Amplitude Ventures AS - Jakob Wredstrøm, Dr. Zelealem Shitahun, EMMANUEL AFOLAYAN
Findings based on conversations with Thierry Baujard, Andrea Rosen, Shain Shapiro PhD, Andrew Batey and Gareth Deakin on the Sound Connections Podcast.
This article is the third installment in our series on music tech entrepreneurship and startup financing. Our first article explored music tech investment from a behavioral finance perspective, while the second offered essential guidance for startups on funding strategies for startups.
Here, we confront the investor’s perspective—unveiling the barriers, the breakthroughs, and the moves that really matter, drawing inspiration from insights shared on the Sound Connection Podcast. Drawing from hard-won experience and honest conversations with active investors, this article lays bare where the money flows—and why it’s not always where founders hope.
Amplitude Ventures plays a key role in supporting music tech founders in navigating these challenges. With a deep understanding of the industry's complexities, we offer strategic guidance and support to help founders align their business models with market realities and investor expectations.
If you're a music tech founder looking for support on your financing journey, visit Amplitude Ventures to explore how our expertise and resources can empower your next move.
Why talk about investor narratives?
The music tech industry has evolved significantly over the past 15 years. What was once a space dominated by consumer-focused platforms has shifted toward more sophisticated business-to-business (B2B) solutions. These B2B innovations aim to resolve structural challenges within the music ecosystem—but with this evolution comes new layers of complexity.
The industry is notoriously opaque. Systems for rights and revenue distribution are fragmented and difficult to navigate, creating significant barriers for investors, founders, and entrepreneurs alike.
These barriers, amongst others covered in our previous articles, make it difficult for investors to assess the viability of music tech startups. Without industry-specific knowledge, they may struggle to see a clear path to growth and returns.
Yet, while much has been written from the perspectives of music tech founders and customers, the investor's story remains largely untold. This is a critical gap. After all, if you're trying to win over an investor, understanding their perspective is non-negotiable.
But here’s an important distinction: not all startups need investors to succeed. Some founders take the slower, self-funded route, relying on patience, persistence, and sustainable growth. While this approach is often tougher and more time-consuming, it has its advantages. Founders maintain full control of their business, avoid dilution of ownership, and learn to build a leaner, more resourceful company.
There’s no one-size-fits-all approach to success. While investors can supercharge growth, they’re not the only option. The key is to understand which path aligns with your vision, resources, and long-term goals.
That said, if you’re considering the path of investor-backed growth, you must understand their perspective. It’s their belief, their trust, and their capital that fuels the growth of startups. Without it, great ideas may remain just that—ideas. The goal of this article is to give you that perspective so you can bridge the gap, tell a stronger story, and ultimately win the backing you need.
Because at the end of the day, isn't it the investor you need to convince?
VCs and the Funding Gap in Music Tech
A significant barrier within the music tech financing landscape is the evident reluctance of venture capitalists (VCs) to invest in this sector. As highlighted in our previous articles—where we explored why music tech founders often waste valuable time chasing VCs—it becomes clear that music tech startups frequently misalign with VC investment criteria.
One of the most striking statistics comes from Andrew Batey on the Sound Connections Podcast: 75% of music tech startups are acquired for less than $15 million. This figure is important because VCs typically seek returns in the range of 50x to 100x on their investments. For many VCs, music tech simply doesn't offer the kind of high-reward potential they’re looking for.
Andrew Batey's insights highlight a critical issue: VCs, especially those operating within the American investment framework, prioritize sectors with larger market sizes and higher scalability potential. And let’s be honest—the American investment landscape is one of the most influential globally. While music tech is undoubtedly innovative and culturally significant, it operates within a niche market that doesn’t promise the exponential growth VCs seek.
As a result, even exceptionally talented music tech founders find it challenging to attract the high levels of investment required to drive their startups to the next stage of growth.
Building on the arguments presented in our earlier articles, several key factors contribute to this disconnect between VCs and music tech startups:
Market Size Limitations: VCs are drawn to industries with vast market opportunities that support rapid and substantial growth. Music tech, however, serves a more specialized audience, inherently limiting the potential to scale to the levels VCs typically target. This smaller addressable market makes it harder for VCs to see the long-term upside.
