Investing in Music Companies Isn't a Good Idea

The Techstars Music accelerator just announced its 7th cohort. As the program’s Managing Director Bob Moczydlowsky told me on this episode, they don’t invest in music companies. They invest in companies solving problems for the global music business. 

There are 10 companies that involve music in some way, including — education, web3, and even wedding celebrations. 

Each startup gets a $120,000 check from Techstars and hands-on development for 90 days. Past portfolio companies include Community, Endel, and Splash among many others. According to Bob, the program has returned a 3X multiple on invested capital since starting in 2017. Companies that went through the accelerator have gone on to raise an additional $250 million in capital after the accelerator.

Here’s what we hit on:

[0:00] How the accelerator has evolved 

[7:56] Investment areas that have underperformed 

[9:02] Is there a ceiling on music innovation? 

[12:38] Minor-league scouting, major-league swinging

[17:07] Repeating motif of investments

[18:11] 2023 accelerator cohort is “weirdest class ever”

[28:49] The case for remote teams

[31:44] The surge in capital from outside music industry

[37:46] Music is less sensitive to macroeconomic conditions

[40:39] Return on music accelerator vs. other Techstars programs 

[43:32] Techstars LP’s becoming more experimental 

[48:01] Hip-hop business mentors wanted

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Host: Dan Runcie, @RuncieDan, trapital.co

Guests: Bob Moczydlowsky, @bobmoz

This episode is brought to you by Amuse. Learn more about how its new program Music Insights can help your artist career: https://www.amuse.io/en/insights

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TRANSCRIPT

[00:00:00] Bob Moczydlowsky: We have to invest in something that isn't fashionable but looks like it's before it's time, might even look a little crazy. And that's the where we can add a ton of value. And then it's our job to help to look back three years later and go, oh yeah, there it is but of course we saw that all along.

[00:00:13] Like, same thing with generative media. We've been making generative media in investments since the very first year of the program and about half of them are really interesting, valuable companies now. And it took a long time for the red, the market to sort of catch up to that. and then, you know, ironically, my problem is as a small check investor just at the moment where I know that space really well and I can be really helpful and we have a good portfolio there and a community of people to connect new founders too. Now that the category is hot, we can’t afford it anymore.

[00:01:07] Dan Runcie's Guest Intro: Today's guest is the one and only Bob Moczydlowsky, but if you're in the space in the industry, you probably know him as Bob Moz. He is the managing director of the Techstars Music Accelerator, and he recently announced the seventh cohort that they have for the accelerator, which includes a few companies here, let me just read the names here.

[00:01:26] Baton Media, Beeper, Confetti, 5ive Mics, Haven, Highly Liquid, Homeroom, Obey Me, Royalty, and Seed. So Bob and I talked about what went into these companies, what are some common themes that went into this cohort and how this cohort has changed over time. This is now the seventh year that Bob has been running this accelerator.

[00:01:48] So he's gone through the bull market of startup investing. The growth of streaming and how each of those things have impacted. So what are some of the trends that have been the most lucrative for him? How he's evaluated on his returns, how his LP mix has been shaped and shifted over time, and some general trends and some common misconceptions that people hear and think about when it comes to investing in music companies and companies that are trying to solve problems in music.

[00:02:16] Great episode, especially for the founders, investors and builders out there. Hope you.

[00:02:22] Dan Runcie:

[00:02:22] All right. Today we have Bob Moz, who is the managing director for Techstars Music Accelerator. Bob, first time on the podcast.

[00:02:31] Bob Moczydlowsky: Thank you very much for having me. I am a, longtime listener. I'm kind of thrilled to be a guest. It's very cool.

[00:02:37] Dan Runcie: Yeah, and I think it's great to talk to you right now because you have the new cohort for Techstars Music Accelerator now, but you've actually been doing this now since 2017, and I think that. It's been interesting to just to see how much has changed in your role, but more broadly with music. You had this bull run, you had streamings rapid growth, and I'm sure with that, there's been so many different evolutions of how this cohort and how the companies have shaped over time.

[00:03:06] What's been your read on that? How has the accelerator evolved over time?

[00:03:11] Bob Moczydlowsky: Oh man, that is a gigantic question right out of the gate. so when we started the program in 2017, part of the thesis was. and it is still sort of the dirty secret of Techstars music. Like, we're not really here to invest in music companies or music tech startups. We're here to invest in startups that solve problems for the global music business.

