How 8Tracks Is Raising $30 Million from Its Own Fans

If you want big money, you go to big investors, right? Not if you’re 8tracks, which is raising big money from smaller investors.

Last time we checked in with 8tracks in mid-2015, they were claiming profitability and proudly announcing a string of indie licensing deals.  They also found a way to loosen their attachment to SoundCloud, quite the risky partner these days.

But maybe things weren’t so rosy: the playlisting company also secured a $2.5 million in debt financing from Silicon Valley Bank, after burning through $1.5 million in funding from heavyweights like Andreessen Horowitz and Index Ventures (who apparently aren’t coming back).

But regardless of what that information says about the 8tracks financial situation, the company is now courting a giant pile of investment cash.  And the best part is that that the nibbles aren’t coming from a giant investor.

Instead, 8tracks is tapping smaller lenders through SeedInvest, a Kickstarter-meets-financing hub for accredited investors that want to diversify smaller bets.  Also known as ‘equity crowdfunding,’ SeedInvest is trying to open investment from ‘regular people’ while pre-clearing and vetting startups (and managing tricky SEC regulations designed to protect average Joes).  This space is all about enabling ‘ordinary, individual investors’ to connect with ‘high quality startups,’ and getting a piece of the huge upside typically reserved for massive investment houses.

The whole idea seems to be going well, potentially as much as $30 million well.  According to details reported this morning by TechCrunch, 8tracks has now attracted 30,000 initial commitments for $1,000 each.  Those haven’t yet cleared or received approval from the SEC, though even a fraction offers serious cash for this company.

Part of the reason for the early commitments is that 8tracks has always attracted a super-involved, core audience that creates and curates playlists, then shares them with others.  According to 8tracks founder David Porter, that made giving a piece to die-hard users a natural next step, so let’s see how this proceeds.

But $30 million?  It’s not that outrageous an amount, as competing with the likes of Pandora, SoundCloud, and YouTube is extremely expensive.  So far, 8tracks has licensed a litany of indie catalogs, but lacks the rights to major labels.  That is holding back 8tracks from meeting the masses, not to mention expanding beyond US borders.

In terms of happy endings, investors may be drawing a parallel to Songza, now part of Google.  But the biggest potential path may have been paved by Playlist, a concept that reached roughly 60 million users before getting crushed by licensing problems several years ago.  Perhaps Songza is the pioneer that doesn’t catch an arrow in its back.

5 Responses

  1. DavidB

    I wondered how this company could possibly have persuaded 30,000 people to invest $1000 in such a sketchy prospect, so I did a bit of Googling. The short explanation is that they haven’t. Nobody has invested a penny, or even committed themselves to investing a penny. All that has happened is that a certain number of people – allegedly 30,000 – have ‘indicated an interest’ in investing, without commitment. To quote a prominent statement on the SeedInvest page:

    ” No money or other consideration is being solicited, and, if sent, will not be accepted. No sales of the securities will be made or commitment to purchase accepted until qualification of the offering statement by the Securities and Exchange Commission and approval of any other required government or regulatory agency. An indication of interest is non-binding and involves no obligation or commitment of any kind. No offer of securities will be made without a registration statement. ”

    It took me less than 5 minutes to find this, but I guess TechCrunch are too busy for that.

    • A True Fan

      It’s initial commitment, sure, but SeedInvest does need to (a) get those people to send the money and (b) get that important stamp from SEC bureaucrats (they hate the little guy so you know). Actually (b) is the bigger challenge from what I know, but even with those commitments, this probably represents at least a few million.

      Go 8 tracks!

  2. 8tracksanity

    Loved 8tracks at first but over the last two years they’ve gotten worse and worse. Now, the service is not totally unusable.

    No wonder VCs wont touch it anymore.

  3. Erica

    There may be a reason there VC’s aren’t interested? IPO to the dumb asses.

  4. Rick Shaw

    8Tracks thinks it will raise this money. They’re wrong.