Metallica was formed in Los Angeles, California, in late 1981 when drummer Lars Ulrich placed an advertisement in a Los Angeles newspaper—The Recycler—which read "Drummer looking for other metal musicians to jam with Tygers of Pan Tang, Diamond Head and Iron Maiden." Guitarists James Hetfield and Hugh Tanner of Leather Charm answered the advertisement. Although he had not formed a band, Ulrich asked Metal Blade Records founder Brian Slagel if he could record a song for the label's upcoming compilation album Metal Massacre. Slagel accepted, and Ulrich recruited Hetfield to sing and play rhythm guitar. The band was officially formed in October 1981, five months after Ulrich and Hetfield first met.
Ulrich talked to his friend Ron Quintana, who was brainstorming names for a fanzine. Quintana had proposed the names MetalMania and Metallica. Ulrich used Metallica for the name of his band. A second advertisement was placed in The Recycler for a position as lead guitarist. Dave Mustaine answered, and after seeing his expensive guitar equipment, Ulrich and Hetfield recruited him. In early 1982, Metallica recorded its first original song "Hit the Lights" for the Metal Massacre I compilation. Hetfield played bass on the song and Lloyd Grant was credited with a guitar solo. Released on June 14, 1982, early pressings of Metal Massacre I listed the band incorrectly as "Mettallica". Although angered by the error, Metallica managed to create enough "buzz" with the song and the band played its first live performance on March 14, 1982 at Radio City in Anaheim, California with newly recruited bassist Ron McGovney. Metallica recorded its first demo, Power Metal, a name inspired by Quintana's early business cards in early 1982. In the fall of 1982, Ulrich and Hetfield attended a show at the West Hollywood nightclub Whisky a Go Go which featured bassist Cliff Burton in a band called Trauma. The two were "blown away" by Burton's use of a wah-wah pedal and asked him to join Metallica. Hetfield and Mustaine wanted McGovney out as they thought that he "didn't contribute anything, he just followed." Although Burton initially declined the offer, by the end of the year he accepted on the condition the band move to El Cerrito in the San Francisco Bay Area. Metallica's first live performance with Burton was at the nightclub The Stone in March 1983, and the first recording to feature Burton was the Megaforce demo (1983).
Metallica was ready to record its debut album, but when Metal Blade was unable to cover the additional cost, the band began looking for other options. Concert promoter Johny "Z" Zazula, who had heard the demo No Life 'til Leather (1982), offered to broker a record deal with Metallica and New York City-based record labels. After receiving no interest from various record labels, Zazula borrowed the money to cover the record's recording budget and signed Metallica to his own label, Megaforce Records.