Since you ask an honest question, I'll be delighted to answer honestly and candidly.
When news broke about Mashboxx in the fall of 2005, investors were calling us for meetings. We were on the road doing presentations for months. There were plenty of takers, but no one wanted to lead. WE got to the alter with a couple of investment groups but they got cold feet at the last minute.
We based our model on the fact that every time a user opens a p2p software program, the very first thing they do is search. They then click to download. That process is repeated over and over again. What we did was to come up with a very unique way to monetize the actual search activity. Simple. We didn't care if anyone bought anything ever. And since we negotiated the first streaming licenses (users would get 3-5 free listens per song) all we cared about was getting people to search and listen.
The biggest issue that we ran across was DRM. At the time the labels were requiring us to use it, but I knew that it would never last and told investors that eventually they would have to drop DRM. I was right, but that wasn't enough for some investors, even though we had negotiated very uniques, one-of-a-kind licenses that allowed us to traffic in "grey" content on the open p2p networks. Those "grey" tracks, millions of them, would be unprotected mp3's.
Finally in April of 2006 we became seriously engaged with Virgin Management LTD in London. We went through months and months of rigorous due diligence, even to the point that Virgin held focus groups on the product in NY and LA. In October of 2006 we finally signed our term sheet that required a $12 million investment from Virgin. We were planning to change the name of the company to Virgin Play.
We were set to close on Dec. 22, 2006. That morning, the FAA ruled that Virgin America could not fly in the US and that they would have to restructure in order to win approval. The Virgin investment committee shut down all new deals to work on restructuring Virgin America so our deal was off.
Needless to say, it was devastating. We tried to raise money for a while afterward, but it was an uphill battle. First of all, even when a deal goes south due to no fault of yours or the model, the project becomes a bit tainted and investors tend to shy away. Secondly, a lot of the investors that we spoke to had been pitched SpiralFrog and/or Qtrax and indicated that they did not like those models. Unfortunately we got lumped in with those, even though we had what we thought was a completely different and unique model. And our numbers and assumptions verified that.
As a result we were never able to close the funding to launch.
As far as the licenses go, I can't get specific as those documents are confidential, but let's suffice to say that the advances were exceptionally reasonable and in aggregate were under 7 figures. Actually, the labels became very cooperative and believed enough in the model to give it a real shot. But the label advance situation has changed dramatically and now that number would tally well into 7 digits and possibly 8. Times have changed.
As far as what I've learned, one thing for sure: don't trust Virgin. I would have done a lot of things differently. But the truth is that you're always having to learn from mistakes. I learned not to give launch dates, as you never know what's going to happen. I learned that deal is never done until the money is in your bank account. Never get your hopes and expectations up because there is always something that will go awry. The trick is to navigate these inevitable obstacles one by one. Take things one day at a time. I also learned what investors really look for and what their needs are. What they will invest in and what they won't invest in. I'm working on some major deals now and I always keep these facts in mind. Investors don't want their money walking out the door to go toward existing payables. Not going to happen. They want as much risk removed as possible. They are risk averse. Lots of other things as well. But even now, I and my colleagues in our little management group are always learning and make sure not to make the same mistakes.
I hope this answers your question. I have been 100% truthful and hope that you take it in that spirit.
AI
