There’s No Accounting for Genius
The rap lyric site has been acquired in an $80 million fire sale, resulting in layoffs and worthless employee stock options
On Tuesday, a little after 11 a.m., employees of the lyric decoder website Genius logged onto an all-staff Zoom call to hear their CEO Tom Lehman announce a transaction that had closed the previous day: Genius has been acquired by Santa Monica-based holding company MediaLab in a deal worth $80 million, a sum not much more than the $77 million of VC financing the one-time tech darling has reportedly raised over the last 12 years.
“Today, you are gonna receive an email,” said a visibly nervous Lehman in a recording of the meeting viewed by Off the Record. “And it’s gonna be one of two emails: One email will be for those who are being let go…. Those of you who are gonna be offered a job at MediaLab to continue working on Genius, you will receive another invite to a meeting that’s gonna start soon after this.”
“I’m really excited about this acquisition,” Lehman also said. “I think it is really the best path forward for Genius. MediaLab is really the ideal partner. It allows us to de-risk a lot of what we do … and more importantly, it’s going to allow us to invest in parts of the business that we’ve been trying to invest in and propel us forward.”
Lehman and his co-founder Ilan Zechory have another reason to be pleased with the outcome: The terms of the deal mean they are slated to receive potential paydays of over $13 million and almost $8 million, respectively, according to documents related to the sale reviewed by Off the Record. Lehman and Zechory did not immediately respond to requests for comment.
But employees (whether current or former) who had exercised stock options over the 12-year life of the company received an unpleasant surprise in their inboxes: Their stock is now worthless. As a legal letter informed them, “since the total purchase price proceeds expected to be received by the Company that will be distributable to the stockholders is significantly lower than the liquidation preference of approximately $93,500,000 held by the preferred stockholders … holders of common stock and options will not receive any consideration in connection with the transaction and the subsequent dissolution.”
Adding insult to injury, those shareholders who had been left empty-handed were sent a lengthy document outlining the payments planned for seven “Key Employees” who are being offered jobs with MediaLab that come with hefty compensation packages—including bonuses, stock grants, cash severance, and other benefits. For example, Lehman’s $13 million package includes a signing bonus of $2,401,143 payable within 30 days, a retention bonus of $2,729,352 paid over the next two years if he stays with MediaLab, a severance package of cash and 36 months of company-paid health insurance worth $686,100 if he’s terminated without cause, plus MediaLab stock valued at $7,102,914.
Along with Lehman and Zechory, four other white men at the top of the company were also eligible for six- and seven-figure sums. Robert Markman, VP of Content Strategy and the only person of color listed, could potentially receive $682,208, the smallest of the payouts. The vote by shareholders is not about whether they will receive the payments but whether they would be exempt from certain taxes applied to so-called “parachute payments” seen as excessive by the government. “The Company’s Board of Directors recommends that the stockholders vote in favor of approving the Excess Payments,” the document reads.
“To think about how those same people—Rob excluded—have been at the helm making very bad strategic decisions that a lot of us have been very vocal about, are getting paid out while we actually lose money, is infuriating,” said one former employee.
“Not a single woman, and more importantly only one person of color, will profit off of Genius,” added another.
Genius has often faced criticism for its commodification of Black culture for the consumption and profit of white people. During the summer of 2020, as protests over the police killings of Black men and women swept the nation and tech and media companies reckoned with the racism in their ranks, these tensions came to a head internally. Genius’s BIPOC employees expressed their frustration at leadership’s reluctance to make a strong statement in support of Black Lives Matter. Eventually, Genius brought in an agency for a Diversity & Inclusion audit. Two Black women, The Washington Post’s former CMO Miki Toliver King and Vanessa Péan, currently work in prominent roles at the company. It’s not known whether they will be staying on with the MediaLab incarnation of Genius.
