Talk to any venture capitalist, and they’ll tell you the same thing. It’s very difficult to get funding when you’re being aggressively sued, simply because the funding then goes to high-priced lawyers, not talented executives, developers, office space, capital expansion, etc. And that’s not growth, it’s legal survival, especially since the executive team itself is probably highly distracted by all the litigation.
Which might explain why ReDigi has just saddled itself with roughly $760,000 in debt – not equity – spread across domestic and foreign investors. In other words, you have to pay this back – with interest – instead of offering a percentage of the company.
For those just tuning into this one, ReDigi, a used MP3 marketplace, has been fighting an aggressive lawsuit led by EMI, and most likely, losing a lot of cash in the process. According to documents now filed with federal regulators, ReDigi has been seeking debt-related financing since April, with a target of $775,000. Of that, a group of domestic and foreign investors have tossed $762,692into the ring. This debt is spread across 15 different issuers, suggesting a complex blend of expiration dates and terms.
The question is whether this is a good idea, or simply a sinkhole. Sure, the majors frequently abuse the legal system with overly-aggressive litigation, designed more to exhaust the resources of a startup than to adequately seek redress or resolution. But that doesn’t reduce the extreme costs required to fight such an attack. Just recently, Rutgers School of Law professor Michael Carrierestimated major label defense costs at between $150,000 to $200,000 – a month, with nearly all defendants losing even if they’re right.
That could explain an unexpected shift in legal representation a few months ago. That’s when attorney Ray Beckerman dropped out of the case, while putting a ‘retaining lien’ on ReDigi. That suggests a pending pile of debt, according to attorneys speaking with Digital Music News, though ReDigi claimed the financial situation remains robust. “The decision to engage new council has nothing to do with finances. ReDigi is financially strong and growing,” ReDigi representative Jacyln Inglis told Digital Music News in April.
ReDigi has not yet responded to this story. –Digital Music News
