At the 2016 summer Olympics, there was this moment at the pool right before the 100m relay. The swimmers were all doing that thing where they shake out their arms. But Michael Phelps was standing poolside completely in The Zone, with his headphones on. The gold medal was on the line. But what everyone watching on TV wanted to know was: “What music is he listening to??”

To the world it was a cultural moment. But what an entrepreneur named Jason Fox saw was a billion dollar opportunity. And that’s why he’s here today, asking investors for $3 million dollars to build his startup, EarBuds.

From Gimlet this is The Pitch. I’m Josh Muccio. 

Our investors today: 

I’m Charles Hudson

Charles started Precursor Ventures, where he’s invested $45 million in over 100 startups to date.

Jillian Manus

Jillian is a partner at Structure Capital, where they’ve invested $98 million in high-profile startups like Uber.

Michael Hyatt

Michael built and sold two software companies for over $500 million dollars and now he invests for himself.

Phil Nadel

Phil has built companies that sold for hundreds of millions of dollars. Now he manages Forefront Venture Partners, one of the largest syndicates on AngelList.

OK. On with the pitch.

Michael: Hey there.

Jillian: Wow, are you very tall!

Phil: I’m Phil. Nice to meet you.

Charles: Nice to meet you, Jason.

Michael: I’ve never seen the mic stand this high up!

Yep. Jason is tall. Six foot seven. He’s standing at the mic towering over the investors. They’ve got big grins and wide eyes. And when they find out he’s a former NFL player, they’re starstruck. 

Jillian: I probably should know this, but what team did you play on?

Jason: I played four years for the Lions and then a couple more with the Dolphins after that.

Jillian: Okay. Awesome.

Charles: I’m a lifelong Lions fan. I’m from Detroit.

Jillian: Yeah. Oh you should’ve known. I did not know this.

Phil: I’m a South Florida guy.

Jason: That’s awesome.

Phil: You notice, I didn’t say I’m a Dolphins fan. I’m kidding! I love the fish!

Jillian: You love the fish. Okay. Sorry about that. Go for it, Jason Fox.

Jason: Awesome. Well, I’m Jason Fox. I’m the founder of EarBuds. And the idea for EarBuds came actually in my last career. I played in the NFL for six years. Just recently retired a couple years ago. And it was during that time, I always had this same idea over and over again. And really the first time I thought of it we were opening with Carolina, I was warming up right next to Cam Newton, he was on the field.

Jillian: Oh I love Cam Newton! I’m sorry. Go ahead.

Jason: He was about five feet away from me. He’s jamming, he’s getting the crowd into it. He’s just getting into the rhythm right before a game. And I said, man, there’s 85,000 people here. There’s millions more watching this game at home. Cam is an individual that has tens of millions of social media followers. Like, how many people would love to be in his headphones right now?

Michael: Hmn.

Jason: It was the number one question asked at the last two Super Bowl media days. It’s the number one question asked around the Olympics. What are you listening to? Well, Earbuds has solved that. So we’ve partnered with Spotify and Apple Music, and so instead of just listening to music, we allow you to broadcast it, where other people can tune in live and listen along with you in complete synchronized real time.

Basically, it’s the closest you’ll get to being inside the head of your favorite celebrity.

Jason: You wanna see it? Cool.

Michael: OK, so you're pulling out your phone. We’re looking at a screen, says stream your music.

Jason: Yep. This is the app. So these are all people live-listening to your music right now.

Michael: So you’re scrolling through.

Charles: Who’s listening to Drake?

Jason: If you hit listen along, you start, you start completely synchronized with them. 

With the tap of his finger the music starts playing. Right in the middle of a song.

Jason: We got NBA, NFL, X Games. We got so many people interested in using our tech.

Michael: But why EarBuds? As soon as I saw you, I’m like, wow, what kind of new earbuds are you?

Jillian: Right.

Charles: Buds. Like buds. Buddies.

Jason: We’re ear buddies.

Michael: Oh, I’m slow. But I guess I thought you were making 

Jillian: Earbuds.

Michael: Earbuds.

Michael: Is this another revenue stream for, like, a boxer walking into the ring, what is he listening to? You know how they write things on their body? They’ll sell anything to sell. Would they sell the ability to broadcast the music?

Jason: Influencers are always very forward thinking now and knowing that what that relationship they have with their following and being able to engage with their fans in a whole new way through music. We’ve had labels, music promoters, artists want to launch new content through influencers. And they can brokerage their own deals around that. Imagine being the first song on Tom Brady’s playlist right before the Superbowl. Or the Michael Phelps example. Or being on Kylie Jenner’s playlist. 

Phil: And so how do you make money?

