In the fast-paced world of music tech startups, time is your most valuable asset. Yet, countless founders are squandering it chasing the wrong investors. Here's why - and what you need to do instead.
I've talked to nearly 100 founders in the music industry over the last 12 months. At Amplitude Ventures, we've been testing the waters with a music tech investment readiness consultancy since February. Having raised funds for 7 of our portfolio companies that we had co-founded, we believed we could bring something valuable to the table.
Now, 12 clients later (we haven't had capacity to take on more, sorry!), I'm ready to share my first public observations.
This is article two on a series of investment in music tech. Read part one here.
The VC Mirage
I frequently meet founders who say something like, "We've talked with two VCs. They're really interested and want to be updated." This is a standard response I hear often. But let's be real - if you got a meeting with a VC, of course you're interesting. Otherwise, they wouldn't have taken the meeting. However, converting that interest into an actual investment is something completely different.
Ask yourself:
Do you have revenue?
Do you already have investors?
Do you have a full team covering all essential skills and roles needed to execute your idea?
Do you have heavy domain expertise in your field?
Do you have a proposition beyond just helping artists?
If you answer "no" to any of these, I bet you won't get an investment. VCs want to stay updated because if a rough coal could prove to be a diamond in the future, why would they close the door when they can leave it slightly ajar?
The reality is, VCs are looking for scalable, high-growth potential businesses. Music tech often presents unique challenges that don't align with typical VC expectations. Unless you're already showing significant traction or have a truly revolutionary product, VCs are likely to remain in a "wait and see" mode.
The Myth of "Music Industry Investors"
You don't want to talk to "music industry investors" because, frankly, they barely exist. I'd bet that not even 1 out of 1000 startup investors focuses on music tech.
You might have seen lists of angels who invested in music tech or exited founders who've invested in some startups. The truth is, investors who back music industry companies (who aren't previous music industry professionals) have likely built great relationships with those founders over time. They're not investing in music tech per se, but in that particular founder and team. That founder has somehow convinced the investor that music tech can be a good investment, despite the investor not knowing the space.
As for exited founders, we rarely see huge exits in the music industry. Most of these exits are not massive tech exits like the fairytales you've read about. They were probably small to medium-sized exits, in the late single-digit or early double-digit million dollars. They don't have that much capital to spread around to all great projects.
This scarcity of specialized music tech investors means you need to cast a wider net and be more creative in your approach to fundraising.
Reality Check on Fundraising Expectations
"How Much Were You Raising? $2 Million? No, You're Not"
Music is a different beast. (Refer to my first article in this space for more details). You won't get a lot of money for your startup initially - and if you somehow do, it won't be for a long time. Remember the VC criteria? If you meet them, you might, maybe, be able to raise that amount.
But what about those Music Business Worldwide articles about companies raising $8 million? Let's dive deeper. My bet is:
They have 15+ years of music industry experience on their founding team
Another founder has similar experience in a related industry
One of them has exited another business before
They have strong relationships with most of the "big players" in the industry
They found the right idea at the right time and had a good element of luck
If that's not your profile, don't fixate on it. These cases are exceptions, not the rule. Most successful music tech startups start with much smaller raises and grow incrementally.
Smart Fundraising Strategies
There's a lot you can do to improve your chances of securing funding. Let's outline some key strategies:
A. Target the Right Investor Type
Consider investors that might fit your business model beyond just music:
CRM system? Look at MarTech investors
Selling vinyl? E-commerce and MarTech
AI-enabled startup? Tech experts (or everyone who's naive - sorry, that's both irony and a serious statement)
Why? If you're reading this, you're likely an early-stage startup struggling to raise capital. This means you're at pre-seed or seed level. Investors at this stage invest because they trust you're an ambitious and capable founder who knows their market. They trust what you claim to achieve could be realistic. How would they trust that? Because they're also domain experts in something - it might not be music, but your other "angle" of the business might be their expertise. Help them do their emotional and practical "due diligence" on your idea.
Utilize Parallel Narratives
I call this concept "Parallel Narrative." (I believe I've coined this term, so I'll take the liberty to define it):
Parallel Narratives is the practice of crafting your startup's story in multiple, complementary ways that align with different investors' backgrounds and expertise. It involves translating your core business proposition into language and frameworks familiar to investors from various industries, enabling them to evaluate your startup using their existing knowledge and due diligence processes.
Key Principles of Parallel Narratives:
Speak the Investor's Language: Present your startup using terminology and concepts from the investor's background.
Minimize Industry-Specific Jargon: Focus on universal business concepts that any investor can understand and evaluate.
Enable Due Diligence: Frame your business model, market opportunity, and growth strategies in ways that allow investors to apply their existing due diligence processes.
For more on this, refer back to my first article on the topic.
Master Your Communication
Your business might be interesting, but you might not be able to present your case effectively. A poorly (and incorrectly communicated) story, even with a great company = no investment.
There's a "standard" way to approach investors. They receive hundreds of decks. Having your own twist isn't always an advantage. Play by the rules, but be the best at the game. This means:
Stop talking so much about music. It's your angle, not your entire case.
Keep it stupid simple. Avoid jargon. Don't try to sound smart. Be clear, simple, short, precise, and factual.
Use the "standard" formula for slide order. (A quick Google search should help here)
Be practical and reasonable. Raise money to get you to the next step. Define milestones and next steps. Don't sell the full dream - show the direction and that the market exists.
Remember, your pitch should be tailored to each investor. What excites a music industry veteran might not resonate with a tech-focused angel investor. Practice your pitch and get feedback from mentors or advisors in different sectors.
Managing Expectations
Lower Your Capital Expectations
As a music tech company, you won't raise a lot of capital initially. Yes, there are examples of $8 million raises, but that's not a lot for a tech company. In other sectors, $80 million isn't rare. In music tech, that almost never happens, and it won't happen for you early on.
This means lower valuations too. If you're not diluting 10-20% per round (pre-seed, seed, late seed, Series A, etc.), you probably have unreasonable expectations.
Focus on raising what you need to hit your next significant milestone, not on maximizing your valuation or raise amount. This approach will make you more attractive to investors and increase your chances of success in future rounds.
Next Steps?
Fundraising for a music tech startup is challenging, but not impossible. By understanding the realities of the investment landscape, targeting the right investors, crafting compelling narratives, and managing your expectations, you can significantly improve your chances of success.
Are there other things to consider? Absolutely! I'll be writing more about this (including in an upcoming book).
What can you do now? Reach out to me for a digital coffee chat. Also, listen to the Sound Connections Podcast for more great content from the music industry.
Talk soon!
