Etsy for music: Reverb banks $4.2M to expand online music exchange

January 10, 2015

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Music exchange website Reverb.com has raised $4.2 million in new funding to continue their expansion into the music retail industry. This is their second round after raising $2.3 million in 2013 from investors including musicians Rick Nielsen of Cheap Trick and David Lowery of Camper Van Beethoven, as well as Brad Keywell and Eric Lefkofsky of Lightbank.
 
Founder David Kalt launched Reverb in 2012, providing musicians with a new alternative to selling their gear on Craigslist or eBay. He’d used eBay to sells thousands of dollars worth of gear over the years, but didn’t like the high margins they were collecting.
 
“I found a real pain point in the market, buying and selling used gear, using sites like eBay in particular and dealers that had huge markups and margins, Kalt said. “I realized from my time in finance that if I could make these markets more efficient and build a great technology and a great platform I could connect buyers and sellers and reduce the fees and actually give musicians a means to sell their gear.”
 
Reverb currently collects a commission of 3.5 percent compared to eBay’s 10 percent.
 
As an avid guitar collector and amateur musician, Kalt had a passion for the business that was a natural next step after his first company, online brokerage OptionsXpress, sold to Charles Schwab for $1 billion in 2010.
 
After purchasing the vintage dealership Chicago Music Exchange in 2010, Kalt had a unique inventory to start the company. Since then, the company has sold almost $40 million worth of equipment and Kalt expects sales to hit between $130 and $150 million this year.
 
They’ll use the current funding to double their employee count over the next 18 months with hires in engineering and marketing. They’ll also continue to expand their platform into some other areas they’ll disclose later in the year.
 
Kalt said this will probably be their last round of financing, as they’re set to reach profitability this year. He believes this comes from the steady growth approach they’ve taken in the last two years. 
 
“I’m a believer that you have to find that balance between reasonable grow at a reasonable cost.”
 
The company is also moving —  it’s outgrown the Lakeview space it shares with Chicago Music Exchange, and is moving this month to a 9,000 square feet space at 3345 N. Lincoln Ave.
 
As Reverb embarks on their third year as a company, Kalt likens their current position to a band putting out their third album. 
 
“If you look at bands over the past 50 years, there are a number of bands that have had a good first album, a good second album, but the number of bands that have a good third album — the third album is the key to success,” Kalt said. “Third albums make or break a band.”
 

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