Music Pushes to Innovate Beyond Streaming, But Investors Play It Safe: Analysis
publish date: 2017-07-24
Taking a look at the gap between music accelerators and venture capitalists in 2017.
If you're confused about how exactly music tech is doing in 2017, I don't blame you.
On one hand, some previously dominant music-tech stars are falling prey to money troubles, suggesting financial success in the sector is tough. Jawbone, the award-winning consumer hardware firm once valued at $3 billion that is known for its speakers and bluetooth headsets, is officially going out of business. SoundCloud, which was reportedly mulling a $1 billion sale almost exactly a year ago, laid off over 40 percent of its staff last week, just days before its employees were supposed to celebrate the company's 10th anniversary. Pandora has witnessed unprecedented turnover in its executive ranks, and spent most of the first half of 2017 scrambling to close a sale.
On the other hand, major streaming services are driving the music industry's growth while tech showcases and accelerators such as the SXSW Music Startup Spotlight, the Midemlab Accelerator and Techstars Music are fueling innovation. In 2017, 54 music startups from over two dozen cities around the world -- including more than 20 startups from New York, Los Angeles and London alone -- participated in these three programs, bringing to the table a diverse range of ideas from live music activations and automated messaging to analytics tools for labels and artists. With the exception of Live Nation, Balderton Capital and Evolution Media, the vast majority of firms investing in music startups so far in 2017 have never backed a music company before, based on investments listed on their websites, even though few music-tech outfits to date have delivered the 30 percent return on investment that most venture capitalists seek. Usher, David Guetta, will.i.am and Nas have put their money on the table this year, joining the likes of veteran artist investors Justin Bieber, Beyoncé and Elton John.
"We take a long-view approach to growing the ecosystem, and we're seeing VCs investing in the same types of companies," says Bob Moczydlowsky, who oversees Techstars Music and counted more than 100 VCs at his group's "demo day" this spring.
But out of the nearly $900 million in music-tech funding during the first half of 2017, 75 percent went to streaming services, and 82 percent was concentrated in the top four companies, according to an analysis of publicly available investment information for the first half of the year. There remains a stark disconnect between the causes to which music accelerators primarily lend their mentorship (hardware, virtual reality, chatbots, label tools) and the problems VC firms are more focused on streaming, social media, brands) -- potentially stifling innovation in the wider music industry.
So far this year, music accelerators have successfully given a platform and resources to a variety of sectors often overlooked in the VC world, as shown below: