Whether starting in the music industry as a performer, producer, or distributor, you may find yourself in need of extra funding, which can be provided by music investors. Either for covering expenses of album pressing, demo recording, technical support of a tour, etc. But it is good to remember that when committing yourself to a relationship with an investor, you will have to give a part of your business to them. Maybe even a part of decision-making autonomy, or even both. Before you start looking for music entertainment investors, you should know what they are. But also that all the detail you agree upon your investor, you should specify in a music investment contract. Only by having all of the details of your deal in writing, both you and your investor are protected.
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What Are Music Investors?
In the fewest number of words, they are an investor looking for a music project to invest in. But that doesn’t even start to describe all of the potential advantages of using their services.
The music industry is very different from any other. While in other industries, for example, IT, the investments are flowing into incremental progress, evolution, and sometimes revolution. There are clear indications of what needs to be done today to satisfy the needs of the markets tomorrow. It is an exact science. Chips need to be faster, consume less energy, and so on. But music is the question of taste and preference. No one can certainly know today what will be popular in a month or a year, the way the computer industry knows that consumers will want graphics cards 12-15% faster. That’s why not everyone wants to invest in music.
Music industry investors are people who are very knowledgeable and personally invested in music. And that is actually a good thing for two reasons.
Due to their specialization, they are much more likely to understand the potential your startup has. Your business plan will not be just a collection of numbers and their sums. They most likely will understand the passion behind them. They will know to ask the right questions that will challenge your presumptions and thus help you tune your plans, and not just dismiss them as invalid. At the same time, they will be able to provide you with, probably, much-needed expertise and advice. Not that they are knowledgeable about the industry. But many of them once were where you are at the moment, either as entrepreneurs in the music industry or as the artists. They can be great allies and not just business partners.
Types Of Music Investors
Before I go on explaining how to find investors for music startups and how to get investors for music projects, you should know that they are not all the same. Just like in any other industry, there are several types of them.
The most obvious division is similar to the rest of the investment world, but with few additional types.
Angel investing is present in the music industry. They are private music investors who look for investments in the very early phases of business development. They are wealthy individuals who are willing to invest their personnel funds in some prospective ideas. Most often, they are looking for an opportunity to invest in a business that is just starting. They could be people in your immediate surroundings, friends, and family or people who have the interest to invest in music. Sometimes those people can be successful veterans of the industry who want to give a helping hand to someone who is in a place they were before they made it. Angel investors can provide your startup with the initial financial needs to start your business.
If you have ever wondered what are music angel investors looking for, the answer is simple. They are looking to invest in people. Some are looking to invest in the team that is behind some business idea, as their immediate interest is to get the startup off the ground. But some can be even called music artist investors, as they are interested in investing in the performers and bands, either in the form of purchasing musical equipment, or studio time and so on.
Just like in any other industry, venture capital looks for investment in businesses that have a strong potential for growth. Very rarely, they look to invest in companies that are just getting off the ground. Instead, they are looking for a business that already has some market presence and a product or portfolio which has potential for growth, so that they could reap the fruits of that growth. This type of music investment companies are more interested in investing in music companies than in artists. If your business idea is involved in production or distribution, and you already have an existing label or company, they may be your option.
Venture capital is very often interested in investment in royalties. And even there are specialized markets for royalties bundled together as financial products. This presents an advantage for venture capital firms and a reason why they are not very big presence as a direct investor. Compared to some other investment types.
In many countries around the world, governments invest in culture through the direct financial support of artists and art projects. This is almost always done through some type of “arts councils”, whether on level of municipalities or higher levels. If you are an artist or a music festival organizer, this is one of the potential sources of financing. Arts councils almost always look to enriching the offer of cultural programs in some areas, cities, regions, or a country. And they have a selected scope of projects they are willing to finance. Almost exclusively, those are various types of festivals, especially those that can provide some social benefits. Either through raising consciousness about some particular social issue or preservation of some type of tradition. But the advantage of them is that they more often give grants, and very rarely loans. You will still need a good business plan, but most likely one with a focus on the social impact your idea instead of profitability. But if you receive financing from the arts council, you are almost certain that you will not have to pay it back.
