A Giant Rockstar turned into a Pied Piper, A Herd of Intelligent Investors that followed him blindly, the writing that was all over the wall and a tiny portion of sensitive listening that could have made the difference. Oh yes, there's a world hunger angle to it as well.
Neil Young's Pono Music was the hottest equity crowdfunding investment of late 2014. Yes, Neil Young. The immortal titan of music Neil Young. The passionate anti-world hunger evangelist, Neil Young. The same Neil Young drove a herd of investors to finance a very special media player. So special that it promised superior sound qualities only dogs could hear. It also required a complete replacement of your entire music library, the culmination of a lifetime of music curation. The cost? A bit less that a compact Japanese pickup truck.
But in 2014 Pono Music ran two highly successful crowdfunding campaigns. The first became the the 4th highest campaign ever on Kickstarter and raked in over $6.2M in pre-orders and pledges. The second campaign was even more spectacular. This time investors were offered a portion of Pono Music’s shares using an equity proposition that tagged Pono with a valuation of $50 Million. That’s right. $50M before a single device was delivered to the first happy customer.
Oh, and the second one turned to a phenomenal success as well. The $2.5 Million offer was oversubscribed and Pono Music raised another $6 Million in less than a week on CrowdFunder!
One year, post hype
A year later reviews are mediocre, sales are lagging and it wouldn't be a overstatement to say that most Pono shareholders keep listening to music on their iPhones and Droids.
Hindsight is always 20/20, granted, that's really no excuse for reckless investing. Could this all have been flagged at the get go? Isn't there a way to add some rhyme and reason to the fervour of 'hot' investments? The answer is an absolute yes. Turns out it wasn’t even too difficult.
Pono music was the first investment we chose to crowd review. A year ago we hadn’t yet written a single line of code nor had we raised a single dollar for our new venture Zirra. What we had in mind was an understanding that crowd wisdom could be super effective in rating start ups. We chose a few anchor investments, gathered 400 crowd reviewers and asked them 25 questions each. The results were stunningly accurate, so accurate that I still look at the original reports at least once a week to get inspired. Here are select sentiments and comments our crowd shared during the very peek of the funding campaigns.
“I am a sound engineer, the human ear won’t detect the difference”
“I just calculated it would cost me $9,500 to replace my current iPhone media library”
“This will take advantage of the sentiment of older music lovers, will never break mass market”
“The core niche will be enthused, but the illusion will hit a glass ceiling very quickly”
“If we apply a “Moore’s law” equivalent then in less than 2 years Droids and iPhones will catch up with their technology”
“Why is Neil Young camouflaging what is otherwise a tech thing?”
The Zirra crowd has given the product a score of 6.3 out of 10. The founding team received an 8.3. The market potential has been graded a 4.9 and the overall investment was rated with a mediocre 6.2. Nothing like the hype.
75% would not invest under any circumstances. 12% would invest for a different share price. The other 13%? Well, vinyl aficionados.
The overall sentiment was very clear: over hyped, over priced device, content & stock, highly questionable ability to deliver on its promise, niche play, more likely to underperform.
It didn’t require an analyst nor a super expensive due diligence process. All it required was the right crowd, a good set of eyes and ears and the willing to listen. It doesn't mean Pono Music will not eventually become a great success. It does mean, however, that the crowd is worth listening to. Oh, and at that point I knew we were onto something big.