[00:03:31] So we wanted to be five to seven years ahead of, where new revenue streams would be. New audience interactions would be. we wanted to be really, really out there on ways kids could express themselves and, and or make new music or how rights holders would monetize that music and I would say that heading into our seventh class, like any, you know, venture fund, we made a bunch of mistakes.

[00:03:54] we are happy to have some really valuable companies in the portfolio that are changing the way the music business works, like Splash and Endel, and community. And so the winds have come from the places we didn't expect, with maybe the exception of generative media. We can talk about that a a little more.

[00:04:11] Bob Moczydlowsky: We were into that from the beginning and we've, remained into it though I can no longer afford any of those deals because that's kind of a popular category. So I think I'm kind of out of those deals now. But in general, like the wins came from places we didn't expect and the defeats came in places we thought were gonna be great spots, right?

[00:04:28] So what we have learned is that you really have to focus on the quality of the team. You really have to focus on the opportunity and how that company can capture value in the market. And then you have to be patient, and just, and remember that one email, you know, with a yes on it. One phone call with a yes changes the fortunes of companies.

[00:04:48] Pre-seed, seed stage, you know, one feature, one good, dev sprint, where you actually really, you know, solve a problem for your users, changes the trajectory of the whole company. So, I would say that we have, put ourselves in a position now where we ha like our thesis is defensible, our portfolio value is real, and we have an incredible list of people who have come through the program and touched it in some way that.

[00:05:12] make a lot of really important decisions in the music business. So mostly it's just, I feel old when you say that, and I just feel super grateful that we get to do.

[00:05:20] Dan Runcie: Well, you said a few things there that I wanna dive into about the wins and the losses being opposite from what you may have expected on either side, and I think that's a thing I've heard from other investors and VCs, but specifically with this accelerator, are there certain trends that stuck out for things that you thought would've been a big bet but didn't end up turning out?

[00:05:43] Bob Moczydlowsky: Well, know, we were really excited about adaptive music and it's changing and matching your biometrics and pairing that with fitness that hasn't really come to fruition yet. . I'm optimistic it still might, but it hasn't so far. we were super optimistic that the using DSP streams to make mixes would allow, DJs to create and express themselves and create new content and repurpose music, and that wouldn't be considered a derivative work.

[00:06:08] And you could give full credit stream back to the rights owner, and that would be a way to deepen engagement and maybe add a couple of bucks to the monthly subscription fee of a larger DSP. That hasn't happened really, you know what I mean? or come to fruition. it has taken longer, than we've expected for someone to make a hit song using generative media and AI, though, you know, it sort of perpetually feels like it's right around the corner.

[00:06:33] but I think in that category, you know, I think we were just wrong people were gonna use generative media and AI to make songs. and instead they were going to use it to become artists and play games. and so we've learned a lot there where, what the thing we actually learned, and I say "we", but what I really mean is the splash team.

[00:06:50] Bob Moczydlowsky: And Steven and Angus, I'm a passenger in that, right? So I say "we" a lot, but those guys do all the work. you know, what they realized was that kids don't wanna make songs. Like no kid is going out there looking for an AI to make a song. they're looking for an AI to help them do

[00:07:05] several of the things that it require that are required to be an artist and grow a following and have people pay attention to you and express yourself. And they went and built a whole game around, okay, well then here's all the parts you need to DJ set. Here's the ability to perform in front of people.

[00:07:20] Here's a framework under which those performances are judged. And that became a wildly popular game. And so it turns out that like in the gaming world, you might use an AI to control both sides of the copyright, to give the player the freedom to do whatever they want with the music. but you also need a venue and you need an avatar, and you need a crowd.

[00:07:38] And there's a bunch of pieces where it's the song or the music is just one part of that. so that's been a massive, massive learning. and then the last one I would say, is that we continue to make investments around this and we will continue to do it, but the pace at. royalty flow and auto software automation for routing payments from consumption of music.

[00:07:56] The rate at which that has changed and adapted to be automated and look, I'm not naive. I know there's a bunch of competing interests and reasons, you know a bunch of players who benefit from it being slow and manual. but I think that's an inevitable area that has to get automated over time, and it hasn't happened as fast as I would expect it to.

[00:08:14] we we're kind of bumping up against the ceiling of growth for revenue from recorded music until we start automating those payouts and have better database ownership and better understanding of who owns what on a track. And the idea of like, you know, one publisher opting out or, securing their payment information to sort of give them leverage.

[00:08:33] Bob Moczydlowsky: Like, yes, that optimizes price for any one license or copyright, but it doesn't, grow the, it doesn't swell the tide. And so I think we're hitting this point where if we really want astronomical growth, we're gonna have to start automating that process too.

