Since 2018, Medialab has built an unlikely empire by acquiring tired flash-in-the-pan apps and websites and plastering them with ads. It ingested music lyrics database Genius, image-sharing website Imgur and others, and claims to have amassed an audience of 180 million monthly users who send more than 22 billion messages a month on a trio of chat apps.
Whisper founder Michael Heyward’s second act after launching the hit anonymous messaging app a decade ago was rolling up distressed apps and websites into his venture Medialab.
getty
But along the way, it’s also amassed quite a collection of lawsuits. The founders of Imgur, Genius, social network Amino and mixtape website Datpiff have each sued Medialab over the last three years with claims that the Santa Monica, California-based company failed to honor deals made when it acquired their startups. One of the debt funds which helped finance these deals alleges in another lawsuit that Medialab fudged its revenues, and still more lawsuits claim it failed to pay suppliers as well.
“MediaLab has engaged in a pattern and practice of refusing to pay companies that it has contracted to pay, including in asset purchases, using contrived reasons in an improper business pattern and practice,” wrote the attorney for Amino’s holding company Narvii in an October 2023 court filing.
In that case, Amino’s founders claim that Medialab had agreed in January 2020 to pay $17.5 million for the app. They got $10 million upfront with the remainder to be paid in instalments, but the Amino founders allege that Medialab failed to pay and tried to void the contract. Amino, Narvii and the founders declined to comment. Medialab declined to comment and has not yet filed a response to the ongoing lawsuit.
The case echoes that of Genius founder Tom Lehman, who claims in a suit filed in the Los Angeles County Superior Court that Medialab failed to make multiple payments as part of the $80 million sale of the rap lyrics website in 2021. Lehman declined to comment. Medialab declined to comment but in court filings denied Lehman’s allegations and contested the lawsuit.
Medialab has also settled cases with Imgur and Datpiff’s founders. Imgur founder Alan Schaaf sued in April 2023, saying that Medialab tried to withhold his $8 million earn-out payment from the sale of the image-sharing site. The case was settled in June 2023 for an undisclosed amount. The Datpiff team won a $400,000 judgment against Medialab in July 2021. Medialab declined to comment and did not file a response to either lawsuit.
The company was cofounded in 2018 by Michael Heyward and Brad Brooks, who’d previously started Whisper, another once-hot app for anonymous messaging that raised $40 million in 2014 and landed Heyward on Forbes 30 Under 30 before fading into near-obscurity. Whisper was billed as the “anti-Facebook,” but the app was plagued by claims that it fuelled online bullying. Medialab previously said that “Whisper has a zero-tolerance policy for…bullying.”
Some of its other acquisitions have been fraught with problems. Two years after Medialab acquired Whisper for undisclosed terms in 2019, it settled a class action lawsuit over the exposure of 900 million Whisper users’ sensitive data online (but denied wrongdoing and claimed users had never been promised anonymity in court filings). It’s also been criticized by the National Center on Sexual Exploitation about another of its acquisitions, Kik, for being a “paradise” for predators grooming children and swapping child sexual abuse material. Whisper and Amino have also been named in several child abuse investigations in the United States and internationally.
Heyward’s shopworn media empire also got into a $110 million legal spat with one of its financial backers, debt fund Corbel Capital. Medialab filed a suit in Delaware’s Court of the Chancery in June 2022, and was countersued by the Los Angeles-based fund, in a complex dispute over a loan of tens of millions of dollars used to finance acquisitions.
Both lawsuits were settled in February. Corbel did not respond to a request for comment. Medialab declined to comment.
Medialab also has been hit with lawsuits from suppliers, including analytics startup Mixpanel, which was settled in October 2021 after Medialab allegedly failed to pay a $96,000 bill for its user tracking tools. Software developers HTEC also filed a $260,000 claim in June 2023 over unpaid invoices billed to Medialab. The case is ongoing. Mixpanel and HTEC did not respond to a request for comment. Medialab declined to comment but court filings show that the HTEC lawsuit has been referred to mediation.
Medialab said in one of its lawsuits that its net profits topped $40 million in 2021, and that same year the company raised $200 million at a $1.1 billion valuation, according to Pitchbook. Its claim that it now owns “the best brands in media” has helped convince advertisers like Kraft-Heinz, Courvoisier owner Remy Martin, and cable network Starz to buy ads. Kraft-Heinz, Remy Martin did not respond to a request for comment. Starz declined to comment.
Medialab wasn’t the only company to load up on cheap debt when interest rates were zero. While its monthly users have more than doubled since 2021, so have its borrowing costs. The company appears to have tried to delay acquisition payments to ensure it could meet its debt obligations, according to claims from its lawsuit with Genius’ cofounder.
Look back on the week that was with hand-picked articles from Australia and around the world. Sign up to the Forbes Australia newsletter here or become a member here.
