Music startups striking the right key with investors

Nearly four years after Apple Computer launched its iTunes Music Store—which has since sold more than 1 billion downloaded songs—startups are looking for their own iPod effect.

Mog.com is one example. The Emeryville, Calif.-based startup, which operates a music-oriented social networking site, raised $500,000 from the Angels’ Forum, Finnat Fiduciaria, Great Idea Enterprises and Sequoia Capital-backed startup Gracenote, according to a regulatory filing. The startup collected $1.6 million in seed money in March 2006 from many of the same investors.

Gracenote, which provides music recognition, content delivery and database management software, is a small private company that has raised nearly $50 million in financing from Sequoia Capital and Bessemer Venture Partners since its 1995 inception. Mog was founded by former Gracenote CEO David Hyman.

Mog is similar to Last.fm, which hosts a service that allows people to stream their music collections. London-based Last.fm also offers a platform for music discussions and social networking. The company raised $5.35 million in a first round of venture investment in May from Index Ventures and angel investors Joi Ito, Stefan Glaenzer and Reid Hoffman, the CEO of social networking site LinkedIn.

Although Last.fm focuses on music, it’s social-networking platform approach for delivering targeted advertising looks a lot like gaming tournament company XFire, which was sold to Viacom (NYSE: VIA) last year for more than $100 million.

But these two startups aren’t the only music-related companies to raise financing. SAS Investors seeded Lightspeed Audio Labs last year with $1.25 million to pursue development of a collaboration platform for music makers. The company, based in Scotch Plains, N.J., is looking to raise between $6 million and $10 million over the next 12 months as it starts to come out of stealth mode.

Also, Pump Audio wants to de-throne the music labels by making it easier for independent musicians to connect with advertisers, TV producers and radio stations for lucrative licensing and usage contracts. The company, founded in 2001 and based in Tivoli, N.Y., raised $2.5 million in its first round of venture investment from Greycroft Partners and High Peaks Venture Partners.