How a 'Made' Startup Was ClippedS

Two years ago, music service iLike appeared to be set: Its CEO said it was "made," its investor mused it could be a "billion-dollar winner," and the press was enthralled. Now the poster child is a cautionary tale.

iLike became something of an icon for a certain class of startup: Built on social networks, fast-growing, unprofitable, advertising supported. The company's impending sale to MySpace at a fire-sale price could hardly be a bigger wakeup call to these fellow makers of software "widgets."

The company was once valued at $53 million, back when Ticketmaster bought a 25 percent stake in late 2006, according to the Seattle Times. iLike amassed a total of $17 million from Ticketmaster and other investors like Silicon Valley venture capitalist Vinod Khosla and former AOL exec Bob Pittman. Now it's negotiating to sell for just $19.5 million, All Things D reports, and $6 million of that is contingent on retaining certain employees in coming months.

It's quite comedown. But it's easy to see how iLike became a media darling and a hero to other makers of widgets. In the late spring of 2007, iLike ported its music recommendation service to Facebook, and in the process spiked its user base dramatically, to 15 million from 3 million over six months. In one week just after the Facebook launch, four venture capitalists asked CEO Ali Partovi (pictured) to lunch, the Seattle Post-Intelligencer reported; the company reportedly added close to 200 servers over the course of the summer.

After retaining insidery Silicon Valley flack Brooke Hammerling, iLike saw its praises sung widely in the media (emphasis added):

  • Wall Street Journal, June 2007: "'Somebody's going to end up being the Facebook music service,' [co-founder Hadi Partovi] says. 'It's either going to be us, in which case we're made, or it's not.'" (By the time Patrovie gave this retrospective quote, iLike was by far the dominant music service on Facebook.)
  • Billboard, July 2007: "The smart money says someone will acquire iLike, and soon. The company's social media discovery capabilities are a natural extension to any digital music service, particularly iTunes."
  • BusinessWeek, July 2007:"'Widgets are a fundamentally important idea,' says Vinod Khosla... who has invested in two widget makers, Slide and iLike. 'I believe it has the potential to create big billion-dollar winners.'"
  • Forbes, October 2007: "Says Khosla [Ventures]'s David Weiden: 'Widgets are the next kind of media network.'"
  • USA Today, November 2007: "The company... has become an overnight sensation... Dave McClure, an angel investor in Silicon Valley, wouldn't be shocked if iLike... and others eventually go public."

Revenue was presumably slow in coming, though, because by fall of the following year iLike was said to be trying to sell itself and Ticketmaster wrote off half the value of its investment. Now investors are basically trying to break even with the MySpace sale. The music and advertising businesses have their own unique problems, but startups in other hot sectors, like iPhone apps, should beware: The excitement can dissipate as quickly as it inflates.

(Pic: Niall Kennedy)