Months shy of its 10th anniversary, Bellevue, Wash.-based
In its Chapter 11 bankruptcy filing on March 20, Zango CEO and co-founder Keith Smith said that the company defaulted on paying back more than $44 million combined to KeyBank, Silicon Valley Bank and Comerica Bank.
It’s an ignominious end to a company that provided users with free downloads of games, music and other content in exchange for the ability to serve them ads when they surfed the Web. Zango was also plagued with lawsuits, which cost numerous parties tens of millions of dollars in legal fees.
In 2004, Zango raised $40 million from
Altogether, Zango had raised more than $150 million in debt and equity financing, according to the websites of Spectrum Equity and Zango, which still remained active late last week.
No other institutional venture investors were involved in the company’s financing, though Zango raised money from several individual investors.
The closing of the company comes as Zango had settled at least three lawsuits, including one brought by Washington’s Attorney General’s Office in 2002, and another by the Federal Trade Commission in 2006. Both were based on charges that the company “used unfair and deceptive methods to download adware and obstruct consumers from removing it, in violation of federal law,” according to an FTC press release issued at the time.
The Seattle Times recently reported that Zango settled a lawsuit by former employee Michael Lockhart, who sued to recover compensation he contended he was owed. Lockhart won a $4.6 million judgment in January; his attorney, Dan Brown, declined to disclose how much of that judgment Lockhart received, saying rather that “we’re settled.”
One investor in Zango, who asked not to be named, said that the company “had a solution that worked really well for markets and came a long way as new mediums evolved quickly. But while they did a lot of things right, there were things they didn’t control well.”
Greg Sterling, a digital media analyst based in Oakland, Calif., suggests that Zango outlived its business model.
“A lot of these spyware, or adware, companies got into legal trouble because of bait-and-switch tactics, but I also think the culture of online advertising has simply changed and matured,” Sterling says. “People don’t like pop-ups and all these other things like companies like Zango served people. Most big advertisers have abandoned using adware companies in favor of what they consider to be more legitimate means of reaching people, including search engines.”
Until 2004, Zango was known as 180Solutions. It changed its name to Zango after acquiring a handful of companies in cash and stock deals, including a game development startup called Full Armor Studios, and the adware startup Hotbar. —Constance Loizos