Scalability Concerns: Scalability is a core priority for VCs, but music tech solutions often tackle industry-specific problems that don’t scale as easily as solutions in fintech or health tech. For example, a platform that automates royalty payments may be essential within the music industry but has limited utility beyond it. VCs prefer products with mass appeal and broader use cases.
Exit Strategy Uncertainty: Successful VC-backed startups typically exit through acquisitions or initial public offerings (IPOs). However, with 75% of music tech startups exiting for under $15 million, it's difficult for VCs to justify their investment. For a VC, an ideal exit means large payouts—not modest acquisitions.
Revenue Model Complexity: The music industry’s revenue streams are fragmented and unpredictable. From royalties and licensing fees to subscription models and ad revenue, revenue structures in music tech are far from straightforward. For VCs, this adds layers of risk and uncertainty.
Sectors like fintech and SaaS (Software as a Service) offer simpler, more transparent revenue models, making them far more appealing investment targets.
Lack of Specialized Investor Networks: Unlike health tech or fintech—sectors with well-established investor ecosystems—music tech lacks a strong network of specialized backers. This absence of industry-savvy investors creates an additional challenge for founders. Without informed investors, smart money, who understand the nuances of music tech, founders must do extra work to educate potential backers, a process that slows down the fundraising journey.
Scant Investor Specialization in Music Tech
Unlike other sectors, music tech faces a unique challenge: limited investor specialization. With fewer pitch decks in circulation, it’s harder for investors to develop the in-depth understanding needed to prioritize investments in music tech startups. Unlike health tech or deep tech—where deal flow is steady—music tech’s deal flow is sporadic. This inconsistency limits investor exposure, making it more difficult for them to spot patterns, identify potential winners, or become familiar with the industry's growth potential.
Thierry Baujard, an expert in creative sector financing, highlights this issue on the Sound Connections Podcast. He points out that a typical venture capitalist might receive up to 200 pitch decks per week from sectors like fintech, health tech, and SaaS. By comparison, music tech pitches might only appear once every two months. This stark difference in exposure means VCs have far fewer chances to develop familiarity with the complexities, opportunities, and growth potential of music tech startups.
This lack of consistent engagement has serious implications. Without seeing enough deals, investors don’t develop the industry-specific expertise needed to spot trends or recognize hidden opportunities. As a result, even promising music tech startups may struggle to capture the attention of investors who lack a clear understanding of the sector's nuances.
Even when investors HAVE experienced success with music tech deals, they often hesitate to reinvest. Thierry notes that many investors view their past successes as lucky strikes rather than proof of a repeatable strategy. This mindset fosters skepticism and makes investors less willing to back new music tech deals. It becomes a self-reinforcing cycle: fewer deals mean less investor expertise, which in turn leads to even fewer deals being funded. Over time, this dynamic erodes investor confidence in the sector as a whole.
Economic Importance of Music
Music holds a value that goes beyond entertainment. As Shain Shapiro articulates in episode 28 of the Sound Connections podcast, music is deeply embedded in human experience — from rituals and celebrations to everyday life. Yet, the economic ecosystem around music is often misunderstood or undervalued. The processes of production, distribution, and rights management play a crucial role in supporting local economies by creating jobs and fostering community engagement.
A 2019 survey found that London’s creative industries contributed £55.0bn to the city’s economy, accounting for 11.5% of its total economic output (DCMS, 2023). Strategic investments in music ecosystems allow cities like London to boost their cultural appeal, attract global talent, and stimulate industries such as tourism, hospitality, and real estate.
Despite this clear cultural and economic impact, the music industry’s complexity presents unique challenges for investors. Its fragmented nature, filled with niche markets and specialized knowledge, makes it difficult for venture capitalists (VCs) to accurately assess the scalability and growth potential of music tech startups.
Why Founders Must Rethink Their Approach
After reviewing over 100 pitch decks at Amplitude Ventures, one key insight became clear: founders often fail to present the full economic value of music. Most pitches focus on product features, overlooking music's potential as a "strategic asset" with value beyond streaming revenue. This leaves much of its broader impact untapped.
