SAN FRANCISCO (05/23/2000) - Amid a maelstrom of lawsuits and public debate, the file-sharing music service Napster is expected to close its first round of venture financing over the weekend, sources say. Hummer Winblad, a top-tier VC firm, is heading the financing, sources say. The total amount and identity of other investors wasn't available at the time of publication. Executives at Hummer Winblad and Napster did not return calls for comment.
The news is somewhat surprising. Although Napster might go down in history as the most quickly adopted application in Net history, making it a sexy target for VCs, its business woes are daunting. A recent flurry of lawsuits -from the Recording Industry Association of America, rapper Dr. Dre and the rock group Metallica - and Napster's silence on the subject of its financing had left many in the industry wondering whether venture capitalists had decided Napster was too risky. Hummer Winblad apparently was willing to take that risk.
Although the amount of funding has not been revealed, one source close to the negotiations speculated that it would be between $15 million and $20 million.
The estimate that takes into consideration that Napster, one of the most widely recognized Internet brands, will have to spend less on marketing than other startups of its size. (Napster employs only 30 people and is just 1 year old.) However, if any firm were to back Napster, it makes sense that it would be Hummer Winblad. The company, which rival VC firms call "late to the Net," is in need of a high-profile Net investment. Napster, arguably the highest-profile Net music service, could raise Hummer Winblad's visibility among Net entrepreneurs.
To date, the VC firm's most recognizable score on the Net has been Liquid Audio, another music company. Napster, which is housed in markedly scrappy surroundings above a bank in downtown San Mateo, Calif., is undoubtedly due for major changes. With one of Silicon Valley's most prestigious venture firms behind it, life at Napster is about to get - at least in some ways - more corporate. Fancier offices and adequate parking aside, the office probably will receive help and support in hammering out a business model. (Napster has no revenue streams yet and has not started formal negotiations with the major record labels to reach some kind of a settlement.) The next few months also might see some new suits against Napster. The company currently has an interim CEO, Eileen Richardson. Another source said Napster has been looking for, but has not yet secured, someone from the traditional recording industry to take the CEO role. With Hummer Winblad's vote of confidence, that task - and that of wooing other top executives - just might get easier.