SpiralFrog, an ad-supported $34 Million sinkhole

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musicnote2.jpgADOTAS — The now-defunct free music service SpiralFrog blew through millions sinced it launched in 2006.

According to a letter obtained by CNET that was from the company’s lawyers to its original equity investors, the company had borrowed $34 million since it went live. I couldn’t find out how much it raised in equity funding, though techcrunch says it $12 million in VC and debt funding. The company folded last week.

Despite doing something most private companies don’t do, which was to disclose its financial results, the company couldn’t secure any more money and the equity investors will be left with nothing after the assets are liquidated. According to the letter obtained by CNET, boutique investment bank Gottbetter Capital Finance LLC sold the loans to investors for SpiralFrog.

So what’s going on with ad-supported free business?

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