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Hey! Last week, The Wall Street Journal reported that Beyonce’s Ivy Park company had a 50% revenue decline last year and has left a $200 million hole in Adidas’ company projections. I have thoughts on this that I’ll share soon, but I want to hear what you think.

Are you surprised? If you have thoughts, reply to this email and let me know.

Today’s memo is about investing in music. I had a great conversation on the Trapital Podcast with Techstars Music Managing Director, Bob Moczydlowsky. He just announced the 2023 class. We talked about big themes with this class, wins and losses over the year, and music tech investing overall. Let’s dive in.

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the “weirdest class ever” for the accelerator

This year’s Techstars Music class includes 10 early-stage startups that got $120,000 in exchange for 6% equity and participation in the 13-week program. Techstars Music committed to a class that has at least 50% CEOs who are Black, female, or LGBTQ+. The goal is to find companies that solve problems in music, not necessarily “music tech companies.” The broadened scope has led to what managing director, Bob Moczydlowsky (Bob Moz), described as the “weirdest class ever in the best way.”

• Baton: “GitHub for music” collaboration platform to ensure artists are compensated for their work
• BEEPR: allows fans to opt-in to push notifications about music from their favorite artists
• Confetti: live-streaming wedding app that helps virtual guests create memorable experiences
• Five Mics: digital hip-hop trading card game (Yu-Gi-Oh! but with rappers and DJs)
• Haven: ticketing platform focused on outdoor experiences
• Highly Liquid: streetwear brand with limited drops in both physical and digital world (a girly Mr Beast)
• HomeRoom: software platform to analyze online communities like Discord or Slack
• OBEYme: social network where African music fans host virtual parties to make songs go viral
• RYLTY: service that helps catalog owners find royalty underpayments and maximize value
• Seed: online music school and community for Latin artists

The common theme with a lot of these companies is community. That’s by design.

surprise wins and losses

Techstars Music likens itself to a minor-league talent scout. Sure, it wants the next big company, but it wants in before they become first-round picks. Instead, it wants startups that could develop into those major prospects in five to seven years’ time.

Techstars’ $120,000 checks aren’t enough to chase red-hot categories. In 2017, it invested in generative media. But now AI has tons of VC interest and much bigger checks. Techstars is already looking for the next big thing.

That approach comes with plenty of wins and losses. Here are four investment areas that didn’t pan out for the accelerator:

1. Adaptive music that matches a listener’s biometrics
2. DJ’s mixing with DSP streams in a non-derivative way
3. Using generative media to make a hit song
4. Improved music royalty payment flow

Despite those surprise defeats, the accelerator had an unexpected win is in functional music for focus and sleep. One of Techstars’ best bets is Endel, which Bob believes could make up as much as 12% of functional music consumption (e.g. music for sleep, studying, performing an activity) in the near future.

justifying the multiple

Some investors I know are skeptical about whether music tech startups can generate venture-level returns. They believe that the major record labels and live events promoters are too powerful for new entrants to have outsized returns. They also reference that the strongest music tech bet we’ve seen in the past 15 years, Spotify, is still experimenting with its business model.

I asked Bob about how Techstars Music’s returns compare to other Techstars accelerators. He didn’t specify, but he did confirm that its LPs have had a 3x return since its inception. Its current LPs include Amazon Music, HYBE, MNRK, Quality Control, Warner, Sony, Concord, Bill Silva Entertainment, and Right Hand Music Group.

Those LPs and others likely see the bigger picture. Music is under monetized as an industry and as an asset class. It’s great to see record-high revenue in the streaming era, but when adjusted for inflation, the industry still hasn’t topped the height of the CD era.

Music drives culture, and culture drives everything else. That’s one reason why outside investors want in in some shape or form. Whether it’s LPs in Techstars Music, Hipgnosis buying Justin Bieber’s share of his music rights, or Bill Ackman’s Pershing Square holding a 10% stake in Universal Music Group. Everyone wants to find the right position.

Demand is still high for music-related events and experiences. The key for investors like Techstars is to find startups that can capitalize off that demand, especially in ways that don’t directly involve the legacy music business.

In the rest of the episode, we go in more depth on:

• how much catalog sales impacts startup investment
• how the LP mix has changed over time
• big predictions in the next five years

Hope you enjoyed this memo. If so, please share. Forward this email to someone who should read it. Text it to a friend. Drop the link in the group chat.

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​https://trapital.co/2023/02/16/investing-in-new-music-startups-with-bob-moczydlowsky/​

money moves

• I was a guest on Not Investment Advice! We discussed Rihanna, catalog sales, Cash Money, and more
• Snoop Dogg releases Death Row catalog exclusively on TikTok for the first week
• Susan Wojcicki steps down as YouTube CEO, will be replaced by chief product officer Neal Mohan
• Hipgnosis invests in Timbaland’s beat marketplace, BeatClub​
• How Roc Nation changed the Super Bowl Halftime Show​

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coming soon from Trapital

Memo: Beyonce, Ivy Park, and Adidas: What drove the 50% sales decline? What does this mean for Ivy Park moving forward? Will send out on Monday!

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