Rap Genius Raises $40 Million and Changes Name to 'Genius.' But That's Not the Whole Story. An inside look at how the annotation startup is looking to rebrand after a string of controversial events that culminated in the firing of one of its co-founders.

On May 23 of this year, things were finally coming together for Rap Genius. Launched in 2009 by three Yale alums -- Mahbod Moghadam, Tom Lehman, and Ilan Zechory -- and refined during a stint with the well-known startup incubator Y Combinator, the company was completing the details of a massive $40 million funding round by one of the top investors in tech, a piece of news they had agreed to announce as part of a profile on Business Insider.

Cofounder Mahbod Moghadam had undergone emergency surgery for a brain tumor and had made a speedy recovery.

They were negotiating with Warner Music over the rights to publish and annotate the company's lyrics on their site, having already made similar deals with all the other key publishers, and thereby dodging a serious legal threat to the site's business model.

And they were about to secure a new domain name, Genius.com, a critical step in rebranding the site and company as Genius, a hub for crowdsourced knowledge beyond the hip-hop lyrics it started with. They had already launched several channels -- Rock Genius, News Genius, Poetry Genius -- to test the idea, and they had made their technology embeddable so that annotated texts could be hosted on other sites in the same way YouTube videos are, vastly increasing the application's reach.

Everything seemed in place to take Genius to the next level and transform it from a niche fan site into what Ben Horowitz, an early backer of the company who put in $15 million, calls the digital equivalent of the Talmud, the volumes of biblical commentary produced by generations of rabbis that have arguably had more influence on the development of modern civilization than the Bible itself.

That's when one of the site's users uploaded a controversial document to the platform: the 137-page manifesto left behind by the woman-hating Santa Barbara gunman Elliot Rodger, who had killed six people and wounded 13 others just hours before.

Then, availing himself of the site's annotation tool, another user highlighted various bits of text and added his own commentary to offer another perspective on Rodger's story.

That is precisely what Genius is for: "the crowdsourced annotation of music, news, literature, history, and just about any other text you could imagine," as the website itself puts it. Noting that "every text is made more understandable, and interesting, by our shared attention," the site defines its goal as nothing less than creating "the world's greatest public knowledge project."

But there was a problem. Well, two, actually. The first: The annotations did nothing to illuminate the text in question. Far from offering the sort of insightful, well-informed take that has brought the site as many as 35 million monthly uniques and won kudos from everyone from Nas to Junot D?az, they were more akin to the sort of juvenile remark one might find buried in the comments thread on a low-budget news aggregator: cruel, idiotic, shockingly insensitive, and misogynistic.

The second problem was the person who wrote the annotations: Moghadam.

A Loose Cannon

The three cofounders, who met at Yale, had unconventional backgrounds for the tech world. Zechory wrote for the HBO series "Deadwood" and "John From Cincinnati" and is a trained hypnotherapist. Lehman worked at D.E. Shaw, an investment-management company. Moghadam was a lawyer.

But in the years since launching Rap Genius, they had become better known for their antics and unflattering press, and none more so than Moghadam.

There's the story about how Ben Horowitz, a Rap Genius investor, hosted the cofounders for dinner and invited the rapper Nas and Facebook founder Mark Zuckerberg to join them. After a few drinks, Moghadam took out his phone to snap a picture of Nas and Zuckerberg together. Zuckerberg asked him not to. Moghadam took the shot anyway and posted it on Instagram.

"I was drunk and I went paparazzi," Moghadam said. "I didn't even think it would be a thing." It was. The photo ended up in news stories all over the internet, and Zuckerberg asked Moghadam to take it down. He did, and he wrote a letter of apology to the Facebook founder.

But he didn't sound very apologetic when he told an interviewer, "Zuck can suck my dick."

In 2013, the cofounders gave a controversial interview at a startup conference called TechCrunch Disrupt. They walked onstage in sunglasses and hipster outfits. Lehman wore a pink flower-patterned sport coat, his hair brushed to the side in a misshapen 'fro. Zechory wore a fuzzy coat that looked like the top half of a bathrobe. Moghadam looked the most buttoned-down, but he acted the craziest. He told the interviewer that the team had taken a lot of "nude Adderall" while building the site. That way they wouldn't be able to leave the house. "If you got a woman pregnant while on Adderall, the baby would be smarter," he quipped. Later he rapped about smoking weed through a vaporizer and eating Chinese food.

Not long ago, I had my own strange encounter with Moghadam.

At the beginning of the year, I was in Munich for a conference. I met Moghadam one night and we talked about what we did for a living. Moghadam also introduced me to Genius' only employee in Germany.

The next morning I went to breakfast at the hotel restaurant. The host sat me down at a table next to Moghadam's. He was eating with the same employee he'd introduced me to the night before.