Jason: One, is sponsored content. We’ve had so many brands reach out, want to be served as labels, wanting to push music -- venues, arenas. And then the next way is partnerships, revenue shares, licensing opportunities. The sports teams, the leagues, the other live streaming services. The next one is the data play behind this. There’s so much data around music. For example if The Rock was listening, you know, we could analyze his following, his listeners. And we can show you these are the types of genres that your followers, where they live, their demographics. We can help people retarget those people.

Michael: So can you tell us where you are now? Are you measuring active users? Where you at? Give us some numbers. 

Jason: Yeah. So we say we’ve soft launched. We put it on the app store because we wanted to test and iterate and see where we’re at. And we’ve learned a ton. And we’re gearing up for a launch.

Phil: And how many monthly active users do you have now?

Jason: It varies. But plus or minus 5,000.

Phil: Can you tell us about the competitors?

Jason: You know, there’s, there’s Vertigo tried to do it. It flopped out. It’s changed founders several times. There’s another one called Eavesdrop. Eavesdrop’s kind of floundered.

Jillian: Why? Why have these dropped out and why have they floundered?

Jason: They’re most of them, I don’t think, I think we’re the only agnostic one. And, you know, I don’t think they have the same tech. And, you know, they outsourced the technology, which is just not a very good user experience. And then they’ve also struggled to onboard talent in a meaningful way.

Phil: Do they have any good talent? Any notable influencers on those platforms?

Jason: Not that I’m aware of, no.

This whole song and dance so far is pretty basic. Who’s your competition? How you going to make money? Yadda, yadda. And Jason seems to have the right answers. But then the investors bring up a big, green elephant in the room. 

Michael: Why doesn’t Spotify shut you out and do this? I mean, this sounds so obvious. Why is Spotify missing this?

Jason: They don’t do it because of really two reasons. The biggest reason is it’s a crowded experience. They’re cutting out features left and right because there’s just too much. They’ve gone so much into podcasts and moods and everything else. There’s just too much content on one screen. And the other big reason behind it is the agnosticity of it. The winner of the social space will be agnostic. Whether you get your music from your coworker, your girlfriend or even your favorite athlete or celebrity, they might not have the same music service as you. They might have Apple Music, you have Spotify. And so they’ve noticed that it’s hard to do social right.

Phil: But couldn’t one argue that Spotify is so popular, so pervasive, that they have enough?

Jillian: No.

Charles: No. Apple Music is gigantic.

Jillian: Yeah.

Phil: Well. Okay, either one of them is so. They have so many users, that this would be a great feature even if they kept it within their own platform. 

Jason: I would disagree with you. There’s a couple different ways I could go here. One I’ll say is Shazam, right. Shazam sold, I know Rich Riley the former CEO, I’ve got connected to him through EarBuds, and he said the reason why he was a winner is because, he said, I’m Switzerland. It doesn’t matter. Anybody can use this. He goes, the winner of the social space will be the same way.

Here’s the thing he’s getting at -- even though Apple owns Shazam now, it still works with all the other music platforms. Apple wants as many people using Shazam as it can possibly get. Because, well, data. Jason sees the same potential for EarBuds. 

But before he can mine all that data he needs users. And to get users he’s going to need some celebrity power.

Michael: The winner of this space will have a moat, and the moat is really simple: who got the stars on and using it.

That’s when we come back.

BREAK

Welcome back.

What’s unique about EarBuds is that the product Jason is really selling isn’t the app it’s the celebrities he gets on the app. Without lots of influencers to follow, who cares? Nobody’s going to use it.

Here’s Michael. 

Michael: Tell us about your relationships with any professional sport associations or teams? Like the winner of this space will have a moat, and the moat is really simple: who got the stars on and using it. What’s your star acquisition strategy?

Jason: Well, it’s to show them.

Jillian: Relationships.

Jason: How they can monetize it themselves, right. 

Michael: But. But.

Charles: Because he played.

Jillian: He’s already.

Jason: Yeah. I mean I used to live with Rob, Rob Gronkowski when we trained for the draft. Like, I have a relationship.

Jillian: Right. He played, he just had.

Michael: Okay, but, okay, but, how are you, walk us through the strategy. Because, I think it’s great. But take away from football for one second, let’s go basketball. Anywhere else. Or swimming. Or. What is your acquisition strategy to make this really big?

Jason: It, it’s really the relationships. I know, I know that may not be the answer you want to hear, but we have those relationships. I was just with Baron Davis the last two days and he said he could get every NBA player.

Jillian: Yeah.

Phil: So their interest in doing it is so that they can make some extra money?

