8tracks, the popular crowdsourced listening platform is testing a regulated crowdfunding idea that could result in a widely distributed venture capital round and an influx of millions of dollars for business development. We spoke to David Porter, 8tracks Founder and CEO, to get details.
“This is a ‘testing the waters’ campaign,” Porter told us in a phone conversation. “It’s a survey, really, asking our users if they would be interested in investing in 8tracks, as part of a Regulation A crowdfunding offering.”
Testing the Water
That survey is taking place with an email solicitation of interest, gradually making its way through the 8tracks registered user base. “We’re not actually asking for money yet,” Porter said. “It’s to understand if there’s enough interest to make it worthwhile to undertake all the work that would turn this into a reality.”
Individuals can register their interest on a special web page operated by SeedInvest. As of this morning, indicated interest totaled to $11-million. David Porter is starting to build some guesswork about what that number will be at the end of this survey. He told RAIN News that he expects significant attrition between expressing interest and writing a check — “Maybe a 35-to-50 percent haircut,” he said. Even so, he is estimating a total expression of interest over $20-million.
The threshold for investment might be as low as $100, making the opportunity available to a wide and deep range of individuals.
“It’s a big deal, and not without risks,” Porter said. “Nobody has done this before. It’s uncharted territory.”
What drove this idea? One motivation lay in the uneven terrain of venture capital fundraising, as David Porter explained:
“There’s a large disparity between the have’s and have not’s in the tech [investing] ecosystem. There are the unicorns [unique businesses that command the highest speculative valuations], and for everyone else it’s hard to get any cash at all. This is especially true for digital music, because of very large players that don’t necessarily care whether they make money on music.”
This theory was tested a couple of years ago when 8tracks, which had raised a seed round of $1.3-million in 2011, went back to its investors for a possible Series A round.
We had some of the top VCs in our seed round in 2011″ Porter remembered. “When it came time for our Series A round in 2013, they were impressed with the progress of our business. But they didn’t think that we had a strong probability of selling, or exiting in some fashion, for a billion dollars or more. They don’t fund at the Series A level unless they think there’s a strong chance of a billion-dollar exit. I would argue that a hundred-million dollar company is not a failure. It’s only one-tenth of a unicorn, but could still be a wildly successful company. So there is this kind of disparity where the top VCs really are looking at much bigger exits.”
Porter said that this new idea, a prospective crowdfunding Series A round, charts a middle ground. “Even if we raise $5-million, that is so much money to us! We’ve raised $3-million over eight years. This represents a way to get funding that we deserve based on our success, but is hard to get given how the venture sector is structured.”
David Porter also emphasized that innovative crowdfunding aligns with the founding conception of 8tracks, which allows and encourages users to create personal playlists shared openly on the platform. Crowdfunding resonates with a crowdsourced content platform. “It’s congruent with our whole thesis — leveraging the crowd to create an amazing experience. Our most valuable asset is our community. Our community makes and promotes the playlists. We wouldn’t exist today if it weren’t for our community creating content and promoting it socially. If users create and promote the content, they should have the opportunity to underwrite the content and participate in the upside.”
Where does the upside come into play, and how? There are never infallible answers to those questions in speculative investment, but the 8tracks CEO emphasized acquisition as a potential exit for investors. “Being realistic, I think it’s more likely [than an IPO] that we would be acquired sometime down the road. All the big players want to have music in their overall strategy. Ultimately, someone probably would buy 8tracks. We’ve had some interest in that recently. But I feel we haven’t realized our full potential because we’ve been resource-constrained. We’d like to realize the vision of what 8tracks can become.”