“There was this point in time, specifically 2007 and 2008, when you had Spotify, Songkick, SoundCloud, The Echo Nest… it was a time of huge disruption for the music industry, but a lot of value was created by the companies coming in to fuel that disruption.”
In 2017, Dave Haynes is on the investment team at early-stage venture firm Seedcamp, but back in 2008 he was at the heart of the new wave of music startups, working on business development for SoundCloud from before its launch, as well as co-founding Music Hack Day.
“We’re now seeing the end of that cycle,” he says of the 2007-08 crop of music startups. “Spotify is looking to IPO this year; something’s probably going to happen with SoundCloud, whether it’s an acquisition or something else; The Echo Nest sold to Spotify, Songkick merged with CrowdSurge.”
“It feels like it’s the end of an era. The question I keep asking myself is what will the next wave be? Now that I’m on the outside, it’s easy to look in and be left with the impression that there’s not much that’s really exciting and new happening in the music industry at the moment. It is now more incremental shifts and innovation that we are seeing play out.”
Haynes qualifies that assertion by pointing out that there is still plenty of activity from a new crop of music-focused accelerators including Abbey Road Red, Techstars Music and Marathon Labs, but politely suggests that it could be challenging for them to generate “large companies delivering venture-scale returns”. Which, as he admits, may not or should not be their goal.
“There is still a place for people to be fostering and investing in both entrepreneurship and innovation from within the industry itself. Artists and the organisations that surround them are still reorganising and retooling themselves around the opportunities in the new digital music economy. It’s saying ‘Hey, the industry needs this, we should invest in it and help to optimise.’ It’s incremental innovation, but you could see a solid crop of £5m, £10m, £20m businesses being born out of that,” says Haynes.
“Where’s the next billion-dollar company, or even $200m company coming from? It’s difficult to see it coming out of that category of tools and analytics. Although that’s not to say it can’t happen.”
Haynes is keen to stress that he does not look down on an ecosystem of small, thriving companies: he refers back to the era when there was an explosion of small, creative independent labels as a good example. He just thinks that those kinds of startups need to be realistic about the prospect of VC funding in the future. While it’s arguably easier than it ever has been to secure seed funding, making the leap to institutional funding after that is tough for music startups.
“Just because a VC doesn’t want to invest in your business doesn’t mean it’s a bad business though. In fact, for certain companies that started in the space, the fact that they took VC dollars created an expectation they were going to grow into something they were maybe never meant to be. And you could argue that this ultimately caused their demise,” says Haynes.
“So if venture funding may not be right for some of these businesses then perhaps the question is ‘what is the music industry doing itself to self-fund those things’? How does the industry itself encourage that entrepreneurialism?”
Haynes adds that when it comes to raising money from VC firms, many of them are still scared off music – however unfairly – by past experiences (or even just secondhand talk of past experiences) with startups that required licensing deals.
“There are all these fears of what’s happened in the past. Even if they believe in the startup themselves, they can be scared off because they think it will be difficult to take it to their investment committee,” he says.
“They have heard all the war stories, and about the big (music/tech) companies still struggling to turn a profit. But also, a lot of the disruption that happened in the music industry came a lot earlier than in other industries. So as an investor, if I’m looking for outsized returns then, frankly, there are plenty of technology-driven startups to back that are disrupting large incumbents in sectors such as legal, agriculture, finance or property.”
That may sound gloomy, but Haynes does see one big opportunity in the startup world where music (and audio) will be playing a large role: virtual reality. In fact, one of his investments at Seedcamp is in TheWaveVR, the US startup that is exploring new ways to experience social, live music in VR.
“For both art and music, VR all of a sudden opens up a completely new platform. It creates this cultural blank canvas, which the next generation of artists can start painting on. No one’s really thought through ‘well, how can people consume music in an entirely virtual environment?’ so that’s completely wide open,” he says.
“You’ll need creators and artists themselves experimenting with the format though, seeing what’s possible. And that’s going to take a year or so. Once that starts happening it’s going to get really exciting: those creators just need to develop the literacy and vocabulary of what works on those platforms.”
