Microsoft Takes Control of Struggling Reciprocal

By Ryan Naraine

After missing its Sept. 17 due date on a $10 million bridge loan from Microsoft Corp. , Alley-based digital rights management (DRM) firm Reciprocal and the software giant are looking at how to salvage the assets.

Reciprocal VP Howie Singer told atNewYork that the intention is to create a new company with the involvement of previous investors as well as the current owner Microsoft, which planned to foreclose on the company this weekend.

“We are in the process of being restructured but the company is not going out of business. We will continue to operate,” Singer said.

In March, Microsoft made a $10 million bridge loan to Reciprocal in order to buy it time to raise more venture funds. None materialized, the company missed its loan payment Wednesday and Microsoft essentially owns the business assets.

“Microsoft is doing what it must do to secure the money it loaned to us. It is as simple as that. They are interested in restructuring and refinancing the company,” said Singer.

The five-year-old Reciprocal, which was backed by Flatiron Partners, Chase Capital Partners and Venrock Capital, is currently negotiating a financing round to complete the Microsoft-led restructuring, which involves the creation of a new company.

If those negotiations fall through and a new company isn’t created, Singer said Microsoft has the option to sell Reciprocal’s assets to a third party.

In either scenario, the homegrown start-up which pioneered the protection of digital content would cease to exist. The majority of Reciprocal’s employees have been laid off and a skeleton crew remains on board to assist with the transition.

The end of Reciprocal as a standalone start-up mirrors the struggles of smaller companies that compete directly with mega-companies eyeing the digital rights management (DRM) business. Recently, another small DRM player, Preview Systems of Mountain View, Calif., also closed its doors.

In the post-Napster world, Microsoft and other big technology players are making moves to get a lock on anti-piracy technology that protects digital files from being copied or distributed without permission.

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