Jason: Well, the number one thing is, is they can engage with their fans. And then if they can do that by making money along the way, that’s the bonus.

Jillian: Yeah. 

Jason: And that’s why actually the host of the X Games reached out to us. 

Jillian: Oh my.

Jason: Because he said, Jason, I’ve, when me and all my snowboard buddies get to the top of the mountain, we all press play at the same time. 

Jillian: Yeah.

Jason: He goes, we’ve been asked and we’ve been, so many brands, and TV sponsors and everybody else, want to make music a part of the experience and now we can do that because now we can tell all of our riders to listen. 

Jillian: For sure. You’re not just going from one person to one person, it’s actually if you were to get Ironman, if you get the X Games that goes viral within, those are millions and millions and millions.

Jason: I really think this will be driven by influencers in the early stages. Like, our whole mindset is to get on the top tier people. And like and  we have some big name investors. Baker Mayfield invested in our last round. Patrick Mahomes is coming in this round.

Jillian: Oh yeah.

If you know sportsball, Jason is rattling off some pretty big names who’ve already decided to invest. But before our invest ors decide, Michael has a very simple question that could sink this entire deal.

Michael: Tell us about your previous rounds and this round.

Jason: We did a small friends and family round in the early days when we were just building a beta product. We raised $630,000 from friends and family. And then last year we raised $1.5.

Jillian: At valuations?

Jason: The first one was at $3 million pre-money. And then the last one was at $8 million.

Jillian: Pre?

Jason: Pre money.

Michael: And currently what are you doing?

Jason: We’re raising $3 million on a convertible note.

Michael: What’s the cap?

Jason: The cap is at $14.

Jillian: So how much have you raised of the $3 million?

Jason: We’re a little north of halfway.

Jillian: OK.

Charles: This is a tough one for me. But I’m going to pass. And it’s basically only because of price. If you told me, Hey, we’re just kicking it off, we don’t have any commitments at 14, I’d say I was in if we could talk about a set of terms that I think are more appropriate for where you are. I don’t generally feel comfortable asking people to revisit that. But I really think you have some good insights here. I think the product’s going to work. And I think kickstart.

Michael: Would you revisit that? 

Jason: I was going to ask you what you thought a valuation would be fair.

Charles: Eight.

Jason: Eight.

Phil: Despite the early stage, at 8 I’m in.

Jason: I’m, I’m interested. Um.

Michael: So let me just cap it up. I think what Phil is saying is that he’d be in at a lower number. Charles would be in at a lower number. I tell you, I’m in at a lower number.

Jillian: Me too.

Michael: We’re all in.

Phil: I’ll do a half a million at 8.

Jason: Look, I came here because I recognize, you know, who each and every one of you are, and the power behind that. And I want strategic capital that can help us in other ways. I do feel like I need to talk to our existing investors.

Charles: Of course.

Jillian: Sure you would.

Jason: Because I, I, you know, I believe they have a voice in this as well.

Jillian: Of course.

Charles: Of course.

What just happened?

Was this all of our investors getting on the exact same page, and saying that they’re all in. But with one big caveat. They’re saying that they’ll invest IF Jason lowers the price tag on his company, from $14 million to $8 million. And to be clear this is a huge ask because what Jason has to do, is go back to his previous investors and tell them that the company that they invested in already is worth less money than they thought. 

Charles: I’ll tell you the thing I like most about it, is I think it’s very, I think it’s very hard to find untapped, unmet consumer needs. And I think the number of times I've seen just regular people sitting around all on earbuds or AirPods, the idea that everyone can listen to the same thing, or everyone could listen to what someone else is listening to.

Michael: Oh, I’d do it.

Charles: This is an untapped, consumer need. And you don’t find those in consumer very often. It’s basically impossible, as you probably know, it’s basically impossible to raise money for anything in music. Because generally you get stuck in the morass of licensing and the labels.

Jason: Very true.

Jillian: This is unique.

Charles: The thing that I think is quite impressive about your presentation is you have a very understated humble but confident way of talking about your business that for me, as someone who has unfortunately lost money on some companies in music, it’s very sober. And in a good way. And I think that’s really impressive that you’re able to take what’s oftentimes just a rathole, a sinkhole, whatever you want to call it, industry for an entrepreneur to go into and tease out a really good independent conflict-free way to thread the needle.

Jason: I think if I go back to our current investors and the people that committed to this round, obviously the people committed to this round will. But I think the question I would first get asked is, like, well, How much?

Charles: I would, look, we’re at the tail end of our current fund, we have a new one coming online soon. So it would probably be 50. But with an eye, with an eye toward doing more if we could.

Jason: Okay.

Michael: Ah, I would be between 1 and 200.

