Our Investment in Topspin

by Ryan McIntyre

We are extremely pleased to announce our investment in Topspin Media’s Series B financing. Topspin is a media technology company headquartered in Santa Monica, California, dedicated to developing leading-edge marketing software and services that help artists and their partners build businesses and brands. Topspin’s platform helps artists manage their media catalogs and other assets, connect with fans and generate demand for their music.

Had our investment closed a couple of weeks earlier, we wouldn’t have been able to talk about it immediately, but the company recently un-stealthed themselves in true rock & roll style by appearing on the cover of the June 28th issue of Billboard magazine.

As most folks who know Foundry Group already know (via numerous blog posts, emails and Facebook messages promoting their band, Soul Patch), both Ryan and Jason are avid, life-long musicians, and have played music together since they met in 2000. Since that time they’ve also been the “music guys” on the investment team, looking at every music-related opportunity that came their way.

Over the past eight years of looking at music-related investment opportunities, Ryan and Jason didn’t make a single investment until now, though they carefully followed the progress of startups and incumbents alike over the years and brainstormed frequently on the forces at work that were reshaping the industry. From this Ryan and Jason created a blueprint of what the future of the music business might look like. In some ways, the bar for making a music-related investment was even higher than it was for other markets, because they didn’t want to let their passion for music cloud their judgment about a business’s long-term potential. Given the violent and ongoing disruption in the recorded music industry unleashed at the turn-of-the-millennium thanks to the rise of the mp3 format, p2p networks , broadband deployment, aggressively litigious record labels and the iPod and iTunes Music Store, it was nearly impossible to get comfortable with any business that wanted to play in the music arena, particularly if it required licensing of music catalogs for download or streaming rights or anything else that pushed copyright holders outside of their comfort zone.

In VC, as in life, timing is everything, and, and it is often said that being early is the same as being wrong, so we have stayed out of the digital music fray until now. In fact, Topspin co-founders Shamal Ranasinghe and Peter Gotcher had been kicking around the Topspin idea for many years, but shelved it until 2007, when they finally felt like the world might be ready for a company like Topspin. They raised a Series A round from Redpoint Ventures and then, in April 2008, landed former Yahoo! Music GM Ian Rogers as CEO.

Topspin has assembled a phenomenal team of music technology veterans to execute on their mission. Topspin Chairman Peter Gotcher was founder and CEO of Digidesign, the company that created the Pro Tools audio workstation platform, which revolutionized the recording industry. He sits on the board of Dolby Corporation and was also a founding venture partner with Redpoint Ventures and led investments in pioneering music-tech companies such as Line6, MusicMatch and Pandora. Chief Product Officer Shamal Ranasinghe worked on one of the first mp3 jukeboxes at RealNetworks and has defined product vision at MusicMatch and Yahoo! Music. Finally, CEO Ian Rogers was GM of Yahoo! Music, where he landed via the acquisition of MediaCode, where he had been President and CTO. Ian has also worked on the label-side of the business as President of New Media at Grand Royal, and also did a stint at Nullsoft, creators of WinAmp and SHOUTcast. With a pedigree like this, it was easy to get excited about the team behind Topspin. To top it all off, Ryan has known Peter and Shamal for about a decade and actually introduced them to one another many years ago.

We think the timing is finally right for a company like Topspin to have a major impact in the music world. The distribution of digital music has finally gone mainstream, with Apple’s iTunes Music Store beating out bricks-and-mortar giant Wal-Mart as the largest music retailer on the planet. Apple’s success in this regard is no panacea, but it has paved the way for other online retailers, and we are now seeing a second phase emerge with more educated consumers beginning to reject DRM and move their purchasing to higher-quality DRM-free MP3s offered by the likes of Amazon.

But this shift really just sets the stage for the continued evolution of the business of being an artist in this new era. Thanks to technology, the physical world scarcity model has been upended. The costs of recording and producing world-class music are nearly zero (though, arguably, talent is still required) and the costs of distribution are also near zero, which has eroded the traditional advantages enjoyed by the major labels: exclusive access to high-end studios, a lock on physical distribution and marketing through proprietary access to radio and MTV, channels which are becoming decreasingly important. As music futurist Gerd Leonhard aptly puts it, in the broadband age, marketing is distribution.

A new, more artist-centric model will emerge, one in which the key factor for success rests completely on the ability of artists to engage directly with their fans and to seek out and discover new fans, something Seth Godin calls permission marketing. To do this well, artists, or their managers, agents and record labels need access to a platform that would be considered an “enterprise-grade” CMS/CRM suite complete with campaign management, a flexible e-commerce engine and deep closed-loop loop analytics, verticalized for the special needs of recording artists, one that provides artists and their partners with the means to conduct and grow their businesses online.

We believe Topspin is uniquely suited to deliver on this vision. Building the technology to do this is no simple task, and Topspin is by no means simply a marketing services play, but rather is a technology platform company that fits neatly in our Glue theme and has the elusive combination of technical depth and ideal management DNA to make an enormous impact in the music industry. And we’re honored that Topspin chose Foundry Group as an investor, given that this team had no shortage of options when it came to raising their Series B.