Last summer was also when Mahbod Moghadam, one of the original three co-founders who was pushed out of the company after annotating mass shooter Elliot Rodger’s manifesto with flippant commentary in 2014, took the opportunity to speak out against his co-founders on Genius’s lack of diversity at the corporate level. In June 2020, he called for the “two white guys who have no black friends, are mildly racist, and have zero passion for hip-hop” to sell the company and have the board install a Black CEO. Language in the email sent to shareholders on Tuesday also suggests that Moghadam, who was not named as a preferred stockholder, is in a legal dispute with the company. Reached for comment, Moghadam said, “Who knows? I don’t know what the status is on that.”
Following Moghadam’s post, Zechory—who was spotted attending BDG’s party for the relaunched Gawker last week with his wife Audrey Gelman, the founder of The Wing—quietly stepped down from his role, retaining his equity. The documents include Zechory as one of the employees who is being offered a job with MediaLab.
When the three Yale graduates founded the crowdsourced platform where users could offer up interpretations of rap lyrics in 2009, it was first dubbed as Rap Exegesis but quickly renamed Rap Genius. It soon became emblematic of a now-fading era of 2010s hipster-bro startups, throwing concerts and parties out of its Brooklyn HQ. Genius won the interest of top-flight VC firms like Y Combinator and Andreessen Horowitz, whose founder Marc Andreesen once imagined it expanding from hip-hop lyrics to annotating “Poetry, literature, the Bible, political speeches, legal texts, science papers. And those are just the start.” Celebrities such as Ashton Kutcher and Nas also invested. In 2014, when the company adopted a mission to “annotate the internet,” it was said to be valued at “under $1 billion.”
The tech company often found itself intersecting with media types. When it was promoting its “News Genius” tool, Genius reps would show up for meetings at otherwise staid newsrooms wearing ironic sweaters and litter desks with armfuls of flashy swag. (The tool was discontinued after a blogger pointed out the potential for misinformation and harassment that could stem from unleashing the comments section on the entire web.) And at various points, it dabbled in hiring journalists to branch out into original content, including Sasha Frere-Jones, who left his music critic post at The New Yorker to sign on as Genius’s executive editor in 2015. Even so, Genius kept up its nightlife vibe. One editor who was being recruited for a job at the company recalled Zechory, during the job interview, pulling out a bag of weed and rolling a blunt and then offering him a hit.
More recently, Genius has been going through a series of pivots. It leaned into video with the series “Verified,” which gives artists a platform to tell the stories behind their music. The content team, which MediaLab suggested will be one of the most affected by the layoffs, was the most diverse group in the company, according to Off the Record’s sources. In August 2020, the company pivoted yet again towards “Genius Live,” an interactive live-streaming events business, which spurred a round of layoffs.
One of the former employees said this was when the writing on the wall began to take shape. “We were all like, this is a bad idea. No major artist is going to sign up for this, and people aren’t going to want to sit at home and pay $100 to ask Wiz Khalifa, ‘What’s your favorite cereal?’”
A third former employee cited that effort as contributing to the downfall of the company — deal documents list it as holding just $450,000 of cash in its bank accounts — “despite the fact that all of us told them not to. Part of me is wondering whether they knew that it was not working and yet continued on because they knew that they would be fine.”
As to what the future holds, MediaLab and Genius have offered few clues. The opaque buyer’s website says simply that it “is a holding company of consumer internet brands.” Some of its other reported holdings, like WorldStarHipHop and mixtape library DatPiff, have some overlap with Genius’s hip-hop roots. “We are restructuring the way in which original content is produced at Genius and as part of that some very talented individuals on the content and production teams were let go,” MediaLab said in a statement to Bloomberg. “The scale of the community platform is what attracted us to Genius and this is where we will be heavily investing going forward, with a renewed focus on emerging artists.”
In a statement provided to Off the Record, Genius said: “MediaLab’s commitment to investing in artists and fan-driven communities makes them the ideal partner to propel Genius forward. Genius would not be where it is without the tireless efforts of our whole team. We are immensely grateful to everyone who has made Genius what it is today.”
But some of those people see this deal as the end of an era. “I think a lot of us really believed in what Genius could be,” said the first former employee. “It could have been something really good.”