Taking Note of Music Tech’s VC and Accelerator Market Trends in 2017

As a part of today’s modern music industry there exists a complementary and thriving support system of venture capital firms and music tech startup accelerators who are providing a multitude of innovative services.  A fascinating examination of the current state of this ecosystem appeared in an article entitled Music Pushes to Innovate Beyond Streaming, But Investors Play It Safe: Analysis, by Cherie Hu, posted on Billboard.com on 7/24/17. I highly recommend reading it in its entirety for its insights, assessments and accompanying graphics.

I will summarize this feature here, add some links and annotations and, well, venture a few of my own questions. Also, I believe this is a logical follow to three previous Subway Fold posts about the music biz including:

Tempo

In mid-2017, the music tech market is generating signals as to its direction and viability. For example, Jawbone, the once thriving manufacturer of wearable audio devices is currently being liquidated; Soundcloud  the audio distribution platform let go of 40 percent of its staff recently only days before the firm’s tenth anniversary; and Pandora has experienced high turnover among its executives while seeking a sale.

Nonetheless, the leaders in music streaming are maintaining “the music industry’s growth”. Music tech showcases and music accelerators including SXSW Music Startup Spotlight, the Midemlab Accelerator, and Techstars Music are likewise driving market transformation.   During 2017 thus far, 54 music startups from more than 25 cities across the globe have taken part in these three entities. They have presented a range of submissions including “live music activations and automated messaging to analytics tools for labels and artists”.

While companies such as Live Nation, Balderton Capital and Evolution Media have previously invested in music startups, most investors at this mid-year point have never previously funded a company in this space. This is despite the fact that investments in this market sector have rarely returned the 30% that VCs generally seek. As well, a number of established music industry stars are participating as first-time or veteran investors this year.

Of the almost $900 million funding in music tech for the first half of this year, 75% was allocated for streaming services – – 82% of which went only to the leading four companies. However, there remains a “stark disconnect” involving the types of situations where music accelerators principally “lend their mentorship” in “hardware, virtual reality1, chatbots, label tools”, and the issues that VC concentrate the funding such as “streaming, social media, brands”.  Moreover, this situation has the potential of “stifling innovation” across the industry.

To date, music accelerators have “successfully given a platform and resources” to some sectors of the industry that VCs don’t often consider. For example, automated messaging and AI-generated music2 are both categories that music accelerators avoided until recently, now equal 15% of membership. This expansion into new categories reflects a much deeper “tech investment and hiring trends”. Leading music companies are now optimistic about virtual digital assistants (VDA) including chatbots and voice-activated systems such as Amazon Alexa3. As well, Spotify recently hired away a leading AI expert from Sony.

Rhythm

However, this “egalitarian focus” on significant problems has failed to “translate into the wider investing landscape” insofar as the streaming services have attracted 75% of music tech funding. The data further shows that licensing/rights/catalog management, social music media, and music, brands and advertising finished, in that order, in second at 11.1%, third at 7.1% and fourth at 3.9%.

These percentages closely match those for 2016. Currently, many VCs in this sector view streaming “as the safest model available”. It is also one upon which today’s music industry depends for its survival.

Turning to the number of rounds of music tech funding rather than the dollar amounts raised, by segments within the industry, a “slightly more egalitarian landscape” emerges:

  • Music hardware, AI-generated music, and VR and Immersive media each at 5.0%
  • Live music; music brands and advertising; streaming; and social music media each at 15.0%
  • Licensing, rights, and catalog management at 25% (for such companies as Kobalt Music, Stem and Dubset)

Categories that did relatively well in both their number of rounds of funding and accelerator membership were “catalog management, social music platforms, and live music”.

Those music tech startups that are more “futuristic” like hardware and VR are seen favorably by “accelerators and conference audiences”, but less so among VCs.  Likewise, while corporate giants including Live Nation, Universal Music Group, Citi and Microsoft have announced movement into music VR in the past six months, VC funding for this tech remained “relatively soft”.

