Why More Investors Want in on Music
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Why More Investors Want in On Music
Billboard’s Glenn Peoples wrote last week about how investments from major labels have shifted away from startups:
“In a few short years, the major labels have gone from investing in and partnering with speculative tech startups to pouring money into regionally focused music companies across Asia, Africa, and Latin America. After a brief flirtation with NFTs and live-streaming businesses, anything resembling a faddish technology seems to be out of favor, judging from the deals and partnerships they've been making lately.”
It’s a reminder of the wild moves made during the peak pandemic, zero-interest rate policy days. Whatever happened to Universal Music Group’s Bored Ape Yacht Club group, KINGPIN?
The money didn’t just go to NFTs though. There were also a handful of indie labels that were acquired by majors that would be lucky to sell for half that amount today. Money flowed freely everywhere.
But even if major labels have scaled back from funding startups, these startups have still gotten their money. Last year, over $10 billion was funded to music companies. The biggest checks often come from investors outside of entertainment.
Earlier this year, Create Music Group raised $165 million from Flexpoint Ford, a private equity firm known for financial services and healthcare. Flexpoint Ford also led Duetti’s recent $34 million equity round. Suno’s $125 million Series B was led by Lightspeed Venture Partners, which invested early in Snap and several enterprise companies. Gamma raised $100 million from Alpha Wave Global, which also invested in SpaceX, X (formerly Twitter), Uber, and Lyft.
Part of this should be expected. These companies aim to disrupt the status quo. They’re not going to go to knock on the door of an incumbent major label to ask them to join their seed round. Here’s a helpful Figma map by Water & Music that highlights the companies invested in by Francisco Partners, Blackstone, BlackRock, and Saudi Arabia’s Public Investment Fund.
On the pre-seed and seed side, many startups rely on high-net-worth individuals and family offices, but there’s more money from outside firms pouring into early-stage companies too.
When incumbents do get involved, it’s to acquire the company once it’s been de-risked. Like Sony Music acquiring AWAL and The Orchard.
It all shows the heightened interest in music from generalist investors. Many firms see the rise of independent music as a timely land-grab opportunity, whether that’s on the distribution, artist funding, or rights ownership side.
Yet music, like any industry, has its sector-specific investors who are bearish compared to the optimistic outsiders. Some of that comes from the wisdom of having been around the block and knowing what works and what doesn’t. Historically, music’s most powerful companies have had the power to pick winners and losers. The music and entertainment company graveyard is full of well-funded startups who thought they could take on the man and lost. And since many investors missed out on OpenAI, they may aggressively try to capture the next wave.
However, some of the industry’s next innovations often come from outsiders, not insiders. The future of music streaming wasn’t Doug Morris’ PressPlay, it was Daniel Ek’s Spotify.
For most founders, a mix of both capital and counsel from different sources seems wise. The big checks will likely come from the generalist firms, but the team still has seasoned, well-respected industry vets on their side. It’s a small industry. Everyone knows each other. A powerful voice on their team can be worth more than whatever that person is paid.
Chartmetric Stat of the Week - Quincy and Michael
The Quincy Jones - Michael Jackson relationship might be the most important producer-artist relationship in all music. Jones produced Off The Wall, Thriller, and Bad. Michael’s Spotify Monthly Listeners jumped from 50 to 55 million at the end of October, mostly due to Halloween and the popularity of “Thriller,” but I expect we may see a slight bump this next week too with Quincy’s passing.
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