Milton Berle – “If opportunity doesn’t knock, build a door.”
There are lots of ideas floating around aiming to eliminate the perpetual dark cloud hovering over the music industry’s future. Where there is peril there is opportunity for profit as the Phoenix rises from the flames. Some of these ideas become the seeds of numerous new digital music startups like TuneCore, soundcloud, spotify, TopspinMedia, songkick, sellaband, the filter, the sixtyone, gigulate, audiotube and many others.
Many startup ideas will singularly fail to fix the entire value chain within the music industry, but a very few just might create new sustainable ways to profit from music. Furthermore, if each is successful in it’s own vertical and approach to problem solving they can later expand into other artist, brand and fan services. As an aggregate, by creating a new marketplace working within new paradigms, with new tools and values these startups might just save music.
Now, the increasing pressure to demonstrate significant value quickly and/or offer a sound business model with near term break even and profit on the foreseeable horizon means that the skillset of the team might be rounded out a bit more from the creative risk taking entrepreneurs to adding a more analytical, methodical financial member to the team earlier rather than later. It also means that it may take longer to get the essential funding that is required to grow the business in a highly competitive market where speed is paramount to success.
If you’ve got a great idea to help save the music industry, here are some tips for getting your business funded. This is not an exhaustive list, but a good start if you’re at the beginning of the process. These tips come from my perspective of working in and with startups as a founder, employee, advisor and investor as well as from people whom I respect (under CC license, of course) who are currently investing in digital music startups.
Self fund for as long as possible while searching for alternative funding from individual angels, investment institutions or other sources, but start raising finance before you need it.
Know how much you might need by creating a business plan with a budget. You may not need it for all investors, but they are becoming required more often as a justification for the decision that’s already been made. For most digital businesses, if you have the right people you can survive on tens of thousands of dollars, euros or pounds for some time. If you’re not good at this, hire a good CFO who has prior startup experience.
Incorporate the company, so it’s easier and more transparent to manage cash flow and apportion stock. There are lots of other things you’ll need to do. You can find on sites like smarta.
Decide what assets and intellectual property the business already has and what each shareholder will bring. This will require disclosures and contractual commitments to ownership going forward which some day might be converted to cash and is certainly something that investors are interested in knowing about.
Get your pitch down and set to impress. You may not always find cash, but you may find a good referral, future investor, partner, advisor or you may prevent your competitor from getting funded by being seen as the top in your category. Share as much as you need to, but hold back your special sauce to a certain degree so that it is not shared with potential competitors.
Getting funding is a double edge sword in terms of creating a valuation of your business in the current market. You may get the money, but the valuation on your business may be much lower than what you believe it is. Take your ego out of it and do what’s best for growing the company into a success you’re parents would be proud of or that will finance your deaf children’s aspirations to become the next big pop star.
Try to find angel investors who can give more than money – contacts are crucial, experience and insights are invaluable.
Compliment the skillset and network of your investors by creating an influential and passionate Advisory Board who potential investors can consult with and who will give reassurance to potential investors. Some choose to do this after raising finance, since there is a cost associated with the creation of the Advisory Board. Advisory Board members often lead to more money.
The next round of funding is typically through venture capital firms, which lend a certain amount of weight and credibility as well as substantial sums of cash, but can also be a source of other challenges. This process typically takes longer and requires more documentation.
Don’t run out of money! Poor cash flow management is one of the top reasons great ideas fail and good companies go under.