Napster’s $3 Billion Funding Round Goes Poof—Why?

Photo Credit: Napster

Napster’s future is uncertain as the company’s $3 billion funding falls through. The company’s CEO says Napster was a victim of misconduct.

In January, streaming platform Napster told employees and investors that a mysterious benefactor had committed around $3.36 billion at a $12 billion valuation—but it turns out that money doesn’t exist and the unknown investor has seemingly vanished. But that cash was central to promises that shareholders would soon be able to sell stock in a big tender offer, which has also been cancelled.

CEO John Acunto—who took the reins after his Infinite Reality acquired Napster in March—said during a shareholder call on November 20 that he no longer believed the unnamed investor would fund the deal. Shortly after, the company emailed investors saying shares linked to that deal would be cancelled, while some existing holders would get a larger percentage of the company, and that Napster considered itself a “victim of misconduct.”

Forbes, who had already questioned the deal months prior, uncovered creditor lawsuits over unpaid bills, an SEC subpoena fight, and exaggerated claims about big-name partners and “top-tier” investors. Napster first named advisory firm Sterling Select as the funder, but then walked back that claim, saying Sterling only introduced other unnamed investors. That further sowed doubt as to whether a real $3 billion-plus investor ever really existed.

From an internal standpoint, executives had repeatedly told staff and shareholders that the massive investment would unlock a tender offer and create many “paper millionaires.” The company even used its inflated valuation to pursue AI pivots and stock-based acquisitions.

But with the money gone, investors cannot cash out, the lawsuits over nonpayment are piling up, and Napster has been scrambling for stopgap financing through brokers and advisors, raising far smaller sums while trying to keep its head above water.

Meanwhile, the SEC is investigating the company, building on an earlier probe tied to a shelved reverse-merger deal. The Department of Justice is also examining the circumstances of the supposed investment, though Napster itself is not currently described as the DOJ’s target. Legal experts say that if Napster knew the funds were not real but still used the story to attract investors or close acquisitions, that could amount to securities fraud—an issue that will hinge on what the company believed and represented about the money at the time.

It’s worth mentioning that while John Acunto became the company’s CEO after Infinite Reality took over the company earlier this year, Napster’s CEO at the time of the acquisition was Jon Vlassopulos. Vlassopulos was the former Head of Global Music at gaming platform Roblox, and was instrumental in securing the platform’s projects and partnerships with music industry players, including deals with Warner, Sony, BMG, the National Music Publishers Association, and Electric Daisy Carnival producer Insomniac.