By Chris Goodmacher
Daily Bruin Contributor
Unlike most universities, UCLA has more to do with Napster than
deciding whether or not to ban the program on its network.
UCLA also has to be concerned with the amount of money they
stand to make when Napster, Inc. goes public.
In May of this year, the College of Letters and Science Venture
Capital Investment Fund invested $25,000 in Napster, Inc., the
company that runs the controversial Internet music trading program,
Napster.
The fund is part of the UCLA Foundation, which is the
campus’ version of an endowment. The Foundation handles the
university’s investments. The Venture Capital Investment Fund
is designed specifically for high-risk venture capital investments,
according to David Lundberg, director of strategic alliances for
UCLA’s office of external affairs.
The university’s stake in Napster will only produce a
return when Napster goes public, and due to the recent Recording
Industry Association of America lawsuit, the committee has some
concern.
“We hope that Napster is able to settle with the record
labels as soon as possible, now that they have the support of
BMG,” said Ron Conway, the parent of two UCLA students and
chair of the investment fund.
Ordinarily, the companies involved in such an investment as the
one between UCLA and Napster would keep most of their investment
exchanges private, according to Lundberg.
In this instance, however, the Wall Street Journal accessed
internal Napster documents earlier this month, which were prepared
for the company’s deal with BMG, bringing to light the
connection between UCLA and Napster.
Napster representatives declined to make any comment on their
investors.
“There’s a lot of information that passes between
companies that the companies would like to keep private,”
Lundberg said.
The Napster investment is a typical venture made by the fund,
which specializes in pre-IPO investments with an average investment
of about $25,000.
“The risks could be lower than an average stock,”
said Richard Roll, professor of finance for The Anderson School at
UCLA. “However, since these are usually small firms and small
firms are usually riskier than larger firms, one should expect them
to be riskier on average.”
The investments are decided by the fund committee, which
consists mainly of Silicon Valley investors who volunteer their
time.
The committee meets quarterly for two hours. The administrative
aspects are handled by UCLA, and the returns go to the College of
Letters and Science.
“It was the committee’s idea to invest in Napster.
They’re into the cutting edge of high-tech investment
opportunities,” said Dennis Slon, associate vice chancellor
for development.
Napster recently entered into an alliance with BMG, a subsidiary
of German music publisher Bertelsmann AG.
The agreement between the two companies will provide Napster
with a loan to create a new file-sharing system that would allow
paying members the option of acquiring a stake in Napster.
Part of the agreement states that once Napster successfully
implements its new membership-based service, BMG will withdraw its
lawsuit against Napster and make its music catalog available to
Napster members.
Committee member Conway’s own firm, Angel Investors, had
already invested some of its funds in Napster before the issue came
before the UCLA committee.
“Our fund (Angel Investors) loves music played on the
Internet,” Conway said. “After e-mail, it’s the
next “˜killer app.'”
“Killer app” is high-tech lingo for “killer
application,” meaning a use of the Internet in a new,
innovative way.
Currently, the fund handles about $600,000 in investments.
Investment returns are not expected to be realized for two to three
years from the date of investment.
“In general, for these sorts of investments, a return of
about three to five times the investment is expected,” Slon
said.