After a long search that turned up no other buyers, Shawn Fanning’s startup Snocap is being bought by music social network imeem. We first reported the deal in February. Imeem is officially announcing the deal today. Terms are not being disclosed, but we believe it was less than $5 million—a fire sale price compared to the $10 more than $25 million that was invested in Snocap. Fanning, most famous for founding Napster, may be getting a double payday because his also has another startup, Rupture, which is also rumored to have been snapped up recently. For imeem, this is its second small acquisition, after buying Anywhere.FM in January.
Imeem depends on Snocap’s digital fingerprinting technology for its entire business model. Consumers can upload any songs they like to their imeem profiles and playlists. The Snocap technology matches the music to its database of 7 million songs, which then allows imeem to allocate a portion of its advertising revenues to the music companies who own the copyrights to the songs.
When Snocap first put itself on the block last Fall, imeem founder and CEO Dalton Caldwell was hopeful that another buyer would turn up so that he could continue to license its technology. That didn’t happen, so he had to make an offer himself. If anything, this should underscore the risk startups take when they rely on other startups for the key technology that their business is built on. Caldwell himself is philosophical about this tradeoff:
In general, this is a fundamental and strategic question faced by all startups. I was always given the advice to focus, focus, focus on core problems. On the other hand, it’s important to build enterprise value. What I am saying is there isn’t really a right answer. You just have to make the right call to the best of your abilities at the time. You are also constrained by time and capital.
In this specific case, working with Snocap helped us get our ambitious ad-supported music vision out in a very quick way by using their four years’ work/experience and technology they had already built. The fact they had a working registry with existing deals with content owners (including all four majors) was great — having this existing, licensed technology definitely helped us make the case while we were doing all of our licensing deals.
Looking at this now, I think this was a really great acquisition for us because of how much time, effort, and resources would go into building the Snocap part of the technology stack ourselves. The content ID and registry piece is important to us as a social media network, not only for music but for video. Letting people upload and share music and video keeps people engaged on the site, and gives imeem a larger, richer media library — this pulls in more users, who then upload and share more music and video.
The Snocap registry is a key part of imeem’s APIs, which allow third-party developers to build their own music apps on imeem. Snocap also powers 110,000 artist-centered music stores on MySpace, and imeem will continue to offer and enhance that service.
Caldwell is gaining some key employees with the deal, including Snocap COO Ali Aydar, who was Sean Fanning’s first hire at the original Napster. “We’re now close to 100 employees,” says Caldwell. “Last week, we leased another floor in our building.” In its own way, imeem is now carrying the Napster torch.
Yet industry insiders still question whether imeem can make any money based on its generous deals with the music labels, but its service is resonating with consumers. According to comScore, imeem attracted 19 million unique visitors worldwide in February. The bet here is that perhaps at high enough volume, it can start to break even.
ERIC - Snocap raised a whole lot more than 10 million - http://www.stanwichadvisors.co.....elease.pdf
I mentioned this in my comments when Michael posted a few weeks ago -
http://www.techcrunch.com/2008.....t-rupture/
comment no. 13.
how about TC checking out the numbers…..
I suppose it’s possible that Fanning will see some payday from Snocap selling at such a loss to the investment valuation if he was able to negotiate preferable terms due to his “celebrity” status but it’s pretty rare to see VC terms these days without some liquidation preferences that protect them against firesales like this.
http://www.stanwichadvisors.co.....elease.pdf -
“CSV II recently made its first investment, leading a $15 million Series C investment in SNOCAP, Inc.” - March 24, 2006 - adds up to a whole lot more than 10 million if C round was 15 million!
http://www.techcrunch.com/2008.....t-rupture/ - Comment No. 13 - TC needs to do some checking up on the real amount of funding - no response from Michael when I asked on Feb 17, 2008 in his commentary above - cheers.
From what I’ve read one of imeem’s founders came from Napster and brought most of the original engineers from there. This made a lot of sense when they were in the P2P app business, but it makes even more sense now they’re in the music sharing business.
In many ways imeem has grown into the true ’son of napster’, like an foster child who after failing in the IM business found that the music thing was what was really in his genes.
Aren’t both of these Morgenthaler companies?
More shoddy reporting from TechCrunch. First, it’s Shawn Fanning, not Sean. Second, a simple Google search will show you that SNOCAP raised much more than $10MM. I’m all for the blogosphere, but gaffes like this (which have been repeated by Techcrunch multiple times on this very story) show that at the end of the day, y’all are just a bunch of amateurs.
Is it not the case that Imeem have also raised slightly more than the $750k mentioned on the company breakdowns below each article?
If not- they’ve sure done a ‘loaves and fishes’ on it… Can Dalton also walk on water?
I don’t know about walking on water but he pulled off some kind of Jedi Mind trick on the music business:
Warner: “we’re going to sue your company for one billion dollars”
Dalton: “This isn’t the lawsuit you’re looking for”
Warner: “This isn’t the lawsuit we’re looking for”
Dalton: “We can go on with our business”
Warner: “You can go on with your business”
Dalton: “We could really use your record catalog”
Warner: “Here, use our record catalog”
http://news.yahoo.com/s/nm/200.....music_dc_2 -
btw - Ted Cohen mentioned in the was an advisor to Imeen till the VC came in - so he should know all too well.
@Trey - you might find this of interest - it is not just TC - boy Rafat has something similar - almost funny - http://www.paidcontent.org/ent.....ce-snocap/
You think Fanning got a payday from a $5M sale when the company raised more than $10M at a minimum of a $20-30 million dollar valuation?
Maybe he got to keep his laptop…
Just awful reporting on so many levels. The only accurate note is that snocap has been acquired by imeem.
@ RobGo
Funny comment, but there were no Jedi mind tricks involved.
Imeem paid the labels almost $30 million in upfront payments (plus ongoing revenue shares, minimums and equity stakes) to make the lawsuits go away.
If I could look at one company’s financial statements, Imeem would be it! I wish them the best, but they have surely spent a lot of $$ up to this point. Time will tell..
“…had raised at least $25 million from investors including Morgenthaler Ventures, WaldenVC, and Court Square Ventures.” - at least boy Rafat over at paidcontent.org is going from just “aggregating third party stories” to doing re-writes after being spoon fed with the facts - http://www.paidcontent.org/ent.....ce-snocap/
No secret that Arrington is good friends with Ron Conway who seeded Shawn Fanning in all his ventures (none of which saw a profitable exit) - is that friendship making TC hype the garage sale as a liquidity event? Hmmm.
very interesting
I’m actually doing research for a project at MIT on the digital music industry. We’re giving away $5 in free Amie Street credit for everyone who completes the survey. Please click the link below.
http://www.surveymonkey.com/s......GHNg_3d_3d