Not a month goes by without someone pitching me an idea about a new music-related tech startup. Some of them are really, really cool–but after some initial enthusiasm and promise, they just kinda…evaporate. Where do they go? What happened to the people behind them?
I read somewhere that the average lifespan of a music startup is around five years. There are exceptions, of course–Pandora, Spotify, Rhapsody, etc.–but the vast majority of these things ended up being acquired by other companies (not a bad thing for the principles involved) or crashing and burning, taking untold millions of dollars with them.
Take a read of this post at Medium.com:
“Since 1997, according to PitchBook, approximately 175 digital music companies were created and funded by venture investors. Of those, approximately 33 were acquired by larger companies, often for less money than their investors put in. Of those who have exited, I believe only seven achieved meaningful venture returns for their investors by returning more than $25 million in profit to their investors (Last.FM, Spinner, MP3.com, Gracenote, Thumbplay, Pandora and possibly The Echo Nest), representing an investor success rate of only approximately 4%, far below that of other internet and technology market segments. Only two have achieved an IPO, and at least 15 companies have resulted in a distressed exit and/or filed for bankruptcy so far, for an 8.6% failure rate to date. Given that I know of no profitable standalone webcasting or digital music companies, I believe this failure rate will only worsen over the coming years as the remaining companies in this space continue to struggle.”
The section above comes from my U.S. Copyright Royalty Board testimony in front of the Library of Congress in May of 2015 as part of the Web IV rate setting proceedings.