$80 million would have been a fantastic exit for a bootstrapped Genius.com
The fact that they took more than $80 million in investment to get to this point is what makes this a failure. Also raises a lot of questions about how a company needed so much investment money to build a website that never really did much more than allow people to annotate text.
I suppose licensing fees could have been extraordinarily high. But then again, they were likely high because the music industry knew they could extract all of that VC money right out of the company through licensing fees.
The entire product was built on top of lyrics they don’t own. In essence, they built their product on top of someone else’s platform.
“ The entire product was built on top of lyrics they don’t own. In essence, they built their product on top of someone else’s platform.”
It seems that this is the concept behind many startups that are successful. Airbnb, Uber/Lyft, DoorDash etc.
They try to take on risky efficiencies (by undercutting labor / capital, RnD costs, circumventing regulation), with the hope that they will become too big to be stopped. For many of them it worked.
Right, but the play is to become important faster than you become accountable. Collectively, we are very bad at holding important entities accountable, so speedrunning your way to importance while ignoring the rules is a gamble that can pay handsomely.
Crunchyroll - build on top of pirated Asian content. it got big enough to the point it can go legit. later sold for more than what its worth. (Sony pay $1 billion)
But YouTube did it by offloading liability for copyright-violating content onto uploaders. Youtube for years was 80% megaupload, but backed by an army of lobbyists. Scribd has TV commercials now, and is still in that stage.
YouTube was hosting for years pirated song video clips. Then they just cut a deal with the music companies because they did not want to be out of the biggest video platform of the planet.
Yeah, people forget that, for a long time, to many people YouTube looked like a business that would collapse the instant that rights holders got serious about cracking down on all the infringing content on the site--given that was what 90% of people probably went to the site for.
Google has an actual product (ads) and YouTube isn't built on pre-existing content, it's a platform for content creation (and ads for that content). Both add a lot more value than Genius did.
Again though, they're posted by the creators (every artist I know of has their own Youtube account, all the major studios post their own teasers) versus people re-posting others' stuff. Most Youtube content nowadays is pretty original.
The $80 million price tag wouldn't have been achieved if they hadn't raised $80 million first. When an acquisition sells at the same price as money raised, good sign the company isn't worth that much - it's just the minimum $ amount that would allow the Board to sign off on it.
Sometimes that minimum is too high compared to the company value and so no sale happens and the company just dies.
> When an acquisition sells at the same price as money raised, good sign the company isn't worth that much - it's just the minimum $ amount that would allow the Board to sign off on it.
You realize this makes absolutely no sense, right?
No, I still actually do not follow, nor does this seem equivalent to what you said.
"sale_price < real_company_worth"
This statement in that conditional seems like it could never be true.
If sale_price == total_money_raised_owed, then real_company_worth <= total_money_raised_owed because sale_price = max(total_money_raised_owed, real_company_worth).
Therefore, inside the conditional, sale_price = total_money_raised_owed >= real_company_worth, therefore sale_price >= real_company_worth which is the opposite of sale_price < real_company_worth.
you're right that my math is wrong in regards to sale_price < real_company_worth - it should have been the other way around... (real_company_worth < sale_price)... I guess I needed more coffee...
max is correct though (whichever value is highest, that sets the base price).
shareholders would rather lose only half of their investment then all of it. It's quite possible for a company to sell at a shareholder loss.
And of course, some sheareholders lost their stakes in this sale.
> Because the company’s obligations to its preferred shareholders exceeded the sale price, investors won’t be paid out in full, according to a document reviewed by Bloomberg.
No! Why do you think people are going to pay $80M for Genius if it's worth $1M?
Companies rarely sell for less than the total amount raised. This is true. It doesn't mean that buyers regularly pay double for something because the company wouldn't otherwise sell. It means the buyers just don't buy it!
If Genius was really only worth $1M - we probably wouldn't ever hear about it - because they probably wouldn't ever sell it for that price.
Have you ever been part of a company sale before or been at a private meetings/meetups where founders talk about how they sold their business? I've never sold a company, but I've talked privately with many that have (and have raised considerable sums).
Very common that the baseline is the amount of money raised - it's why sometimes companies die and not get sold. Other times, companies will use amount of money raised as leverage to increase the final sale price (based on investor expected returns).
Money raised plays a huge factor in regards to sales price, or if a sale occurs at all.
If they had $79m in cash/liquid and no debt then their enterprise value was $1m and a sale for $80m would make sense at a $1m valuation. But yeah, doubt that.
> When an acquisition sells at the same price as money raised
The acquisition did not sell at the same price as money raised so this assertion is invalid. The article directly stated this - did you read the article you are commenting on?
"Its price tag of $80 million represents less than what it raised over the years in venture capital, according to PitchBook."
The thesis you have been hammering this tiresome thread is that a company can't possibly sell for less than the amount that's been invested in it (with the implication that buyers will then be willing to pay more than they would otherwise if it's what it takes to meet that number, which is just weird), and the very example you were discussing in fact disproves your thesis. So.
I wonder how much they are paying to host the lyrics? I'd like to believe it's fair use because the intent is for analysis and "education" but they are not just hosting excerpts but probably millions of whole songs...
It's not particularly expensive to license music lyrics in terms of doing a start-up. The big problem is you won't be able to get search traffic these days. There was a rush of lyric sites once upon a time, during the content farm wars years (azlyrics.com was one of the few survivors of that, which remained popular). You could easily get a wave of search traffic (and several dozen sites did). Now if you launch a lyric site like that, you're more likely to get tagged as a shallow content farm by Google, and that's that you're done.
The biggest cost is that you have to figure out a substantial, original content way to differentiate from every other lyric source for SEO purposes.
> That never really did much more than allow people to annotate text
So Google's search engine is crap because it allows people to 'only' search for a piece of information they're looking for? All the best startups are simple ideas.
Genius also has a great search engine, & allows you to play small samples of songs. It is also designed well and the UI is intuitive. It is more than a Hypothesis[0] clone.
> So Google's search engine is crap because it allows people to 'only' search for a piece of information they're looking for?
You’re missing two key differences:
Google doesn’t have to pay people to index their content. Genius had to pay music labels large amounts of money to index their content.
Also, Google isn’t serving up the content itself. They’re directing people to competing content. Competition creates profit opportunities (ads). Genius users arrived on-site knowing more or less exactly what they wanted to see.
The fact that they took more than $80 million in investment to get to this point is what makes this a failure. Also raises a lot of questions about how a company needed so much investment money to build a website that never really did much more than allow people to annotate text.
I suppose licensing fees could have been extraordinarily high. But then again, they were likely high because the music industry knew they could extract all of that VC money right out of the company through licensing fees.
The entire product was built on top of lyrics they don’t own. In essence, they built their product on top of someone else’s platform.