“Some of the current propositions just fall a little flat once the novelty wears off. I don’t think 360-degree videos of live performances is enough. How do we go beyond that? Rather than say ‘we’ve got VR, so we’ll put you into this almost-real environment’ how do we take you into an entirely new place? How do you go not just real, but hyper-real?”
Haynes also believes that VR will be a very social platform, bringing people together when they can’t physically be in the same real-world place. He notes that music has always been a powerful way of bringing people together and has traditionally been the backdrop to many social experiences, so why should VR be any different?
That’s one of the reasons Seedcamp chose to invest in TheWaveVR, which Haynes says is doing a good job of trying to rethink the experience of music, rather than just recreate the real experience in virtual environments.
“Often when a new type of media arrives, people try to replicate what’s gone before in the new medium. But to truly innovate you need to build upon the new characteristics inherent to that medium to properly realise its potential,” says Haynes.
“In many ways that’s what we did at SoundCloud. In a world of MP3s on hard drives, we made any sound a link, a social object that could be shared and consumed by your fans. That’s what made most sense to us for music in the age of a connected, social web upon which platforms like Flickr, Twitter and WordPress had been built. Not digital files on your hard drives that still had little pictures of CDs on them”
“Culturally and creatively I’m very excited, but commercially too. Obviously the challenge for any investor is timing. Being early is sometimes as good as being wrong, and in 2016 a lot of investment dollars went in to VR,” he continues.
“But you can feel the pressure mounting inside firms who have invested in the sector, while analysts wait for consumer demand to catch up with the hype. But there are so many people very dedicated to making things happen. All of the major corporations, including large media companies have put a decent amount of money in.”
Barring one, of course: Apple. Haynes thinks one of the stories of 2017 will be what Apple decides to do around VR, even though the company has been seemingly leaning more towards AR so far.
“They will do something: they need to do something,” says Haynes. “2016 was year zero for this wave of VR, but I think in 2017 you’re going to see more building blocks develop. 2017 will be more a case of the existing companies proving themselves. Many will undoubtedly fail, but others will succeed” he says.
“VR is very much still in the installation phase versus the deployment phase. There are a lot of opportunities to be had, but it’s not obvious which are the right ones.”
Are there also opportunities around music and startups developing blockchain-based technology? The potential for this has been discussed often in the last year, but going back to that idea of opportunity cost, those startups would arguably have a better chance of a big exit by focusing on another industry, like finance or law.
“It’s a really tricky one. The idea sounds so appealing: everybody can intellectually understand that the commercialisation of music is driven by all of these rights, and that something like the blockchain could help fix what’s currently a very broken structure,” says Haynes.
“But I think it could be difficult for an independent, newly-funded and ambitious commercial startup to raise money to fix that problem. To say ‘we’re really smart at crypto-this or blockchain-that’, raise $100m and then do it.”
“There are so many structural challenges. I think it’s going to have to come from within. Having worked in the music industry, I just see legacy issues and a lot of very entrenched organisations that don’t have an incentive to fundamentally change the way they operate. I’d loved to be proved wrong though. A company like Stripe came in and proved that two teenagers with no previous finance experience could come in and disrupt the billion dollar payments industry. So maybe upstarts like Jaak and others can really do something here.
Haynes is also following the emergence of startups blending artificial intelligence and music, particularly on the composition side. He recognises that this could also be a touchy subject for some people within the music industry.
“Everything around Creative AI: the notion of computational creativity, creative systems and augmented creativity is so interesting,” he says. “But mention the fact that machines can autonomously make acceptable music to anyone who’s been in the industry for years and they’ll look at you like you’re the devil!”
Joking aside, Haynes notes that he’s a big fan of companies like Jukedeck and Landr. “It’s intuitive and easy to understand the impact that AI may have for many categories of jobs. But it will be interesting to consider its impact on the creative industries too. That’s a both a philosophical and commercial debate that will inevitably come up with increasing frequency.”