Jason: Okay.

Jillian: I’d be between 1 and 200.

Jason: Great, so sounds like.

Michael: So you’ve got like a million.

Phil: Close to a million. 

Jillian: I have, one of our investors in our fund, it’s called True Capital, and they represent something like 400 of the top professional athletes. And they would be phenomenal, phenomenal.

Michael: See that’s what you want. 

Jillian: Yeah. Okay. 

Charles: Great.

Jillian: Go team!

Jason: Yeah.

Michael: OK well good luck. Come back to us.

Phil: Thank you. Let us know.

Jason: Yeah I will. Thank you.

Jason walks out of the room and the investors can’t wait to talk to each other about this pitch.

Michael: Did I just, I’m either looking at a zero or a billion dollar play. I know I’ve said that before. I have no. But I love it!

Phil: Great. I’m so excited about it.

Jillian: I love this.

Michael: I just need to peg for the risk, right?

Charles: Yeah.

Jillian: Yeah, but.

Michael: This is so interesting!

Jillian: I think this is one of the most fresh and.

Michael: I would use it.

Jillian: Oh, I’d use it in a second.

Phil: The two that he mentioned.

Charles: Well, Apple tried to do this with Ping, and tried to build their own. And I think the problem is a bunch of people have tried to build music social networks that were.

I couldn’t wait to get into that room and find out, what about this deal struck such a major chord with our investors. And then Charles said to me.

Charles: I normally hate music startups. If you had told me that’s what it was going to be beforehand I’d have said, Muccio, don’t do that.

But I did do that! 

Josh: Y’all were very excited about this. How much of your decision to invest was because as an ex-NFL player, he had the network to bring in all of these influencers?

Phil: I think that’s very important.

Jillian: Yeah, I think that’s critically important.

Phil: It’s very important.

Michael: That’s it. 

Charles: I think all consumer pitches to me come down to insight on human psychology. 

Jillian: Yeah.

Charles: And I think what he understands is average people want to listen to what famous people are listening to. And that’s an insight that not everybody has. A lot of people have tried to do things in music.

[00:44:40] Michael: If he gets the stars, this thing takes off.

[00:44:41] Charles: If he gets, and Hyatt’s 100%, if he gets. And I think the thing, the reason this will work better now than five years ago is any influencer with 100,000 social followers, you don’t need Tom Brady, you don’t need Pat Mahomes. 

Jilian: Agreed.

Josh: Yeah.

Charles: you could get an Instagram influencer with 350,000 followers. And I think he just had this insight that that’s what you need to unlock the market is you need people who people really want to know what they’re listening to. And I think you can build a really interesting product that way.

The investors think Jason could go triple platinum. On his debut album! 

But when we come back, turns out getting to the top of the charts is harder than Jason thought. 

BREAK

Welcome back. Jason walked out of the pitch room with interest from all four investors. But to turn that interest into investment, Jason would have to lower the price of earbuds. A few months into it producer Heather Rogers talked to Jason about how it was going.

Heather: So, in the pitch room all four investors said they'd go in if you lowered the valuation from 14 million to 8 million. What was it like to hear that?

Jason: I mean the first the first reaction is good right. It's you. Some of the top investors in the world want to give you a million dollars because they believe in you and in your product and your vision. And that's that's extremely validating and it's extremely. It just feels extremely good. But then the reality sets in of, like, there's bigger implications of this, right. And I want to do right with all the people that got us here. But figuring out how to make it work that's the more difficult part.

Jason left the pitch room with a tough job. He had to convince his previous investors that Earbuds was actually less valuable than they thought it was.

He knew those conversations weren’t going to be easy.

Jason: I texted several of our top investors and said, Hey, you know, I'd love your advice on something, let me know when you have time to chat. And over the next week I talked to most of them. And, you know, some of them honestly just weren't that comfortable with it. And they said, you know, you can find that same funding elsewhere for the valuation that, that better fits us and does right by us.

Heather: Can you tell me about one of those calls?

Jason: I called and said, Hey these are the four investors I pitched. This is how it went. And he didn't say no don't do this, this is dumb. But he did say like that he disagreed with it and he didn't feel like it was the best move for the company to make. And I'm not saying his opinion was right or wrong. But his opinion was that they were using their position of power to negotiate a better deal for themselves. And he thought we were worth more than that and he thought it would be taking a step backwards to settle for this type of investment.

Heather: Mhmm. How did you feel when you got off of that phone call with that investor? 

Jason: I felt bad in a couple different ways. But it's hard to describe it. It's, I felt bad that I had to make that phone call. I felt bad that I didn't have a clear answer for him and he didn't have a clear answer or me. And I felt bad that you know, I want to be focused purely on the business and growing it and reaching all those milestones that we've set for ourself.