[00:08:47] Dan Runcie: Yeah.

[00:08:48] Bob Moczydlowsky: I remain optimistic. I'll keep trying on that one, but I haven't yet, mined any gold there,

[00:08:52] Dan Runcie: touching on something that I've heard other investors talk about too, where it does feel like there is this ceiling of how much innovation, how much growth can truly happen, and you hear that mostly about music tech specifically, just because some investors feel that. The incumbents just have so much power and control over the wake.

[00:09:12] Things currently are done with the systems that, whether it's tams or astronomical growth can be somewhat limited compared to what you may see in other industries.

[00:09:21] Bob Moczydlowsky: That's right. that's part of why I say we invest in companies solving problems for music and not music companies, is that it is a really complicated process to license music and use that. and so you think about the, act of primary listening or primary consumption, you know, some of the big platform companies use that as a loss leader.

[00:09:37] You know, Spotify's a pure play streamer, but they had diversified into audio and it took them enormous scale to make that those economics work. those are great businesses. It's cool, you know, think of me as a minor league talent scout. I'm not, you know, my checks are small. I go to work to help make those companies valuable.

[00:09:53] That's a level of the game that, I can't play, I don't have the kind of capital to make investments replace current big competing companies to Spotify. I'm better off make investing in companies that have an opportunity because of the way Spotify changes the landscape or the way Amazon changes the landscape.

[00:10:09] Now all of a sudden there's a new opportunity because people's consumption habits are different. That's where I'm gonna invest. I'm not gonna invest in the primary piece. And then the secondary part of that is like a lot of the way music copyright works, and we could talk about this as you dig into web three stuff if you want to.

[00:10:25] but a lot of that stuff is coded in the law and it's coded in the law across multiple territories around the world. You can't just disrupt the way payments work for music. That's not how it works. . Like there are rules and laws that make that stuff be what it is. and so in some cases the, those laws are holding back growth for the rights holders and in some cases they're protecting value for them.

[00:10:45] and startups that pretend that, that's not true, like they're kind of lying to themselves, you know, and they're, there's a couple of those every year. I wish someone would write a really definitive blog post about how to stay out of that. it is what it is. like that's not our domain.

[00:10:59] Dan Runcie: Yeah. I think too, just thinking about, you mentioned something as well, just in terms of you being in the minor league position, that's not your job necessarily to make the swings for the majors, but I also have to imagine too that whether it's you or even some of your LPs, would love to be able to double down and invest some of the prorata that you may have in some of these follow on rounds.

[00:11:20] Bob Moczydlowsky: Oh yeah, don't get me wrong, my job is to swing for the majors, right? but my job is to find a company that could be a billion dollar company where, you know, a couple a hundred grand and the support of the program and mentorship can put it on a path to succeed. Like if a company needs 10 million dollars to start, I just don't have that kind of capital.

[00:11:40] I'm not the right profile of investor for that company. So it's not that I'm not trying to get gigantic companies, right? Like when we wrote the first check in to Endel people thought we were crazy. They were like, what are you doing? How is the personalized soundscape for helping you focus, relax, or go to sleep?

[00:11:55] How is that gonna be a billion dollar company? And now you're in a situation where there's, you know, millions of dollars in annual revenue, hundreds of thousands of subscribers, interesting revenue coming out of the DSPs. Incredible partnerships with artists. No one at this point now in music, would argue that functional music is going to be eight to 10, maybe 12% of total consumption of music.

[00:12:20] And that Endel isn't the premium brand and the most valuable company in that space, that's sort of a foregone conclusion. That wasn't the case when we wrote that check. That's what I mean about sort of minor league, right? It's like, it's not that the companies aren't major league companies, of course they are.

[00:12:37] It's just that we have to invest in something that isn't fashionable but looks like it's before it's time, might even look a little crazy. And that's the where we can add a ton of value. And then it's our job to help to look back three years later and go, oh yeah, there it is but of course we saw that all along.

[00:12:52] Like, same thing with generative media. We've been making generative media in investments since the very first year of the program and about half of them are really interesting, valuable companies now. And it took a long time for the red, the market to sort of catch up to that. and then, you know, ironically, my problem is as a small check investor just at the moment where I know that space really well and I can be really helpful and we have a good portfolio there and a community of people to connect new founders too.

[00:13:19] Now that category is hot and we can't afford those deals anymore.

