Funding High Quality: Dvdplay

“We wrote the check because DVDPlay had the best software stack,” recalls a former Voyager associate (speaking anonymously). “Redbox machines required a dedicated phone line. DVDPlay used cellular modems. That was the edge.”

No round occurred.

Then came Redbox. In late 2005, Redbox—then a joint venture between McDonald’s Ventures and Coinstar—rolled out 800 kiosks nationwide, pricing rentals at $1.00, undercutting DVDPlay’s $1.50. Overnight, Phillips’ bootstrapped model became unsustainable. He needed scale. He needed funding. dvdplay funding

Phillips raised one final round: from a group of angel investors in Portland. The terms were a Hail Mary: 20% discount to the next round’s valuation, but if no round occurred by December 2011, the notes would convert at a $0.25 per share valuation (down from the $4.50/share of Series B). “We wrote the check because DVDPlay had the

The initial funding model was almost quaint: . Each machine cost $12,000 to build and $500 per month to service. If a kiosk pulled in $1,200 a month (roughly 40 rentals at $1.50 per night, plus late fees), Phillips plowed 90% of that back into building the next machine. By 2004, DVDPlay had 47 kiosks in Oregon and Washington. They were profitable, but tiny. That was the edge

In the annals of forgotten tech, few artifacts feel as abruptly obsolete as the DVD rental kiosk. But in 2005, as Netflix was still a mail-order service and streaming was a buffering punchline, the battle for the $7 billion home-video market moved to the parking lots of America. Two names emerged: Redbox, backed by the deep pockets of Coinstar and McDonald’s, and DVDPlay, a plucky, privately held competitor from Portland, Oregon.