This article is a continuation of my “Investor Perspective” series. For my previous entry, click here.
As the pandemic and recession continue to impact financial markets, many entrepreneurs are scrambling to find ways to keep their startups afloat. Access to investment capital and strategic resources may be more difficult than ever, and the venture market saw a 20% drop in December 2019 due to mounting fears over the pandemic.
However, some investors are still actively sourcing new deals and investing, although potentially with a more careful approach than previously exercised. John Acquaviva-– the internationally renowned DJ––is active in music tech investing. After launching a successful music career in the 1980s, Acquaviva’s portfolio grew to include the labels Plus 8 Records and Definitive Records with business partner and fellow DJ Richie Hawtin. Acquaviva also founded Beatport, which became the largest dance music download site and was acquired by SFX Entertainment in 2013.
In 2014, Acquaviva launched Plus 8 Equity Partners, an early-stage venture capital firm focusing on music technology, with Hawtin and investment banker Rishi Patel. Many investors in the fund are reported to be musicians and music industry professionals, largely leveraged by Acquaviva’s extensive music network.
Acquaviva was kind enough to offer his perspective to help music tech entrepreneurs navigate the current rocky landscape:
Brian Penick: Are you currently investing/deploying capital?
Jon Acquaviva: Yes, we are currently investing and deploying capital.
Penick: Regarding active investing, are you primarily focusing on new deal flow or prioritizing existing portfolio companies for follow-on funding?
Acquaviva: We are equally considering and open to investing on both fronts.
Penick: What types of deals are you currently focusing on during the pandemic vs. historically?
Acquaviva: In the pandemic, we are a little more reticent to invest in a company if there is little hope or no regard for revenue. Companies need to show pragmatism for running the business, and best try to monetize the value they are claiming to create. Our portfolio avoided venues, labels and live events. We are more on the creative side, and companies such as Endel, Landr and Splice have all seen growth on many fronts.
Penick: What is your typical preference for round involvement (stage, lead vs. non-lead, etc.) and check size?
Acquaviva: We are seed to series A investors, and are leading an investment round this quarter. Our average check size is low-mid six figures. This has not fluctuated but rather impacted by each particular deal.
Penick: What do you predict for the music industry and music tech landscape during the pandemic? What about post-pandemic?
Acquaviva: The pandemic has slammed a large swath of the industry. We have already highlighted and invested in many areas that music was going into, and we still feel there will be significant opportunities post-pandemic. Those opportunities will lie in music as part of health and wellbeing, streaming, further monetization with streaming for venues, and artists beyond DSP’S. Further and deeper integration with gaming, as music has been an afterthought or just wallpaper. There is value there to be unlocked. VR may have fallen on its face, but given the collapse of live events, it may well offer an opportunity for relevance if not success in the solution to stream live events and more. Education in every sense, but music as well.
Penick: What is the best advice you can offer entrepreneurs seeking funding during the pandemic?
Acquaviva: They need to show they can propose and run a tight ship. Historically, companies that are truly lean and mean that come out of tough patches have become successful by surviving with discipline rather than using it to thrive. Pitches need to embrace such principles and also address a realistic revenue path where possible. A spendthrift agenda to build a dream without creating tangible value will not be well received by investors. As a mentor, my mantra is pragmatism and discipline all the time, but now more than ever. Entrepreneurs need to dream but should not be deluded.
Penick: What advice would you like to offer fellow investors during the pandemic?
Acquaviva: The music business has proven to be resilient over the last few years and has started to grow again. We believe that music is a big part of the fabric of society and try to weave it in wherever possible to create and ideally extract some value. The ecosystem in music will contract but is hale, so there are opportunities to invest in the creative space and the ecosystem of smaller companies. Many startups we see are viable but not as valuable as the entrepreneurs have priced them. If a company can provide jobs and improve the music space, that is a good thing, but it needs to be priced right. Much of the ecosystem cannot scale to the dreams of entrepreneurs, and they will fall far short of what they think it is worth. So more than ever, CAVEAT EMPTOR [translates to “let the buyer beware”].
Penick: What advice would you have for other startup ecosystem members, such as the major labels/publishers/partners/clients of these services? Is now a good time to invest at discounted terms, explore free pilot programs, or even make earlier stage acquisitions for a good deal?
Acquaviva: You pretty much answered it above.
Penick: Can you reference positive examples of things you have seen in the market since COVID-19 has happened? Any specific examples of adaptability you would like to highlight?
Acquaviva: My good friend Disco Donnie recently bought back the production company he sold to SFX, who eventually went bankrupt. Recently, he had an incredible entrepreneurial adaptation with a series of events called No Parking On The Dancefloor, renting parks or drive-ins, and allowed people to drive up and presto…successful events. Versus Game creates a marketplace for influencers to bring their fans and play for free or a few dollars to select, vote and win. Basketball hall of famer Tracy McGrady was one of the first to use, and the case study was phenomenal. The growth has been explosive since the start of the year/pandemic.
Penick: Anything else you would like to add?
Acquaviva: From the perspective of an artist-centric boutique fund, music has always been an integral part of the fabric of society. In these trying times, we are pleased to see artists getting increasingly involved in shaping the very same society by using their influence to inspire future generations to create awareness around technology, culture and the general progress of humanity.
This series will continue to explore perspectives from music tech investors. Thank you to John Acquaviva for his contribution.
Legal Disclaimer: I am a partner at the venture capital firms LOUD Capital and Legacy Entertainment Ventures, which are currently evaluating investments in music and entertainment. For journalistic integrity, I have not included my perspective within my colleagues’ responses for this article to remain unbiased.