Heather: It's interesting that you took what the investors on our show, what they, what they what they said to you, it sounds like you took that very seriously.

Jason: I mean there's so much that those four individuals not only can they do themselves but they can also call other relationships in their network. And so sometimes it's hard because you know I think the valuation we have is very fair. But reaching this stage valuation isn't the end goal, it's how do we get to 100 million? How do we get to 500 million? If these individuals and these investors can help us do that by getting there faster and through their relationships then it's absolutely worth exploring.

Heather: Right.

Jason: And that's. That made, that made the biggest impact of, How flexible is this valuation? And you know if those relationships come through then the valuation is flexible.

Okay, so Jason is willing to risk his relationship with his old investors so that he can work with our investors. He thinks it’s worth it. Which makes you wonder, How is it going with our investors?

Heather: What's happened with Jillian since you were here?

Jason: The day I went on the show I think we exchanged emails, texts and phone calls. She's kind of leading the charge for the rest of investors. 

Heather: Who are some of the people that Jillian has introduced you to?

Jason: One of the funds Jillian introduced me to manage a lot of celebrities and their funds. If that group comes in then that’s an exact example of the terms would be more flexible because that's a dream partner and that could help us scale so much faster. We've been talking to them for a couple of weeks now and it’s at the stage where they’re pitching their clients and seeing who would want to be involved.

Heather: Got it. So you think if that comes through you can go back to like that investor you had the phone call with and say, Look this is a big deal. It's totally worth lowering the valuation for this?

Jason: Yeah absolutely. That would be a game changer for us. 

Jason: That that would definitely allow us to change the valuation.

Heather: Right. So these doors have opened. I mean it's interesting to me like these doors have opened like through Jillian and potentially other investors from the show just because you said, I'm willing  to, to talk about the valuation. So you didn't actually lower it but you're just saying like we can negotiate but show me what you can do. Is that right?

Jason: That’s, yes, uh. I don't want to negotiate against myself. So when they asked me to lower the valuation I asked them, Well how else can you help? And I think there's a tradeoff there.

Charles, Michael and Jillian? They still haven’t actually given Jason any  money. And Phil, well he already told Jason he's out.

Heather: Are there downsides to all these connections that are that like Jillian is making and you're meeting with people and they're like, Yeah we're interested but we need to like find out more about you. Are there any downsides to that?

Jason: Downsides is not how I'd phrase it, it’s only the only. I guess it's a downside.The only thing is it takes time. Time kills deals. And so it's a it's a tough balance because you want to make sure you have the right people involved. But every time you go through the due diligence stage with someone, it just, it drags things out. 

Heather: OK, so how many how many investors are you waiting to hear from before you can tell everyone what's going on?

Jason: As soon as, as soon as Jillian and her connections decide what they want to do then I think that'll basically set off a chain reaction.

Heather: So like part of me when I think about that these people are supposed to be like risk takers and like, you know, decisive people. And it seems like they're not.

Jason: I'm not going to say that. I'll let you say that. But I don't know if that was to fool me into saying that. And I'm not saying that. I'm not taking the bait.

I’m gonna go ahead and take the bait.

Here’s what I think what’s happening to Jason happens to a lot of founders. You get caught in this balancing act between your old investors and the new ones. The old investors wanting to preserve their piece of the pie, and the new investors who want a fair cut of the action. 

And inevitably you get, “Yes, but…” from all these investors. But nobody’s actually writing a check yet because they’re all standing around waiting for someone else -- that one domino that will make the rest of them fall.

And the founder’s just caught in the  middle of this trying to figure out what the hell happened and why they can’t just work on their business.

So, do not be deceived. This is the world of venture capital and if you’re going to take their money, you’ve gotta play their game. 

Anyways,  Jason didn’t say any of this. I’m reading between the lines, just a bit.

CREDITS

Our show is hosted by me, Josh Muccio. Produced by Heather Rogers and Kareem Maddox. We are edited by Blythe Terrell and Sara Sarasohn.

Theme music by The Muse Maker. Original compositions from Breakmaster Cylinder, Bobby Lord, Peter Leonard, Mathew Boll, The Muse Maker and Names Are Hard. We are mixed by Enoch Kim. 

Lisa Muccio planned the recording of this pitch.

And here’s a quick reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.

You can follow The Pitch on Spotify and listen for free, or find new episodes wherever you listen. Also you may want to check out our Instagram page @thepitchshow, for those of you who like a little visuals to go along with your podcasts. 

We’re coming at you with a brand new episode, next week.