The co-founder and chief executive of Raleigh startup The Royalty Exchange said the company is considering winding down or selling the business in light of its difficulties in raising a new round of funding.
The four-year-old company, which has raised about $2.75 million from investors, is still seeking new funding but is looking at alternatives in the event it’s unsuccessful, said CEO Sean Peace.
Royalty Exchange, which has eight employees, operates an online marketplace that auctions off royalties for music and other forms of entertainment. It also auctions off royalties from energy projects, such as solar energy farms.
Peace said the business has enjoyed “consistent revenue growth” but, like many startups, isn’t generating positive cash flow.
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He said of the company’s failure to raise a new round of funding thus far: “There aren’t a lot of investors that understand the music business. It is very hard, just like any business in North Carolina, to raise funds.”
Peace was more definite about the company’s future in an e-mail he sent Wednesday morning to Rick French, the CEO of Raleigh communications firm French/West/Vaughan and an early investor in Royalty Exchange.
“We are currently winding down operations and looking for buyers of the assets,” Peace wrote in the e-mail, which French supplied to The News & Observer. “I am looking at putting some key people together to buy the website to focus just on energy, and some others are looking at buying the music side of the business. I would expect all the assets will sell for under $100K and potentially a lot less than that depending on if any competing offers come in.”
Peace wrote in another email to French that “the board wants to move fast,” was accepting offers and was planning on “making a decision early next week. Buyers can either repurchase everything or the parts separately. We have a couple buyers so the price will be decided by the highest bid.”
But Peace backed off from those statements in a phone interview on Friday, saying the company’s board of directors is still weighing the company’s future.
“It’s business as usual for the company, but we are looking at different options,” Peace said. “The company isn’t shutting down.”
Peace said he hadn’t supplied French with the complete picture “because he’s not on the board” and noted that the situation is fluid. He also said he had “no idea” how much the company or individual assets would attract from bidders.
Royalty Exchange raised $500,000 from a group of investors that included Triangle venture capital firm IDEA Fund Partners in November. Partners at IDEA and Grotech, a Virginia-based venture capital firm that invested $2 million in the business in July 2013, couldn’t be reached for comment.
French said he was disappointed that the company hasn’t been able to capitalize on the promise that he saw when he invested in the business. “Obviously, there has been a high cash burn over two years,” he said.
But French said, as a shareholder, he was most concerned that any bidding process be transparent and fair – especially in light of Peace’s interest in bidding on some of the assets.
On Thursday, Greensboro attorney Desmond Sheridan of Isaacson Isaacson Sheridan Fountain & Leftwich wrote Peace on French’s behalf urging that no assets be sold “until Mr. French has been provided adequate information about the process for the sale of the company’s assets, including the identity of proposed buyers and valuation methods.”
“Among other things, any transaction between the company and its insiders must be fair to the company,” the letter noted.
French said he received a letter from Royalty Exchange’s attorneys saying that the company is taking his concerns “seriously,” but they didn’t share the bidding process details he requested.