I was not trying to eavesdrop, but I overheard Moghadam tell the Genius employee that Kanye West had once made a redesign of Genius in Photoshop and sent it to an investor. Moghadam said the investor had forwarded the redesign to Lehman, Genius's CEO, and that Lehman had rejected it. This had seriously pissed Kanye off, Moghadam told the employee.

I thought this was a funny story, one that would make for a great post on Business Insider. But I didn't want Moghadam to feel as if I'd ambushed him.

So a few days later I sent him an email. "I really think the story is great," I wrote, "and want to write it up. But I didn't want to do that without talking to you first and giving you a heads-up. Want to talk to me about it?"

His reply was odd. He said he'd made the whole thing up, that he'd been lying to the German employee to impress him.

"I am a big-time faker to these kids," he wrote. "I tell them stuff to build RG mystique because that keeps them impassioned -- but I am full of lies."

A few weeks later, I spoke to Ben Horowitz, the investor to whom Kanye sent his redesigns, and Horowitz readily confirmed that the story was in fact true.

It seemed like an amateur and ham-handed attempt at press management, but it was pretty harmless. And it was more or less in keeping with the irreverent, freewheeling style the company had cultivated from the start.

Moghadam later attributed some of his behavior to the effects of the then unknown brain tumor, but the first indication that Moghadam's unruly approach could do damage came late last year, after his surgery had been deemed a success.

Lehman says he didn't "reject Kanye's design."

"Kanye sent us an astonishing and progressive concept. We spent a ton of time thinking about it and tried our best to keep up the collaboration, but Kanye was too busy and we haven't gotten together on it yet."

That fall, Moghadam had overheard the other cofounders talking about how the site wasn't doing as well as it could in search results for pop lyrics. He set out to fix that. He went on RG's Facebook page and in a joking-not-joking tone asked followers if they wanted to join the "Rap Genius affiliate program." All you had to do was link to Rap Genius and you would get "massive traffic." No such program existed, but Moghadam thought the Facebook post was worth a try. The other guys hardly noticed. Zechory, for one, was busy reeling in a new investment for the company. A huge one, from a billionaire.

The Investor

While visiting his parents in Detroit for Thanksgiving, Zechory wound up attending a Detroit Lions game with a friend. Zechory's friend spotted the teenage son of Dan Gilbert, the billionaire owner of Quicken Loans and the Cleveland Cavaliers.

At halftime they went over to say hi. Both of Gilbert's sons knew what Rap Genius was. Gilbert and Zechory started comparing notes about communicating with employees in a rapidly growing company. Gilbert talked about his "-ISMs," sayings that he drilled into every new employee at all his companies. One is "a penny saved is a penny." Another: "You have to take the roast out of the oven."

Gilbert invited Zechory to come to his office the following Monday to learn about some of the investments he'd been making in downtown Detroit. That Monday, Ilan showed up with his grandfather. Gilbert showed up with a team of executives. It seemed Gilbert had an ulterior motive: to kick the tires on Rap Genius.

Zechory gave him the spiel. He showed him a News Genius story about longtime Detroit activist Grace Lee Boggs. Gilbert didn't know who Boggs was, but an annotation on the story contained all the relevant information.

Gilbert was impressed. After the meeting, Gilbert called Ben Horowitz and Marc Andreessen, whom he knew. Then he asked to meet Lehman and Moghadam in Cleveland. They flew in and everyone hit it off.

By December, Gilbert seemed ready to make a serious investment in Rap Genius. There was just one last hurdle. He wanted his right-hand man, Jake Cohen, to visit the company in New York. Cohen arrived the day of Rap Genius' Christmas party. He spent the day interviewing employees. Then everyone threw down that night. The booze flowed, and the party spilled out onto the company's roof deck, where guests could smoke and take in a view of Manhattan that stretches from the World Trade Center to the Chrysler Building. Cohen left New York in a great mood. He told the guys that an initial term sheet was on its way.

Moghadam flew back to L.A., where Rap Genius had a second office in a Bel-Air mansion. Lehman and Zechory headed to the Dominican Republic for their first vacation in four years. On Dec. 23, as they played a round of golf at the Puntacana Resort and Club, the company was about to be thrown into turmoil.

A few days before, someone on the tech-news-aggregation site Hacker News had written a comment highlighting Moghadam's Facebook post asking for links. Commenters responded with angry calls for Google to investigate the way Rap Genius got stories to rank so high in Google searches.

Matt Cutts, a Google executive, replied in the comments: "We are investigating this now."

Cutts didn't like what he found. In addition to the Facebook post, Moghadam had been emailing bloggers, promising to tweet about their blogs from the Rap Genius Twitter account if they put links to Rap Genius on their pages.

This violated Google's rules. So on that day in December, Cutts made a decision: In an instant, he removed all Rap Genius pages from Google's index of the internet. The fallout was devastating. On a typical day, Rap Genius was drawing about 1.5 million visitors; without Google the number shrank to 200,000.

