Human Music – Madrid – A Madrid-based Online Music and sound-art Magazine

Investment in music start-ups:

Music start-ups do not generally attract a huge amount of investment from Venture Capitalists. According to this report by Funderbeam, in the US music start-ups have only attracted 0,17% of total funding to start-ups since 2012.

The same report finds that there are a whopping 3,600 start-ups associated with music worldwide. As can be seen year after year at music tech showcases and accelerator programs such as Midemlab and Techstars Music there is no lack of start-ups looking for funding.

Before any start-up attempts to seek outside VC funding it is important to understand the risks involved in raising capital. Raising VC capital comes with it’s risks not only for the investors but also for the founders as is explained in detail in this great article written by Eric Paley for TechCrunch.

Approaching VC’s:

If a start-up does decide it needs and/or wants VC funding, apart from participating in start-up accelerators, incubators and music-tech showcases (Abbey Road Red, Midemlab, SXSW, Techstars Music, Slush) a good step would be to reach out to VC firms that have invested in music start-ups before, or are owned by people who have experience in the industry. These VC firms are more likely to understand the opportunity, and are also more likely to be able to offer useful help and guidance aside from their economic investment.

In terms of what VC’s are looking for in music start-ups, in this video Larry Marcus, MD of Warren Venture Capital, outlines the following questions a VC firm will ask to critically assess a start-up:

Is there a great product?
Does the founder have deep clarity on what he/she want to accomplish?
What new human resources are needed to complete the team, what are the strengths of the founder?
Does the founder seem credible, reliable and honest, or is he/she overselling?
Is money being used wisely and efficiently?
How simple is the company structure?
Does the founder know his/her numbers?

Additionally, in this video recording from Midem in 2016, David Hoffman, co-founder of The Next Big Sound, talks about how he approached VC’s who had already invested in music start-ups. Apparently most of them told him they didn’t actually invest in music start-ups. However eventually The Foundry Group, SofTech VC and Techstars Ventures ended up investing in his company. He suggests it is therefore very important to be persistent.

Jason Mendelson co-founder of The Foundry Group suggested in an interview with Peter Alhadeff and Aaron Gottlieb for Berklee College of Music’s Music Business Journal that a good approach is to send materials specifically put together for VC firms you are interested in. Meanwhile Chris Sacca from Lowercase Capital* (which invested in Fanbridge) suggests on his website that the best way to approach is via e-mail and that having a live site or URL is the way to pitch.

To sum this up whilst VC’s can sometimes be shy to invest in the music industry, they do invest in music start-ups that have great innovative technology products and are targeting large enough markets. The three key takeaways when approaching them would be: