Napster, the iconic peer-to-peer file-sharing platform that ignited debates over music piracy in the early Internet days and has recently transitioned into an AI-focused company, has made a shocking reveal to its shareholders. An investment of $3.36 billion from unidentified backers was previously announced as finalized in January, but it seems it never came to fruition.
According to a report, Napster’s CEO John Akunto informed roughly 700 of the company’s 1,500 shareholders during a virtual meeting that the mysterious investor who had committed $3.36 billion at a $12 billion valuation actually had no intention of following through. This investment would have marked one of the largest fundraising efforts of the year. Shortly after the meeting, the company labeled itself as a “victim of wrongdoing” and mentioned cooperating with law enforcement regarding an ongoing investigation. This news feels particularly ironic since Napster began as the go-to site for pirated music online.
Additionally, a tender offer intended to allow shareholders to cash out was also scrapped. Over the past year, the company has repeatedly altered promises to both employees and investors regarding potential cash infusions and stock sale chances. This marks the fourth time since 2022 that a proposed deal has collapsed, despite earlier assurances that investors could quickly access funds through a tender offer.
A few months back, when Napster—previously known as Infinite Reality—proclaimed a $3 billion funding round, there were concerns raised about both the investors and the company itself. Akunto had even stated at a live event in Los Angeles in February, “Do you really think we’d be talking about a $3 billion investment and become one of the biggest companies in this space if we weren’t really doing it?”
However, an investigation revealed a string of lawsuits from creditors claiming unpaid debts, a federal lawsuit requesting compliance with SEC subpoenas, and inflated claims regarding partnerships with Manchester City Football Club and Google. The company also mentioned having “top-tier” investors who had never made actual investments.
Napster’s tumultuous recent history dates back to 2019, when Akunto purchased the bankrupt social media platform Tsu. Since then, it has merged with or acquired various Metaverse, virtual reality, drone, and AI companies, with costs covered through all-stock mergers at increasingly higher valuations. In March, Napster was acquired for $207 million, and it subsequently rebranded to leverage its more recognizable name.
On the day Forbes published its initial article about the questionable funding round, Napster released a statement claiming that advisory firm Sterling Select was the investor. However, it later turned out that Sterling Select was merely a facilitator who had introduced Napster to other supposed “investors” expected to provide the funding.
As time progressed, the anticipated large investors failed to materialize, and additional lawsuits emerged accusing the company of non-payment. By July, about a third of its workforce had been laid off. Napster seems to be in a scramble for funds to maintain operations, engaging with brokers and investment advisers, some of whom have past regulatory issues.
