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Why Genius Sold For Less Money Than It Raised

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Genius co-founders (via TechCrunch)

by Dan Runcie

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Last week, Genius was sold for $80 million in a fire sale to MediaLab.AI Inc. It was sold for $80M, which is less than it raised! It’s a disappointing exit for a company once valued near $1 billion, but it’s a reminder of the importance of platform dependency.

When “annotating the world” goes wrong. In the early 2010s, Rap Genius came out the gates hot with its bro culture image. Hip-hop lyric websites weren’t new, but Genius stood out because of its annotation. People could add context to popular lyrics, which viewers could see with one click of a button. Often, the artist offered that annotation.

It created a world where Jadakiss could explain what he meant when he said he had, “the scales that they weight the whales with.” We could quickly clarify whether Lloyd said “she’s fine, too” or “she’s 5’2.” It was a beautiful thing.

Early investors like Andreessen Horowitz wanted Rap Genius to annotate the entire internet. A sample of that vision is on this Business Insider webpage when the company raised $40 million. As Nieman Lab’s Joshua Benton wrote, “You get to own this universal layer, on top of everything online! Like the platform giants, you can build a business doing something — indexing, sharing, whatever — to an entire universe of content you don’t have to create yourself.”

But Genius learned the hard way how dependent its platform was on another universal internet layer—Google.

When “annotating the world” goes wrong. In 2013, the company tried to pull a fast one on Google. It artificially juiced its value on Google search rankings by asking for other sites to embed code on its site that linked back to Genius. Google hates when sites play games like this, so it punished Genius on its search engine optimization. In many instances, Genius didn’t show up until the 5th or 6th page—even when people searched for “rap genius.”

Then in 2019, Genius tried to sue Google for copyright infringement because Google display songs lyrics from Genius at the top of its search engine results before it links back to Genius. But the courts dismissed the case because Genius did not own the copyright itself.

The shift to hip-hop media. When Genius sold last week, it sold a multimedia company focused with a focus on hip-hop content. Standalone media companies can still be successful, but it’s not quite the unicorn opportunity that “annotating the internet” once was.

According to Bloomberg, many of Genius’ investors and employees won’t be paid out in full due to the company’s obligations to preferred shareholders. I saw a copy of the cap table, which confirmed the seven and eight-figure payouts that most of Genius’ C-level staff received.

Meanwhile, VP of Content Strategy, Rob Markman, the most recognizable media personality at Genius, came away with just under $700,000. He was the only Genius content creator I saw listed on that cap table. It would have been great to see more of Genius’ longtime employees celebrate this moment. But unfortunately, this is how preferred stock works, especially when a company can’t pay back its investors.

Genius’ startup journey is a lesson in many things. In the meantime, best of luck to all the former employees as they find new employment.

Read more about Genius’ sale in Bloomberg.

Dan Runcie

Dan Runcie

Founder of Trapital

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