8tracks, An 8-year Old US Startup, Looks To Raise Investments In An Unusual Way

8tracks is a San Francisco based startup that runs an online radio service that allows people to create and listen to playlists. Millions of songs, categorised into user curated playlists, are available on the website to listen to.

8tracks seeks crowdfunding

The website is popular with music buffs and professional artists. Till date it has raised $3 million, and another $2.5 million in latest round of funding last June from various small and medium investors. The startup employs 32 people, with seven of them selling ads.

Started in 2008, 8tracks claims to have more than 8 million monthly listeners. The website, unlike most online businesses offering free content, is profitable. The main source of revenue is exclusive partnership deals with music producers, ads and subscriptions for its ad-free premium version.

So it should come as a surprise that the website is looking for a fresh round of funds, less than a year from raising $2.5 million. However, it’s how this startup has chosen to look for investments this time, that’s quite curious. In the first week of Feb, the 8million plus subscribers of the 8tracks newsletter received an interesting email from David Porter, the founder and CEO, 8tracks.

“In an unusual turn, I’m not writing today to suggest playlists we’ve hand-picked for you (though I’ve slipped in a few that our community love at the end of this email). Instead, I’m writing about potentially investing in 8tracks. “, the email begins.

Porter goes on to explain how “Under US law, only wealthy individuals and venture capitalists have historically had the ability to invest in startups. This changed last summer: the JOBS Act now allows anyone to invest in private companies. Unlike typical crowdfunding platforms (like Kickstarter), this new process would allow you to actually own stock in 8tracks. “

Ergo, Porter isn’t invoking his subscribers to fund his startup. He’s asking them to invest in it, under a crowd-funding campaign which differs from a donation based no-financial return campaign or an IPO, thereby turning his customers into his invrstors.

The new funding would purportedly enable to the startup to build out a full music library for DJs, make it easier for listeners to find playlists they like, integrate 8tracks on new platforms, and refine their business model to continue to grow 8tracks for years to come.

The emails ends on a disclaimer about it not being an offer to invest, but rather merely being an initial feeler to gauge the interest of vested parties (the 8tracks audience) in investing in the company. By getting the initial reaction, the founder would mostly decide on whether rolling a crowdfunding campaign per the JOBS act makes sense, and the paperwork for the same should start.

The Jumpstart Our Business Startups Act or JOBS Act, is a law intended to encourage funding of United States small businesses by easing various securities regulations.

Here’s a snapshot of the email.

Screen Shot 2016-02-08 at 7.20.04 pm

This could be an indeed an interesting approach to test the waters before going public. The experiment would be put in the context against hundreds of cases where many companies ambitiously roll out IPOs and raise funds through a public investment, only for the value to be inflated beyond the company’s actual revenue. The crowd-funding option under JOBS enables them to stay private longer, while raising funds from an option other than IPO which could be full of legal requirements and take years to be eligible for.