Neil Young, the rock singer who said he was prepared to brave "treacherous" venture capital markets to popularize his high-fidelity format for downloading music, raised $500,000 from an investment group last month.
Ivanhoe Inc., a Santa Monica, Calif.-based company that lists Young as chief executive officer, got the money from 12 investors, according to an Oct. 29 regulatory filing.
The musician, a two-time inductee to the Rock and Roll Hall of Fame who co-founded the band Buffalo Springfield and played in Crosby, Stills, Nash & Young before going solo, plans to roll out an audio system called Pono as a higher-quality alternative to digital formats such as MP3. Young, writing in a new memoir that he has "big ideas and very little money to show for them," said he would finance Pono by turning to investment firms that typically back technology startups.
"All I have to do now is navigate the waters of venture capitalism, those treacherous shorelines of commerce, in the HMS Pono," Young wrote in "Waging Heavy Peace," published in September.
"I can't tell you how scary this is," Young added, saying he has never been "on this vessel, in these waters, with the cargo on board."
Last month's filing with the U.S. Securities and Exchange Commission didn't identify the investors or disclose whether the money came from friends and family, venture capital firms or angel investors.
Venture firms are professional money managers who invest on behalf of outside clients, typically committing $1 million or more to each company they fund, according to the National Venture Capital Association in Arlington, Va. Angel backers, the association says on its website, use their own money to provide seed capital to technology startups, and generally invest less than $1 million in any one company.
Young, who turned 67 this week, has decried the impact of music downloading and streaming services such as Apple's iTunes and Spotify on listening quality, writing in his memoir that he is "trying like hell to rescue recorded sound so people can feel music again." In the book, he described speaking with industry leaders such as Steve Jobs, the late co-founder and CEO of Apple, and William Ford, chairman of Ford Motor, as he sought to advance Pono as an alternative to MP3.
"As far as a whole new format, I'm not aware of anybody doing what Neil is trying to do," said Michael McGuire, media industry analyst at Gartner Inc., a Stamford, Conn., provider of research on high-tech industries.
Ivanhoe, incorporated in December in Delaware, is the vehicle Young is using to bring his technology to market, according to Mark Goldstein, who said he served as the company's CEO for about six months and is now an adviser.
Elliot Roberts, the record executive who has served as Young's manager for decades, is listed as an Ivanhoe director in last month's SEC filing. Another director, according to the filing, is Gisele "Gigi" Brisson, the co-founder of Attractor Investment Management, a Seattle-based money manager that makes angel investments in high-tech startups.
"It's actually a little early for us to give any information," Roberts, the head of Lookout Management in Santa Monica, said in a brief telephone interview. "When we can comment, we'll be an open spigot."
Roberts said he was speaking on behalf of Young, who couldn't be reached for comment. Brisson didn't return telephone calls seeking comment.
Attractor runs three partnerships that invest in the equities of technology companies and had about $185 million in client assets under management at the end of August, according to a Sept. 12 company brochure that was filed with the SEC.
Companies getting venture capital for the first time raised an average of $3.6 million last year through the third quarter, according to the MoneyTree Report compiled by PricewaterhouseCoopers and the National Venture Capital Association. Goldstein, described in "Waging Heavy Peace" as a Pono CEO "candidate," said Young's trepidation about venture capital may stem from unfamiliarity with the industry.
Young "is not a spring chicken and this is something that is new and different," Goldstein said in a telephone interview. "Not much scares him."
MP3 is known as a "lossy" format because it compresses digitized sound by stripping out portions inaudible to the average listener, making it easier and faster to download the music and possible to hold more titles on portable players and mobile phones. With the price of computer memory declining and the availability of broadband Internet service growing, the need to compress files has diminished, paving the way for the use of "lossless" formats such as Pono that retain all of the digitized sounds.
"It's sort of a growing trend among audiophiles who for a while were in despair that kids were listening to these low- resolution sound files," said Ralph Graves, the editor of a blog for Crutchfield, an online consumer-electronics retailer based in Charlottesville, Va. "Now there are all kinds of technologies that are moving toward lossless audio formats so you don't have to make bad compromises with the sound."
In applying at the Patent Office to trademark the word Ivanhoe, Young said he planned to use the term in connection with the provision of "online and retail store services" featuring high-resolution music downloadable from the Internet and "discs featuring music and video of music and artistic performances."
In July, the U.S. patent office issued a notice of allowance stating there had been no opposition to Young's application. He must now file documents detailing how he plans to use the trademarks, and has as long as three years to put them to use, said James Powers, the founder of Data Rights & Privacy Advisors, a Reston, Va.-based firm that consults on intellectual property, privacy and data issues.
"He has a neat idea," Powers, a former patent and trademark attorney, said of Young's venture, which is designed to provide music lovers with the same level of quality produced in recording studios. "The demand for greater sound quality is absolutely there."
Young decided to brand his concept Pono, which he says is Hawaiian for "righteous and good," after discovering that his original choice, PureTone, was already in use, according to the singer's memoir. Warner Music Group, the parent company for Young's record label, has agreed to make its catalog of songs available on Pono, the New York Times reported in September.