Even more pronounced is the situation where musical artists and label services such as Instrumental (a influencer discovery platform) and chart monitors like Soundcharts have not raised any rounds of funding. This is so “despite unmatched attention from accelerators. This might be due to these services not being large enough to draw too “many traditional investors”.

An even more persistent problem here is that not many VCs “are run by people with experience in the music industry” and are familiar with its particular concerns. Once exception is Plus Eight Equity Partners, who are trying to address “this ideological and motivational gap”.

Then there are startups such as 8tracks and Chew who are “experimenting with crowdfunding” in this arena but who were not figured into this analysis.

In conclusion, the tension between a “gap in industry knowledge” and the VCs’ preference for “safety and convenience”, is blurring the line leading from accelerator to investment for many of these imaginative startups.

My Questions

  • Of those music startups who have successfully raised funding, what factors distinguished their winning pitches and presentations that others can learn from and apply?
  • Do VCs and accelerators really need the insights and advice of music industry professionals or are the numbers, projects and ROIs only what really matters in deciding whether or not to provide support?
  • Would the application of Moneyball principles be useful to VCs and accelerators in their decision-making processes?

 


1.  See the category Virtual and Augmented Reality for other Subway Fold posts on a range of applications of these technologies.

2.  For a report on a recent developments, see A New AI Can Write Music as Well as a Human Composer, by Bartu Kaleagasi, posted on Futurism.com on 3/9/17.

3.  Other examples of VDAs include Apple’s Siri, Google’s Assistant and Microsoft’s Cortana.

Book Review of “Inventology: How We Dream Up Things That Change the World”

"Toolbox_LRG", Image by Limor

“Toolbox_LRG”, Image by Limor.

My father loved to tell this story: One of his classmates while he attended the University of Pennsylvania School of Dental Medicine was named Robert Schattner. Several years after they graduated, he went on to invent the over-the-counter sore throat lozenge and spray called Chloraseptic. This remedy has been on the market for decades ever since then.

Schattner first devised this product entirely on his own after someone who had just had some teeth pulled asked him for an antiseptic to relieve the pain. He later sold the formula and the rights to a pharmaceutical company for $4M. (Given the rate of inflation since then, this sum today would have been magnitudes more and certainly nothing to sneeze or cough at.)

Thereafter he left the practice of dentistry and went on became a successful businessman and philanthropist. He also contributed for the construction of a new building for the U Penn dental school named the Robert Schattner Center. A brief summary of his invention and contributions can be found in an article entitled Capital Buzz: Chloraseptic Inventor Offers Remedy for School, by Thomas Heath, which appeared in The Washington Post on October 23, 2011.

Mapping the Inventive Process

This is a classic example of how inventors find their ideas and inspiration. There are many other circumstances, methodologies, environments, personality traits, events, technologies and chances occurrences that can also precipitate new inventions. All of them are expertly explained and explored in Inventology: How We Dream Up Things That Change the World (Eamon Dolan/Houghton Mifflin Harcourt, 2016), by Pagan Kennedy.

The book’s five sections distinctly map out the steps in the inception and realization of things so entirely new. In doing so, the author transports the reader to center of this creative process. She deftly uses highly engaging stories, exposition and analyses to illuminate the resourcefulness and persistence of inventors leading to their breakthroughs.

Some of these tales may be familiar but they are skillfully recounted and placed into new contexts. For example, in 1968, an engineer and inventor named Douglas Englebart demonstrated a working computer for the first time with a heretofore unseen “mouse” and “graphical user interface”. (This story has gone on to become a tech legend known as The Mother of All Demos.) Others are presented who are less well-known but brought to life in highly compelling narratives. Together they provide valuable new lessons on the incubation of inventions along a wide spectrum ranging from sippy cups and water toys to mobile phones and medical devices.

The author has seemingly devised a meta-invention of her own: A refreshingly new perspective on reporting the who, what, where and why of inventors, their creations and their wills to succeed. It is a richly detailed schematic of how a creative mind can conceive and execute an original idea for a new widget and, moreover, articulate the need for it and the problem it solves.

