Harmonix Music Systems – Now That’s How An Angel Deal Should Work

I’ve invested in over 50 angel deals in the past 12 years.  Several have been big winners for me, a few have done ok, and some have failed.  Many are still active – including several that I did before I started making venture capital investments in 1996.

Recently – a company I invested in 11 years ago – Harmonix Music Systems – was acquired by Viacom / MTV for $175 million.  The deal closed last week and the money has been flowing to the Harmonix shareholders.  And – it’s plenty – as Harmonix only raised $10 million over the life of the company.  The reactions from a few of the angels I helped recruit to the deal included “incredible outcome – I had forgotten I had shares in the company”, “Brad, are you sure you got the decimal point in the right place”, and simply “holy shit.”

I’m extremely proud of Eran Egozy and Alex Rigopulos – the co-founders of Harmonix.  Eran is a fraternity brother of mine – although he was more than four years younger than me so we never lived together.  Eran remembers approaching me when I was a judge for the MIT $10K competition the year that they entered – Eran recognized my name from our frat and after thinking “Hey – I know of that guy” approached me about getting together.  I remember the first time we hung out together and got a really crappy meal in Central Square in Cambridge at one of the omnipresent Indian places.  Eran and Alex regaled me of tales of the vision they had for creating musical environments and games for non-musicians.  They were incredibility creative, passionate, and infectious about their ideas.

I helped put together an angel round in 1995 for them.  It was modest – I think it was a total of about $500k.  Over the next few years, they did a couple of small financings – although none of them from traditional VCs – and raised around $10m.  Eran, Alex, and team regularly created new products, got key distribution deals with major players, and chipped away at building a business.  They sent out an investor letter periodically updating everyone one what was happening.  Occasionally I’d get a call from one of the angels that was in the round asking how things were going.  Time passed.

In 2005, they released their newest product – Guitar HeroIt was a monster hit.  Suddenly, Harmonix went from a sleeply little company that had been ambling along for a decade to a hot up and comer.  MTV swooped in and grabbed the shiny nugget just as the Guitar Hero franchise was picking up speed (if you loved Guitar Hero, then check out Guitar Hero 2) – it’s a perfect fit for Viacom / MTV’s latest new media push and their demographic.

I expect to see great things from Eran, Alex, Harmonix, and MTV over the next few years.  Congrats guys and nicely done!

  • http://tachophobia.com Rick

    Guitar Hero is easily one of the most interesting games of all time. Smart move.

  • http://www.viget.com Brian Williams

    Great story, Brad. Thanks for sharing it. With all the hype around short-term deals these days (Sequoia’s one-year, 40x return on $11.5 M in YouTube comes to mind) this reminder of the wisdom of long-term strategies for both investors an entrepreneurs is refreshing.

  • David

    I have been having trouble with my drums for the PS3 and havnt been able to get a hold of any body to help me replace them. I bought them about 25 days ago and I have been having alot of trouble. Can u please help me or point me in the right direction.

    • http://intensedebate.com/people/bfeld Brad Feld

      David – sorry I can’t help on this.  I’m not involved in the company in any way anymore.  I know the support forums on the web site are very active – you should try http://www.rockband.com and see if you can make progress.