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Podcast

Why the co-founder of Shazam would not take venture capital again

He has built one of the most popular apps on the phone and sold his company to Apple for $400 million dollar. But for his next company Chris Barton decided to follow a different strategy

Here’s the way success stories in Silicon Valley usually get written:

An entrepreneur with a great idea looking for a way to start and scale a business reaches out to venture capitalists on Sand Hill Road, the road where all the money sits in the tech world and gets the check – eventually. Time to celebrate, right?

Well, maybe not. That’s at least what Chris Barton, the co-founder of Shazam, thinks today. Shazam is the popular app that lets users identify songs, movies or TV shows by listening to an audio clip. In late 2018 Apple acquired Shazam for a reported 400 million dollars.

Barton sees a profound “misalignment“ between founders and investors, as he explains in his Bits & Pretzels Podcast-conversation with Britta Weddeling:

“Venture capitalists are looking for big Grand Slam wins. Whereas for an entrepreneur you are more focussed on building a successful business but it doesn't have to be the world's biggest business.”

Barton touches on a topic many entrepreneurs struggle with: VCs push companies to grow and scale at all costs. Their model is built on the idea that just one in many startups has to become a billion dollar success (and a billion dollar exit for them). It doesn’t really matter how many others companies fail on the way if there’s just one win in the range of Uber and Airbnb.

While investors are not interested in smaller or moderate successes, the founder of a healthy sustainable business probably is. So why jeopardize a viable present for an unsure future and push for growth at all costs? Very often a founder has no choice, Barton thinks:

“If you want millions of dollars for an unproven business, the only people that have that money are venture capitalists.”

But maybe, he argues, the industry has to find new ways to finance innovative business ideas. One example is Michele Romanow, the co-founder of Clearbanc, a venture capitalist that offers fundraising alternatives to startups. Her firm provides money to buy ads in exchange for a revenue share and doesn’t own any equity in the company it invested in.

For Barton the decision to seek out venture capital has paid off in the past. When he started Shazam it was just a small idea between friends at the University of California, Berkeley. At the time, in 1999, technology like Shazam’s didn’t even exist and needed to be developed. It wasn't more than a vision that popped into Barton's mind one day:

"I was doing a semester abroad at London Business School and I was in my flats in Ladbroke Grove near Portobello Market, and then I suddenly thought, gosh, what if you could identify the song just from the sound coming into your phone?"

Today, Shazam is a worldwide phenomenon with more over 1 billion downloads. Despite his past success with VC funding Barton has decided not to seek out funding for his newest startup idea. Of course, that's much easier said than done for somebody with one or two million dollars sitting in his bank account.

About Chris Barton

Before co-founding Shazam Chris Barton has held positions at Dropbox, leading mobile operator partnerships, and at Google as the head of North American Android partnerships. Chris holds an MBA from UC Berkeley, a Master's degree in Finance from Cambridge University, and a BA from UC Berkeley.

Podcast Chapters:

01:48 How Shazam was born
08:07 Searching the “Einstein” of music
10:41 Something not invented yet
12:18 An unproven business
14:19 Don't take VC capital
19:32 A certain misalignment
22:13 Do you wanna be a billionaire?
23:34 How Apple came around
27:56 What now, Chris Barton?
29:03 "I have this new startup idea"
30:52 Chris' favorite music

Production & Editing: Regina Körner, Migo Fricke, Hubert Honold. Design: Christian Lohmeier. With the help of Janek Postpischiel

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