How To Make a Killing While Your Startup Burns

Give Kevin Rose credit: The Digg CEO keeps a cool head. "Gotta take risk" was the tech playboy's cheerful response to Digg's mounting problems today. His secret to staying relaxed: Extracurricular investments with buddies hedge Rose well against Digg's death.

One would expect Rose to be sweating a bit more, given how worrisome his social news site's challenges have become. A botched relaunch has users flocking to rival aggregator Reddit. Digg's VP of engineering was just shown the door. In the midst of the whole mess, CEO Rose stepped aside to make way for someone else. He then became Digg's "Chief Architect," whatever that means. Whether planned or not, the executive transition looked bad, given that there was more management shuffling just five months ago, when Rose took the reins from co-founder Jay Adelson, the CEO and fellow co-founder with whom he had openly clashed.

A conventional CEO would be flummoxed, but then again Rose isn't so conventional. He's known as much for his many romantic entanglements — food blogger Darya Pino, video journalist Shira Lazar, former product endorser Julia Allison, etc. etc. etc. — and for his podcasting sideline as for the attention he's paid to Digg.

But there's another reason Rose can stay calm: He's not taking on nearly as much "risk" as you might think, because he's very well invested outside of Digg, having positions in some of the tech world's hottest startups. Like Twitter, valed at $1 billion. Foursquare, the social network of the moment. And Zynga, the profit engine fueled by the internet's saddest obsessives. Even the barest pre-IPO slices of those companies should rival Rose's likely take from Digg at the moment.

And the list doesn't stop there; you can see just how well Rose's tech-world buddies have done by him in his Crunchbase profile, which lists 10 of his startup investments. After making some inquiries about that list of equity stakes, some of which have not been reported in news articles, we believe it to be accurate, including the Twitter, Foursquare and Zynga investments.

Whether Rose navigates Digg out of its current mess or not, the 33-year-old serial entrepreneur deserves credit for showing how to penetrate and ably exploit that most exclusive of social networks, the ranks of Silicon Valley's once and future It Boys. For would-be imitators, the business model he pioneered looks something like this:

  1. Start buzzy Web/social network thing.
  2. Get the press to say it's important.
  3. Widen your social circle.
  4. Amplify your buzz by podcasting, tweeting, blogging and circulating rumors/information to other podcasters and journalists.
  5. Widen your social network further.
  6. Grab pre-IPO shares whenever possible.
  7. Make your startup successful, or not.
  8. Cash in those pre-IPO shares whenever possible.
  9. Profit!

[Pic: Rose with some friends, by Tim Lopez/Flickr]