Why We Wrote This Guide
With the rapid modernization and advancement in the music industry, there has been an influx in new ways for independent artists to launch their careers successfully. One such method that has risen to prominence is the concept of private investment in music. With the aid of these individuals or organizations, artists and music businesses can acquire the necessary financing and funding required to take the next step. Thus, this guide will allow artists or businesses to better understand the different types of investment they can receive, as well as the benefits, drawbacks, and conditions of entering such deals. Furthermore, our guide also explains the investor’s side of the coin, detailing why there has been a shift towards capitalizing on the music business and how profits can be achieved through a plethora of investments.
Who Is This Guide For
- Independent artists who are interested in launching their music and careers with the help of sponsorship or investor funds.
- Music businesses in need of financing.
- Investors who are searching for an opportunity to enter the music business in order to locate potentially successful investment ventures.
We recommend this guide is given a dedicated and thorough reading to fully process the information provided. It’s a short read, but feel free to read slowly or review sections to properly understand the material.
Estimated Read Time: 10 Minutes
- The Artist and Music Business Side - Finding Music Industry Investors
- Searching for the Right Music Investor - Factors to Account For
- Where to Find Investors for your Music
- The Investor’s Side
- Hipgnosis Songs Fund
The Artist and Music Business Side - Finding Music Industry Investors
When looking for investors interested in your business, it is vital to understand that in exchange for funds, you will be giving up a portion of your ownership or autonomy. Therefore, carefully weighing the pros and cons of an investment by learning what you will have to eventually pay back and what you will sacrifice by working with an investor is crucial, especially when it comes to being successful in the long run. The following are some of the options available when it comes to raising money.
Angel investors can come in many forms. They might be family members or friends, wealthy individuals looking for an investment, or groups of investors operating in an “angel syndicate”. Lately, crowdfunding has appeared as another form, consisting of an online investing group that raises funds by having large numbers investing small amounts of money. Angel investors seek high returns on generally fewer amounts of private investment, and most of their attention is skewed to new or smaller businesses. By providing capital for start-up or expansion, they take an equity position within the company or certain rights/ownership from an artist. In other words, angel investment is a type of equity financing. One big advantage of financing from angel investors is it brings a lower risk, specifically compared to debt financing. Unlike a loan, invested capital does not need to be paid back in the event of a business failure, especially since angel investors take a long-term view and understand the risks of a business. On the other hand, the primary disadvantage of utilizing angel investors is the loss of complete control; angel investors will have a say in how the business is run, what decisions are made, and your career/future aspirations. They will continue to receive a portion of eventual profits while maintaining control over your operations.
Venture capitalists will invest in businesses during start-up stages or when a company needs a capital injection in order to grow. Many venture capitalists come from professionally managed firms, searching for unique high yield investments outside the stock market. When looking for the right investors, it is imperative for you, as an artist or business, to find a group that has experience with music-related businesses. As venture capitalists often look for high-risk investments, many do not truly care about your artistic integrity or creativity. Ultimately, they want the profits, the quicker the better. Since VCs come from large and powerful firms, investments usually have teams of analysts scouting, analyzing, and advising behind the scenes. Though the firms vary in size, they all wield significant capital power, making them fundamentally different from angel investors. But, like angel investors, they are still a form of equity financing: you lose ownership in exchange for financing. On a positive note, many VCs are veteran business experts so adding expertise by your side can be beneficial on the business aspect of things.
Outside of the United States, many countries have funding bodies that distribute money for the arts, including the music industry. These funding groups provide an opportunity for music businesses and artists to obtain cash. They can be a great way to kickstart your career because many groups are willing to work with music businesses and take chances on projects that angel investors and VCs wouldn’t touch. Furthermore, the arts funding groups give grants instead of loans, meaning you don’t have to pay it back.
In the case of an indie label, investment from a major label is an option. These types of investments normally occur once the indie label has built a proven track record of success as a label and is looking to expand. Major labels retain a portion of ownership on the copyright assets of the indie labels in exchange for capital injection. Funding from a major will require losing some control over your label, which is a tough decision for many indie labels.
This was briefly mentioned in the angel investors section above, but it is necessary to expand on this topic. With the growing wave of digital funding in recent years, crowdfunding (or fan-funding) platforms like Kickstarter, Artist Share, Patreon, Bandcamp and more have served as a way for artists to jumpstart their careers. This method relies heavily on your branding and image, as the prerequisite for acquiring this funding is your ability to connect with people and build a loyal fanbase.
