Startup, Survival, Scaling: Kareo CEO Dan Rodrigues (Part 2)

Sramana: You had some good work experiences while you were a student at the University of Washington. When you returned to California to attend UCLA, did you find similar opportunities?

Dan Rodrigues: After I returned to Southern California to attend UCLA, I got involved in the computer science department there. I ended up meeting up with four other students in the program. We started a project that later became my first start-up, Scour. This was in 1997 and 1998, and the search engine was designed to search for multimedia files. We indexed images, audio files and some video. There was a proliferation of multimedia content on the web. We started it as a fun and interesting project to develop our skills as students. It became really popular around campus at UCLA and then turned into a business.

That company started with a $10,000 angel investment by two of the parents of the founders. That was enough to take a server and put it at a data center. Over the course of a year it became successful, and in 1998 we had millions of visitors a month, which was a lot of visitors at the time.

Sramana: A group of you created a project that got a lot of attention. What did you do with that?

Dan Rodrigues: There were five of us, and we were all young college students. I did not know anything about running a company; however, some of our contacts at the UCLA computer science group connected us with an investor group that was led by a couple of high net worth L.A. area investors. They were focused on investing in Internet media companies, essentially the cross-section between Hollywood and Silicon Valley.

We were one of the five or six companies they invested in. I was 21 and we received a $4 million investment from that group for our company. We ultimately raised $12 million of venture funding for that company. We had a very successful consumer website with an advertising revenue model. At our peak we hit 15 million unique visits per month. Over the course of that three-year period, we were right at the beginning of the transition to digital distribution of music and entertainment content. We ended up getting pulled into the firestorm around the proliferation of music online.

When the MP3 file format came out, we had a great search engine that indexed those files anywhere they existed on the web. That was one of the major reasons the site got popular. That also pulled us into online digital distribution, and we went to all of the entertainment companies and tried to license their content. They ended up coming back and suing us and 10 other companies.

The long story short, we got sued by the recording and motion picture industries along with Napster and some other companies. We settled the lawsuit and sold the company. The investors got a double return on their money. We sold the company in 2000 to Centerspan Communications. They were a public company that had previously owned joystick patents. They were basically a shell company with $100 million in cash. They created a new business plan for secure music downloads over the web. We had interest from other digital media companies at the time. We received offers from LiquidAudio and Listen.com.

This segment is part 2 in the series : Startup, Survival, Scaling: Kareo CEO Dan Rodrigues
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