Andrea Rosen’s approach at Best Nights VC offers a more compelling strategy. By framing nightlife as a "strategic asset" for cities, she illustrates how music tech drives cultural vibrancy and social connection. This approach highlights music's capacity to support broader social and economic outcomes, making the investment case more persuasive.
This same logic can be applied to music tech startups. By showing how music tech supports industries like nightlife, gaming, and entertainment, founders can frame music as a vital enabler of larger ecosystems. This strategy increases the market opportunity, strengthens investment cases, and opens the door to a broader pool of investors.
Music Tech Europe Academy, guided by Thierry, supports this approach. They argue that the music market alone may not be large enough to sustain high-growth startups. Instead, founders should address cross-industry problems and embed music tech into larger ecosystems. By positioning music tech within industries like gaming and entertainment, founders increase their market size and appeal to more investors.
This approach echoes Andrea Rosen's belief in the power of "boring ideas" — simple, practical B2B solutions that address essential but often overlooked industry problems. These solutions often have a higher chance of success, especially when paired with cross-industry positioning.
To make this work, clear communication is essential. Shain Shapiro stresses the importance of simplicity in messaging. Investors outside the music industry must be able to see the value of music tech at a glance. Founders should present a clear, direct path from production to monetization, ensuring investors can easily understand the business model and its growth potential.
This clarity allows investors to see music tech as more than a niche product. It frames music as a “strategic asset” with influence across industries. By presenting music tech as a key enabler of larger ecosystems, founders can create a more compelling investment case. This approach widens investor interest and increases the likelihood of securing funding.
Where Do We Go From Here?
The next chapter in music tech financing will likely hinge on four key areas:
Specialized Funds: Investment funds focused on creative industries, like Best Nights VC, are recognizing the unique value of music. These funds don’t just offer money — they provide deeper industry understanding. By connecting traditional investment models with the specific needs of music tech startups, they open up more opportunities for growth.
Ecosystem Synergy: Programs that combine industry expertise with global networks, like Music Tech Europe, Media Deals, and SoundHub Denmark, are becoming essential in handling music tech’s complexities. By connecting local expertise with global collaboration, these programs promote more sustainable and impactful innovations. This gives startups access to a broader range of experience and support, making it easier for them to grow.
Success Stories: Sharing success stories can inspire founders and attract potential investors. Stories about acquisitions and funding rounds motivate founders and build trust with potential backers. Resilience and adaptability are common themes in these stories.
The Sound Connections Podcast plays a key role in this. It features music tech founders, experts, and investors, highlighting success stories from around the world. These real-world examples inspire and empower founders on a global level.
Research: Thorough research is essential to find trends, funding opportunities, and growth areas. This includes identifying who's being acquired, who's getting capital, and where the opportunities are. After reviewing over 100 pitch decks from music industry founders, Amplitude Ventures found that founders often fail to present key information in their pitches.
As André Rosen mentioned on the Sound Connections Podcast, sometimes the best startup opportunities are found in “boring ideas” — B2B solutions that tackle niche but essential industry problems. But statements like these, though based on deep experience, fail to show themselves in academic or statistical research. This needs to be addressed.
On a final note:
Music tech financing is evolving, driven by passionate founders, forward-thinking investors, and a growing support network. While there are still challenges — like managing fragmented value chains and achieving scalable returns — the opportunity for impact is greater than ever.
Investors who are willing to dig deeper can unlock not only financial returns but also cultural and societal impact. Music tech has the potential to transform not just the industry but the communities it serves. With the right mix of vision, support, and collaboration, the future of music tech looks brighter than ever.
As we look to the future, the key question isn’t just, “How do we fund music tech?” It’s also, “How do we amplify its impact for creators, consumers, and communities?”
We’re here at Amplitude Ventures, providing consultancy services to help music tech founders navigate their financing journeys. If you're looking for support, guidance, or insight, Amplitude Ventures is ready to help you amplify your vision.
In our next article coming out next month, we will break down all the findings we have made to raise money as a music tech founder. Yes, all. The tips and tricks are based on years of experience and research. Follow our LinkedIn page to stay updated.
