They just badly overestimated how long the gravy train would continue. Their total investment was less than Geosign’s annual revenue at the time the deal closed.

TechCrunch, I appreciate the fact you’re covering a Canadian story. As someone who works in Guelph, Ontario, I appreciate the effort.

Gary W: I appreciate your work focusing on the tech industry in our area. Thanks to you also.

Harry “former arbitrageur” Wang

1) In my mind, given the sources I spoke with (which were extensive and closely involved with both American Capital and Geosign), there is no doubt that American Capital knew that this was an arbitrage play and that the move to become involved in content was a smokescreen that might have played out had the company had enough time. But six weeks was surely not enough time.

2) This notion that Ann keeps putting forth that American Capital was somehow hoodwinked is interesting, but wasn’t accurate from my reporting. They knew exactly what they were buying into — an arbitrage firm with big revenue and profitability. They also knew it could come to an end and the deal was structured that way. By all accounts (or at least those I spoke with), MoxyMedia still has a viable business — just not nearly as large as something like MarchEx, which still functions in the same sort of market.

3) What is left on Nye’s side? Not much. By all accounts the remaining URLs are up for sale and staff has been cut to next to nothing.

What hasn’t been mentioned is that the $160M was for a reported minority stake - not bad if you were the founder.

From what I can tell, ironically in a Google search not too long ago is that the company didn’t mind page jacking content to fill some of their sites.

I agree with AnnB - there wasn’t much left in the way of assets other than a few ‘Web 1.0′ attempts at local search and Hockey.com that became eMedia and a few cosmetic surgery based beauty sites that became MoxyMedia.

Ultimately what this story parses down to is a un-scalable business model and a tremendous gamble by AC. It’s hard not to think folks didn’t know what they were getting into…

Here’s 1 thing this company got right… 1) they exploited and capitalized on the moment… Here’s 1 thing they didn’t get right… 1) hire the right kind of talent… since evaluating your exposure to risk & the market climate should be a constant, right?

@ Duncan - thanks for sharing that article, definitely a good read although understandably lacking key details. I guess the devil has those..