Gawker Gets its First Outside Investment Ever, From a Russian Oligarch

January 20, 2016, 10:33 PM UTC
IAB MIXX Advertising Week Conference
Nick Denton, founder of Gawker Media, speaks during the Interactive Advertising Bureau (IAB) MIXX 2010 conference and expo during Advertising Week in New York, U.S., on Monday, Sept. 27, 2010. The mobile advertising market may more than double in the U.S. to almost $500 million this year, researchers say. Photographer: Andrew Harrer/Bloomberg via Getty Images
Photograph by Andrew Harrer — Bloomberg via Getty Images

Gawker Media’s status as one of the largest U.S. media players to be funded entirely by insiders is about to come to an end. Founder and CEO Nick Denton confirmed on Wednesday that he has agreed to sell a minority stake in the company to an investment fund called Columbus Nova Technology Partners.

The deal still has to be approved by shareholders, but that shouldn’t be a problem, since Denton and senior staff (both current and former) are estimated to control more than 95% of Gawker. According to one recent report, Denton personally controls 68% of the company, which is estimated to be worth between $300 million and $400 million.

The Gawker founder admitted in an internal memo—a memo that was almost immediately leaked to multiple outlets, in typical Gawker fashion—that the company needs the investment to bulk up its war-chest because of an ongoing defamation lawsuit by former wrestling star Hulk Hogan.

Hogan, whose real name is Terry Gene Bollea, sued the company because Gawker posted a clip from a sex video the former wrestler made with a friend’s wife. A judgment against the company could ultimately result in as much as $100 million in damages, although the judge recently recommended mediation.

When Fortune asked Denton via instant messenger whether the Hogan lawsuit was the only rationale for getting outside investment, the Gawker founder said, “It’s about putting Hogan behind us, and the future ahead of us.” Even if the two sides settle without going to court, legal observers say the settlement could be substantial.

Gawker refuses to cave in Hogan case

Denton didn’t say whether he regretted having to sell part of his stake in Gawker because of a single story, but he has spoken in the past about how he believes that the Hogan case is a crucial test of freedom of speech and freedom of the press.

Gawker hasn’t revealed the size of the stake that Columbus Nova is acquiring, except to say that it’s a minority investment. Columbus Nova is the U.S. investment arm of the Renova Group and owns Rhapsody and several other technology companies, including what used to be Sony Online Entertainment, makers of the game Everquest.

Renova, which was founded by Russian billionaire Viktor Vekselberg, is an industrial conglomerate that has investments in the mining, chemical, construction, housing, and financial sectors. Vekselberg’s net worth is estimated at $18 billion.

When asked during the same instant messenger conversation whether he is concerned about having a Russian oligarch as an investor in his company, Denton replied, “Do Brooklyn Nets fans have concerns that the NBA team is owned by Mikhail Prokhorov?”

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In his memo, Denton says Columbus Nova “is fully committed to the editorial integrity that underpins the audience appeal” of Gawker brands, and that managing director Jason Epstein has “deep experience in media and entertainment” and has already provided the company with valuable advice on strategic and business questions.

Epstein told Fortune he was attracted by the fact that Gawker is “one of the most heavily trafficked websites in the U.S.” and that it has historically been profitable, and said he was “excited to be the first outside investor” in the company. He said he wasn’t worried about the Hogan lawsuit, and in fact is glad that it happened because “it created an investment opportunity” for the fund.

The Columbus Nova executive said that he had absolutely no plans to get involved in the editorial side of Gawker, but planned to “leave it to Nick and his team to continue doing what they do best, which is to tell stories in true and authentic way.”

Denton noted in his memo that 2015 marks the 10th year in a row that the company has seen double-digit revenue growth, and that Gawker’s e-commerce unit drove more than $150 million in gross sales for brand partners last year.

Last year, Denton said that Gawker turned an operating profit of $6.5 million in 2014 on revenue of $44.3 million. In addition to the sale of a minority stake, the company got an $8 million loan from Silicon Valley Bank last year to pay for its new office in New York’s Flatiron district.

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