Are investors over music startups in the United States? In a recent blog post regarding net neutrality, Fred Wilson attributed the lack of music startups to regulations in the US and lack of interest from investors in funding upfront negotiations often required within the music industry. Despite this, Internet and Mobile Music startups raised $376.4M in funding across 35 deals in 2013 which represented a multi-year funding high.
The plateauing number of deals does perhaps give credence to Wilson’s point about fewer music startups getting funded. The funding picture, while seemingly healthy, is dominated by later-stage deals in companies such as Spotify, SoundCloud, and Shazam.
Interestingly, many of the largest music startup deals mentioned are to non-US based music startups.
Is overzealous regulation pushing music startup innovation outside the USA?
In October 2011 politicians introduced the Stop Online Piracy Act (SOPA). Although the bill was postponed for the foreseeable future, this marked one of the first concerted government actions to combat online copyright infringement, a battle that was being fought since P2P file-sharing sites like Napster gained notoriety in the early-2000s.
If we look at the percentage of deals made in Music startups between 2010 and 2011 (largely pre-SOPA introduction), the US was responsible for 77% of all deals, while the remaining 23% was spread across 8 countries. Total funding share was lower, with US music startups taking 47% of total funding, as the $166M invested in Spotify gave the previously pirate-friendly country of Sweden a 29% funding share.
[Tweet “US music startups were 77% of VC deals in 2010-11 – now only 55%. Is regulation killing innovation?”]
With a variety of rising international music companies like Germany’s SoundCloud, Sweden’s Spotify, and France’s Deezer, investors diversified away from the US In the past two years, with only 55% of Music deals taking place in US-based companies, and the other 45% being spread across 18 countries. Total funding share fell to just 19% for US-based companies, as Spotify closed two large rounds, totaling $350M, which made up 47% of all music funding between 2012-2013.
In fact, of all investments made between 2012 and 2013, the five largest deals were all outside of the US, with Spotify’s Series E and F rounds in November 2012 and November 2013, a $130M October 2012 Series D investment into Deezer, a $50M January 2012 Series C investment in SoundCloud, as well as a $40M July 2013 Series F investment in UK-based Shazam holding the top 5 spots.
It will be interesting to see if funding and deal activity to US based video startups will follow a similar trend if net neutrality initiatives take hold.If you aren’t already a client, sign up for a free trial to learn more about our platform.