Lehman and Zechory had only made it through eight holes when the news reached them. They were on the next available flight New York. On the way home, they came up with a plan: "Get together, love each other, and work really hard."

As the crisis unfolded, Gilbert reached out to say the offer was on hold while he waited to see how everything played out. Then the billionaire emailed his pals at Andreessen Horowitz and asked if the issue was going to sink the company. Marc Andreessen wrote him back and said: "These things are never fun in the moment but typically turn out to be blessings in disguise, assuming the team manages the recovery properly." Then he gave the examples of crises well-met by eBay, Twitter, Intel, AirBNB

The Rap Genius staff spent the next 48 hours identifying the errant links and nuking them one by one. They kept in touch with Google about their progress and wrote a blog post that won praise in the tech community for its honesty.

Rap Genius was back on Google in a few days.

At the beginning of February, Gilbert sent the guys a final term sheet. He offered to lead a $40 million investment, valuing the company at several hundred million dollars. Zechory says the actual valuation is one secret he'd like to keep. With a laugh, he says it's "under a billion." (The rumor is $400 million.)

They kept the deal secret for months to coordinate its announcement with the news of the new Genius.com domain name.

Before long, Rap Genius had put the Google crisis behind it, and it looked like smooth sailing for the site.

And then Moghadam went and annotated a killer's manifesto.

About Those Haircuts

Forty million dollars is a lot of money to invest in anybody, especially three dudes in Williamsburg who are better known for their misbehavior than their business acumen.

When I met with the trio in April, Zechory said lots of startup founders with sterling reputations "use swear words and smoke weed." The difference is, "We try not to deny that we're just humans."

Zechory and Moghadam both told me that for the company's first few years they acted the way they did in part to get attention for the site. The Google ordeal -- and almost losing out on Gilbert's $40 million -- taught them they needed to tone it down.

While they both seemed to regret the TechCrunch interview -- Moghadam said he won't be wearing sunglasses onstage anymore -- Lehman did not.

"If you want to tell me that my jokes are corny and wack, I 100% feel you," he said. "But if the solution is to be totally boring, then I can't do that."

A few weeks later, boring would start to look pretty good.

On Memorial Day weekend, Moghadam called his cofounders to let them know he'd heard from a writer at Gawker who was doing a post on his annotations. A few of his notes praised particular passages as "beautifully written." Another noted that a childhood friend of Rodger's would later grow up and "turn into a spoiled hottie." Finally, an annotation about Rodger's sister read, "MY GUESS: His sister is smokin hot."

The Genius team had been through crises before. At first, Zechory and Lehman suggested ways to improve the annotations, first by replacing them with more thoughtful insights and then by rallying the community as a whole to contribute smart commentary that might demonstrate what made the platform great.

They also suggested that he make a public apology, which he did.

Then they decided the company had suffered enough self-inflicted wounds. After discussing the situation with Ben Horowitz and Dan Gilbert, they made a decision: Moghadam was out.

"Mahbod is my friend," Lehman wrote on the site. "He's a brilliant, creative, complicated person with a ton of love in his heart. Without Mahbod, Rap Genius would not exist ... But I cannot let him compromise the Rap Genius mission -- a mission that remains almost as delicate and inchoate as it was when we three founders decided to devote our lives to it almost 5 years ago."

"Firing your close, close friend and someone who built this thing with you from nothing is hard emotionally," Zechory said. "This was the hardest decision we ever had to make. But he'd been given enough chances in the past that he knew where we stood, and we had to go through with it." Stirring the pot is one thing, he added, but "saying something uncreative and mean and misogynistic and insensitive to a tragedy is very different."

"There's another level of badness to it," Lehman pointed out, "which is that it's the opposite of what we want the platform to be used for."

Zechory and Lehman knew as well as anyone that Moghadam's brash, unbuttoned style had always been a key part of Rap Genius' identity. "From the early days, we were trying to do anything possible to get attention, just anything," Zechory says. "We banged some pots and pans together, made some noise, got the word out. But as you grow up a bit, you're trying to accomplish some big, serious things and you've got to kind of change your approach."

"As the world changed," Zechory said, "Mahbod didn't really change that much."

As for Moghadam, a few weeks after leaving the company he seemed characteristically exuberant. In a Facebook chat, I asked what he'd been up to.

"Working on the rap genius book homie!"
"I am about 40 pages in, my dream is for james franco to play me in the movie"
"it is gonna be epic"
"it's all gonna be in there"
"it is a story of love, a story of invention"
"you will laugh, you will cry ... "
"you're gonna love it"
"it's really funny!"

I wondered if he felt regretful.

"ah obviously I am deeply ashamed, but now is a time of reflection for me -- I am so proud of what we've built and I'm excited to watch it grow!"
"now that I'm looking at it from the outside, it seems even more marvelous to me"
"and I'm really excited to chronicle the formation of it in the book."