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SpiralFrog Blew Through More Than $34 Million

This story was written by Rory Maher.
Talk about a burn rate. The financial challenges at SprialFrog were never a secret, but CNET has obtained a letter from the company's lawyers to its original equity investors saying that the ad-supported free music service borrowed $34 million since its 2006 launch. It's unclear how much SprialFrog originally raised in equity funding, but the company, which folded last week, probably went through more than $40 million since its inception.

The company has been in desperation mode for some time nowthe private company took the unusual step for about a year of disclosing its financial results to the public, and it tried futilely in recent months to secure lifeline loans. The company's equity investors will be left with nothing after the assets are liquidated.

How does a service with an audience of fewer than 1 million people make so much money disappear? Any number that high is going to be hard for the company to explain. Upfront payments and per-song royalty rates to the labels (SprialFrog signed up Universal and EMI), while not cheap, couldn't have come close to $30-some million. (You could buy a lot of Herman Miller chairs and oriental rugs with the balance.) According to the letter obtained by CNET, boutique investment bank Gottbetter Capital Finance LLC sold the loans to investors for SpiralFrog.   

By Rory Maher