Searching for the Right Music Investor - Factors to Account For
When looking for the right music investor, you should take into account a multitude of factors such as:
- The amount of money you need
- Type of project you hope to fund
- Your potential gain
Additionally, it is important to remember that investors give their capital to fund your business. In exchange for their money, they will often expect you to agree to certain terms. These can be:
- Repayment within a certain time period, if you have made a loan deal
- Giving part- or joint ownership of your business
Other things to consider when seeking out an investor are whether they want to be involved in future business decisions. If so, you should question if they have experience in the music industry or another creative industry and if you share a similar mindset in terms of your business. Teaming up with an investor who has a proven track record showing their expertise in the industry can be a difference-maker in your success.
Where to Find Investors for your Music
- Your local music scene: networking with other artists and promoters in your area can be a great way to find someone who can commit to your talent and business plan.
- Local business community: business development organizations, councils, and other groups provide an opportunity for creative artists and businesses to get backing. In many regions, one can locate the likes of Small Business Development Centers, presenting an effective means of finding investors in the music industry.
Admittedly, finding an investment often depends on where you live. Though it’s always best to begin by asking around in the local music community/scene. However, sometimes this may not be the most successful option. Communicating with investors virtually is an option and many people also move to larger, well-known cities with established music scenes.
Resources for finding music-oriented investors:
- Angel Investment Network
The Investor’s Side
For both institutional firms and private investors, music royalties represent an attractive new investment opportunity. To start, royalties can offer stable earnings, predictable payment dates, and acceptable yields.
Royalty income rises and falls gradually and predictably. Newly released music often has a shelf life of a few months where it will experience its most activity in terms of streaming, sales, and airplay. After this window closes, incoming royalties tend to drop off to lower levels, although even those levels remain quite stable. Next, royalty checks arrive in a set timeline, which is normally quarterly. This consistency is extremely desirable for investors, who don’t really witness periodic returns in other ventures like the stock market. To add on, royalty owners get paid first; for example, if you own royalties to a song distributed by a specific group, you will get paid before stockholders or employees. Finally, even accounting for declining rates, an investment in music royalties delivers returns much greater than bonds or savings accounts. Royalties are unaffected by the flow of the stock market and provide stability and consistent yields, which is a gem for any investor.
Ways to Invest in Music Royalties
- Buying into Existing Music Royalties (Royalty Exchange):
Driven by an interest to participate in music royalties, institutional money has increasingly funneled into the music industry. In the United States, Round Hill Music is a private equity firm created to acquire music assets. Following institutional money, private investment has also found its place in the royalty business. Royalty Exchange is an online marketplace where private investors can buy into music royalties. Similar to how a company goes public by offering its shares to the general public, artists earning royalties can sell a portion of their incoming earnings to investors. Royalty Exchange allows artists to find investors at their price level. This is a shift from times when only superstar musicians could have access to investor interest. Royalty Exchange also brings transparency to royalty valuations. Previously, most royalty transactions were made in private, but under Royalty Exchange, the details of every sale taking place on the platform are made public.
- Investing in Artists’ Future Royalty Streams:
Other services allow private investors to make speculative bets on future royalties. LIVAMP is a company whose platform gives artists a chance to raise money by promising a percentage of any earnings gained in the future for cash today. Most of the time these deals occur because artists want to fund tours or album costs and in exchange, they leverage eventual earnings to their investors.
Hipgnosis Songs Fund
Hipgnosis Songs Fund is a British Guernsey-registered music intellectual property investment and song management company founded by Merck Mercuriadis. It was established to offer investors a pure-play exposure to songs and associated musical intellectual property rights. On July 11, 2018 Hipgnosis IPO’d, raising over a billion dollars in gross equity capital. With continued success over the years, Hipgnosis was founded on the premise that hit songs are long-term predictable assets unaffected by economic cycles that will grow in value as the global music market expands. Other than acquiring songs, Hipgnosis manages the playlist, cover, and synchronization revenues of its intellectual property. Currently, they own tens of thousands of songs, allowing Hipgnosis to join the FTSE 250 Index, making it one of the biggest companies on the London Stock Exchange.
Author: Ahmad Zargar
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