British audio and computing hardware startup Kano plans to raise equity funding from its users and fans, as the company tries to move forward after cutting business ties with Kanye West, also known as Ye.
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The company will launch a crowdfunding campaign on Crowdcube on Tuesday, Kano CEO Alex Klein told CNBC. Ordinary users will be able to own a piece of Kano alongside their institutional supporters, including Microsoft and billionaire investor Jim Breyer’s Breyer Capital.
It is seeking to raise $900,000 from individual investors in the UK and Europe. The company also plans to expand the crowdfund to the US
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Kano, which sells hardware targeted at musicians and creatives, has undergone some dramatic turnarounds over the past few years.
Initially started as a venture to help children build computer kits, the firm has since shifted its focus to developing audio products, the main one being its stem playerA puck-shaped device that lets users split songs into separate tracks, such as vocals, bass, or drums.
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Kano has agreed to tie up with big brands to launch select products, including a harry potter wand Users can customize through Code, a Windows version of its modular Kano PC, and a coding kit that Disney’s “frozen.” It has since ceased production of those devices, and no longer sells any of its products at big-box retailers.
In 2019, Klein met with disgraced rapper and musician Kanye West, who has become increasingly ostracized from the business world due to his anti-social comments.
The two would go on to discuss the beginnings of becoming a STEM player. It was originally named “donda stem player,” a reference to West’s 10th studio album, Donda. Ye’s 11th album, Donda 2, was released exclusively on Stem Player on February 23, 2022.
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This was followed by anti-Semitic outbursts. In October, West made several damaging comments about the Jewish people, including repeated attacks on the “Jewish media”, an anti-Semitic claim that the Jewish people disproportionately control the media.
Those beliefs were expressed privately as well as publicly, according to Klein, who, in an exclusive CNBC interview, recalled one of Yeh’s advisors saying no to the deal to acquire rapper Kano. Could “because one of the investors is Jewish.”
“He was doing stuff that was disgusting,” Klein told CNBC. “My father is Jewish.”
A lawyer for the Australian law firm King and Wood Mallesons representing Ye was not immediately available for comment on this story when contacted by CNBC.
Ye did not immediately respond to a query about the social media app Parlour, where she last posted two months ago.
Klein said they verbally committed to buy Kano outright for $80 million early last year. A mutual confidentiality agreement shared with CNBC shows that, in March 2022, the pair agreed to begin exclusive deal talks.
Klein says that in order to seal the deal he was expected to manage Ye’s finances for him, an unorthodox request in the terms of the deal. Klein says he looked into Ye’s finances, but a takeover did not happen and all the advisors involved were fired.
As the two went back to the drawing board, a subsequent proposal was made that saw Kano form a joint venture named Yeezy Tech, funded with $10 million from an outside VC. Yeh then proposed a new version of the deal, backed entirely by his own cash. Faced with “worse” conditions and reports of Yeh’s anti-social comments, Kano did not accept, Klein said.
This would not be the first time that it has entered into a deal with a tech company and then backed out. In October, it agreed to buy Conservative-linked App Parlour, for an undisclosed sum. The deal was “mutually” ended in November, according to a company statement to TechCrunch.
Despite the recent outcry over Yeh’s anti-Semitic remarks, they have often raised eyebrows. At Paris Fashion Week in October, Yeh wore a T-shirt with the racially sensitive slogan “White Lives Matter”. In 2016, the rapper expressed his support for former US President Donald Trump and in 2018 spent a surprising and surreal half-hour talking to Trump in the Oval Office.
Klein admits that he stuck with Rappler as long as he did because it meant being flush with capital and extensive promotion. “$10 million is a tough thing to turn down,” he said.
One simple reason, Klein said, was because he considered Ye a “friend”. Klein said: “On a human level, I was like, this is a guy I have wrote songs with, This is a person I have had very good conversations with on many subjects. it was difficult.”
What next for Kano?
Now, Klein wants to put the debacle behind him. Once its Crowdcube round closes, Klein plans to invest a significant portion of it in Kano’s future products. It plans to launch a pair of white headphones called the Stem headphones by late 2023 or early 2024.
With West’s dedicated fanbase, Stem Player has become a huge commercial success for the small London startup. The device, which starts at a retail price of $200, has sold nearly 100,000 units to date.
According to unaudited financial details shared by Klein with CNBC, Kano made a profit before tax of £1.6 million ($1.9 million) in 2022, a turnaround from a loss of £13.7 million in 2021. Revenue increased by almost 28% to £17.4 million.
This has raised questions about whether the business can continue its success after these.
Klein did not acknowledge that the main driver for its bumper 2022 was the tech industry, which was reeling from declining stock prices, slowing sales growth, and rising inflation and the Russia-Ukraine war. The massive layoffs took place amid the macroeconomic uncertainty stemming from the . ,
“Prior year we had a partnership with Disney, which was good for growth, but not as good for profitability,” Klein explained.
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