A potential music-related acquisition target

Venrock's Brian Ascher is our guest host, evaluating LyricFind

  Sponsored by:

When I was growing up, it was commonplace to get lyrics as part of an album or CD. Without those lyrics, how could I possibly sing along to the songs? Today, I rarely buy albums. Rather, I buy singles on iTunes or download singles from Napster. If I really care, I Google the lyrics.

There is a database, however, of 800,000 lyrics on the Internet. The provider is LyricFind, a company that's been around since 2000 and licenses lyrics to CBS' Last.fm, RealNetworks' Rhapsody, Shazam, and many others.

In this segment of Vator Box, brought to you by Liquid Scenarios, Venrock venture capitalist Brian Ascher is our guest host. Ezra Roizen joins me as always. 

All of us liked the company and felt it was definitely an acquisition candidate, partly because its database of lyrics is a key component to music offerings.

Both Brian and Ezra had great suggestions for LyricFind, including:

1) Looking at Gracenote as an example of a company that provides music-related offerings, such as MusicID, which detecs a song and provides corresponding artist and album names. Understand the dynamics that worked there, as well as the network effects it was able to pull off. Gracenote was acquired by Sony for $260 million earlier this year.

2) Consider creating a Wikipedia-like model to aggregate a larger database of lyrics.

3) Besides being a B2B play, create a consumer site and leverage the 800,000 lyrics to drive up search engine optimization. To this end, LyricFind could attract transients as they Google lyrics. 

As for our Liquid Scenarios Minute, here it is:

LyricFind has raised $50,000, and is in the process of raising its first venture round. Acquisition-related analogs in the space include IMBD, acquired in 1998 by Amazon.com, as part of a three-company purchase totalling $55 million, All Media Guide Holdings, bought by Macrovision less than a year ago for $82 million and at the high end, Gracenote, which was bought by Sony for $260 million. 

A key venture-funded company in the space is Soundflavor, which has also been around for a while, receiving an angel round of $2 million in January 2003, and a Series A of $3.8 million in December 2005. Soundflavor has a strong management team, with a history of successful ventures and exits. However, LyricFind's history in the space is longer, originally founded in 2000. And, its cost structure is leaner. This is consistent with successful exits in the space, such as IMDB.

Over the eight-year period, the founder has navigated agreements with major labels, industry associations and a growing collection of top tier licensees. If LyricFind can limit its raise to $2 million in angel funding at a $4 million to $6 million pre-money valuation, founders can exit with seven digits and seed investors will average a 5X return if the company sells for $20 million. That's the Liquid Scenarios Minute.

(Liquid Scenarios provides exit valuation scenario reports)

(Programming Note: We are now focusing on one company per each Vator Box. Upcoming companies highlighted, in which Venrock's Ascher is our guest host include, Buzznet, Yollege, and Glam Media. Be sure to check in to see when those episodes go up. And, our upcoming guest hosts include Google's Marissa Mayer and Zynga founder and CEO Mark Pincus)