Editor's Note: Learn from a panel of experts and entrepreneurs who have successfully financed their own ventures and are helping others do it at the Thought Leaders Live 2013 event May 29, in Long Beach, Calif. Event and ticket information can be found here.
Jim Feuille has great taste in music. Or, rather, he has great taste in the companies in the online music realm that have the best chance for success. Feuille, general partner of San Francisco VC firm Crosslink Capital, was an early investor in Apple's iTunes for Windows and the lead on the team that invested in Pandora Radio back in 2005, when it was still a fledgling music genome invention. He helped shepherd Pandora to the free online radio service it is today, with market valuation, by some estimates, in the hundreds of millions. Feuille shares his insight on online music, foreign markets and what gets his attention.
How did you become aware of Pandora?
Early on, we bought a lot of Apple, believing in this trend of analog to digital. That was our bet on the purchase of music. Then we asked, "Where else is there an opportunity to disintermediate music?" So, we spent the next two years trying to find every private company we could that was doing something in digital music. We invested in a digital jukebox company called Ecast that's done OK. We looked at Internet radio services--when we first met Pandora, they were a company called Savage Beast Technologies. It was early 2005 and, at the time, they had built a music genome project and they had a music recommendation engine. They hadn't launched their service, but they had a vision for turning that music genome project into a consumer-facing Internet radio service that would create personalized radio. It took two years of effort and review of 30 to 40 companies to find them. Online radio as a category is very large and holds a lot of opportunity.
What happened next?
Our initial research told us that while people loved the service, they weren't willing to pay for it. So we told the management team and board of directors that the only business plan we would back was one where we were launching a free, ad-supported service. Once they agreed, that's when we invested.
What else is hot in this sector?
International markets. They are much more complicated, but also an enormous opportunity. You have to tackle these markets country by country, label by label in order to have a license just to operate. So I think that's going to be interesting--how the international markets develop, especially in light of piracy. How does traditional music retailing and online music purchasing evolve in markets where piracy is not just rampant, but it's expected? People who can answer that are interesting.
What's next for Pandora?
We keep our eye on competitive threats and services that we can add to Pandora. I can't disclose what some of their future plans might be, but they said in their prospectus that they might use some of the proceeds for acquisitions. So they could see something that's new, emerging and interesting, and they could try and acquire that company, or they could try and launch a competing service.
Do unsolicited inquiries ever get your attention?
Yes, but we see thousands of them. The deals that come through our network--through at least a warm referral--get more attention, just because they have somebody we know and trust saying it's worth our while to look at them. So if you have music industry connections, work through them to see if someone knows someone on our team. That's going to help your deal get reviewed and not lost in the pile of unsolicited inquiries that come to our office.