Among other methods, Ms. Pagan covers the practice of conducting thought experiments on new concepts that may or may not lend themselves to actual experimentation in the real world. This process was made well-known by Einstein’s efforts to visualize certain problems in physics that led him to his monumental achievements. I suggest trying a thought experiment here to imagine the range of the potential areas of applications for Inventology to evaluate, in an age of countless startups and rapid scientific and technological advancements, all of the populations, challenges and companies it might benefit. Indeed, this book could readily inspire nearly anyone so inclined to pick up a pencil or soldering iron in order to launch the realization of their own proverbial better mousetrap.

Resources for Inventors

Within all of the lively content packed into this book, the struggles and legacy of a previously little known and tragically persecuted figure who learned to harness and teach the inventive process, springs right off the pages. He was a fascinating figure named  Genrich Altshuller who worked as an engineer, writer and inventor in Russia. His most important contribution to the science of invention was the development of the Theory of Inventive Problem Solving (better known by its Russian acronym of “TRIZ”). This is a comprehensive system for analyzing and implementing inventive solutions to problems of nearly every imaginable type and scale. Altschuller was willing to share this and instruct anyone who was willing to participate in studying TRIZ. It is still widely used across the modern world. The author masterfully breaks down and clearly explains its essential components.

The true gem in the entire book is how Altshuller, while imprisoned in a brutal jail in Stalinist Russia, used only his mind to devise an ingenious solution to outwit his relentless interrogators. No spoilers here, but it is an emotional triumph that captures the heart and spirit of this remarkable man. Altshuller’s life and influence in generating thousands of inventions reads as though it might make for a dramatic biopic.

Also threaded and detailed throughout the book are the current bounty of easily accessible technological tools available to inventors. First, the web holds a virtual quantum of nearly limitless data that can be researched, processed, shared, crowdsourced (on sites such as InnoCentive) and crowdfunded (on sites such as Kickstarter and Indigogo), in search of medical advances, among many other fields.¹ Second, 3D printing² can be used to quickly and inexpensively fabricate and work on enhancing prototypes of inventions. As a result of this surfeit of resources, the lengthy timelines and prohibitive cost curves that previously discouraged and delayed inventors have now been significantly reduced.

Impossibility is Only Temporary

I live in a neighborhood where it is nearly impossible to park a car. An open parking space has a half-life on the street of about .000001 nano-seconds before it is taken. This situation often reminds me of a suggestion my father also made to me when I was very young. He told me that if I really wanted to solve an important problem when I grew up, I should try to invent a car that, at the press of a button, would fold up into the size and shape of a briefcase that could be easily carried away. At the time, I thought it was impossible and immediately put the, well, brakes on this idea.

Nonetheless, as Inventology expressly and persuasively makes its own brief case, true inventors see impossibility as merely a temporary condition that, with enough imagination and determination, can be overcome. For budding Edisons and creative problem solvers everywhere, this book adds a whole new meaning to the imperative that nothing is truly impossible if you try hard enough and long enough to solve it. This indefatigable spirit permeates all 223 pages of this wonderfully enjoyable, inspirational and informative book.

Inventing your own reason to read it should be easy.


For a dozen very timely examples of inventors and their inventions further typifying much of the content and spirit of Inventology, I highly recommend reading a new feature and viewing its accompanying video posted on Quartz.com on April 26, 2016, entitled These Top Twelve Inventions Could One Day Change the World, by Mike Murphy. It covers the finalists in the 2016 European Inventors Award competition currently being run by the European Patent Office.


1.  For example, last week’s Only Human podcast on NPR included a report on how a woman with Type 1 (T1) diabetes, along with the assistance of her husband, had hacked together an artificial pancreas (called a “closed loop” system), and then shared the technical specs online with other T1s in the Seattle area. I highly recommend listening to this podcast entitled The Robot Vacuum Ate My Pancreas in its entirety.

2.  See also these six Subway Fold posts for a sampling of other trends and developments in 3D printing.