Napster's Reported $3 Billion Funding Round Collapses, Company Alleges Misconduct

Napster, the metaverse-turned-AI firm formerly known as Infinite Reality, announced Thursday that a massive $3 billion funding round, previously declared a done deal in January, will not materialize. The company, which had touted the investment as one of the largest of the year, now claims to be a "victim of misconduct" and is assisting law enforcement. This development follows months of scrutiny and questions surrounding the anonymous investor.

A spokesperson for Napster stated that earlier assertions about the funds being "in an Infinite Reality account and is available to us" were "made in good faith based on what we understood at the time." However, the company has "since uncovered indications of misconduct that suggest the information provided to us then was not accurate." The purported $3.36 billion investment, which would have valued the company at $12 billion, was a subject of ongoing investigation by Forbes.

The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are currently investigating aspects related to the company and the investment. While the SEC's inquiry initially focused on a 2022 valuation, the DOJ is examining the circumstances of the vanished investment. Napster clarified that it is not a target of the DOJ's investigation.

Despite the uncertainty surrounding the major funding, the company had continued to raise additional capital, not as part of a formal round, and executed stock-based acquisitions. Infinite Reality acquired Napster in March and subsequently rebranded itself under the more recognizable name in May. This strategy of acquiring smaller entities, often through all-stock deals, contributed to its self-reported valuations.

The collapse of the funding round also means a promised tender offer, which would have allowed shareholders to cash out, has been called off. This marks the fourth time since 2022 that such an opportunity for investors has fallen through. The company's history includes a series of lawsuits alleging unpaid bills and questions regarding its financial practices and leadership credentials.