One of the peculiar characteristics of investments inside the music industries is that the big players are interested in investing in the upstarts of the sort. If you are starting an indie label, you might find a major publisher interested in supporting you. While in some industry this kind of support to direct competition might seem odd, the problem is that only on the surface it looks like you would be their competition. In music, publishing competition between companies is for artists, not for buyers of music. Thus a major label might find it advantageous to invest in an indie label. Such they can see as a feeder of music talent for them, as someone who will invest the most expensive resource, the time, in finding the next big star. In such an arrangement, you shouldn’t be surprised that your artists will eventually move on from you. But, the start-up funding from major labels usually come to people who have behind them some success as an indie label, or strong sale as an artist, in the past.
Very often, major labels are interested in investing in the label of a particular genre. Some are primarily hip hop music investors or country music investors, and so on, especially if they are a label specialized in a specific genre.
The music industry is a type of publishing industry. In a way, you can say that there are companies interested in just moving the product, music, from producers to customers. And distributors can be potential sources of funding for any type of music business they can find the audience for. That is the one and only drawback of this type of investment. If the distributor doesn’t think that they are able to find someone willing to buy what you are making, then they will not be interested in investing in your business. While other types of investors will ask, in return for their capital, some level of equity in your startup, distributors will generally provide financial injection asking for a percentage of the future earnings. They will most often provide an advance against them. This situation brings two limiting factors. Distributors are willing to invest only in projects which have almost guaranteed success, for example, if you are a label working with an already established artist. It will also delay the start of cash inflow for you, as more often than not, distributors will demand that their advance be paid back in full.
If a distributor willing to work with your startup is big enough, it can also provide assistance with securing a loan from a bank or similar lending institution. Potentially they could function as a guarantee for it.
How to Find Music Investors
A rude way to answer this question would be with “by looking for them”. But the problem that “how” and “where” are tightly intertwined remains, while the answer is then actually absent. Finding music investors starts by knowing what you want to do with their money. In the simplest terms, if you don’t understand why you need it, they will not understand why they should give it to you. Thus you must first understand what and how you plan to accomplish it. Then your search can begin.
The first step in that search is deciding what type of investment best suits your funding needs. Are you a startup indie label? Are you a music tour or festival organizer? Or an artist looking to fund their own first album? Answers to these questions determine what is the most favorable form of investment for you.
The simplest way to find a potential investor is to look around yourself. Depending on your business idea, maybe your friends, family, or acquaintance could be able to provide you with sufficient funding. But also, in your immediate area could exist a business community or some accelerators and incubators that may be interested in investing in you. Business accelerators and incubators are very often more interested in providing funding for startups in some specific area, irregardless of the type of industry they are involved in. As such, they could provide you with access to various types of capital.
Depending on the type of investment, one of the sources of contact with potential providers of funding is the internet. Currently, there is a wealth of specialized web locations where you can find specific contacts with specific types of investors interested in the music industry. Depending on the amount of the capital you are looking for, even the crowdfunding could be an option for you, either the traditional or equity crowdfunding.
If you are more interested in a face to face contact with your potential investors, there are many of the specialized events around the world, and some could be in your area. The symposiums and summits that are geared toward connecting prospective music businesses and artists with potential investors. Along with the traditional building of industry contacts through networking.
Another source of potential contact with investors are specialized networking organizations. These are currently in existence in Europe and could be an invaluable source of contacts inside the music industry if you are based in this region of the world.
Starting some business can be a challenging undertaking. particularly from a financial standpoint. Of course, if you have deep pockets things are very simple for you. Otherwise, you will need the financial help of investors. Depending on the age of your business, you may find different types of investors willing to assist you on your way to success. But, the music industry is very different from other industries, and investors in it are very often a special breed. They are, as a rule, more knowledgeable about the music industry than the investors in other areas are in their corresponding specializations. The consequence of this is that as a startup, you can expect to experience a much higher level of support and mentorship than in any other industry.