[00:13:23] Dan Runcie: And I'm sure.

[00:13:24] Bob Moczydlowsky: so that's what I mean, like it's not that we're trying to have small companies, we're trying to have

[00:13:27] Dan Runcie: Right. No, that makes sense. And I would imagine too, Whether it's your investors or others, they would love for you to be able to, oh, could you still get in these deals? Or could you still be able to do the follow on investments in whether it's an end or, or some of the generative companies?

[00:13:42] Bob Moczydlowsky: That's right. so the companies that have come through our program in total have gone out and raised another additional 250 million dollars after taking our initial capital, Right? so the capital we've deployed through the program is now, let me see, 7.4 million dollars after this current class.

[00:13:58] It'll be 7.4 million of, checks all sort of at that 120K, you know, Techstars, accelerator deal. You know, like they're all the same. All of our deployments are Post program now 250 million plus, it's like 254 million, something like that. And change has come into those companies after the program, of which about 16 million of it has come from the member companies.

[00:14:20] So that's Sony Warner's, Peloton, Hyde, Concord Monarch, Quality Control, Right hand, Bill Silva. All of those companies sort of collectively have put another 16 million dollars in post program, into those companies. So they're, active strategic investors and angel investors into those companies. the number I don't have that I should to tell you, is like also the individual, the number, the numbers, right?

[00:14:44] So executives from those companies as angels, or, executives or mentors who are not from the members, but are just independent and come and visit and help in the program. They also write, you know, 25K, 50K, 100K angel checks into companies. That number's a little harder for us to capture. cuz it's sort of personal money and not, corporate money, but, everybody around the program is definitely taking prorata and in, participating in those rounds as the companies grow grow for sure

[00:15:07] Dan Runcie: That makes sense. And I feel like those examples hit at the flip side of that earlier question of, at the time people probably didn't think that those were the areas that may have lined up with the initial thesis on paper, but they ended up being some of the most successful ones you had.

[00:15:23] Bob Moczydlowsky: it is a continuing, like delightful and hilarious, like repeating, you know, motif through the whole program. Right. no one liked Splash when it came in. It was called Pop Gun at the time. No one liked that, right? That's a 70 million dollar company now and the number one music related Roblox game.

[00:15:40] The company shimmer came in and was sort of like stuck mid-C ground, had a huge pivot and became community, right? That was, who could have predicted that? Endel, everybody hated, didn't believe it was real. Hey, these crazy Russian guys. This isn't science back. this doesn't work.

[00:15:55] This is the placebo effect. you , know, that's a 75 million dollar company. even just recently, like last year as recently as last year, having all of this history in the program, we get all the members together to screen new companies coming in and decide who we're gonna invest in.

[00:16:07] last December, the lowest ranked company in that screening was Circle Labs. Run by Anushk Mittal makes sentient NPCs sort of, and chat bot, right? A year ahead of chatGPT a year ahead of, in world, right? In those companies trying to like personalities into video game characters. you know, and during the program he went from sort of like two or 3000 users to 25,000 users.

[00:16:31] Bob Moczydlowsky: By the end of the summer he had 40,000 users. They're making these creators, you know, they're making these characters independent creators are, they're in multiple Discord servers. They're chatting with people all day. They have Twitter accounts, that becomes a competitive round, that light speed leads last fall, no one thought that was a company.

[00:16:48] Everybody thought that was crazy, not gonna be a thing. Now that's a, you know, $20 million plus company just you know, less than a year later, right? So it just is a thing that like can keeps repeating and repeating over time. and the reminder to us as investors and, especially at this pre-seed stage is it's okay if it's wild, right?

[00:17:08] There are gonna be things that are wild that are gonna fail, but only the wild different ones have a chance to actually move into that open space in that green field and be a huge company from seemingly nowhere, right? And that's our job. Our job is to experiment with that stuff and bring the whole music business around, in an ecosystem to participate and argue about it and be wrong together and disagree.

[00:17:29] And, you know, it's sort of my job to provide that safe space for those conversations to.

[00:17:34] Dan Runcie: Right, and I feel like you've talked about this a little bit, and even in past conversations about how the definition of a Techstars Accelerator company, or Techstars Music Company is part of that. It continues to evolve as you've seen different cohorts, but at least for this current cohort right now, you have a few, three companies in here.

[00:17:56] You have a few music companies, even one involved with wedding celebrations as well.

[00:18:01] Bob Moczydlowsky: Yeah, we do. It's the weirdest class ever, in the best way. Like I'm actually really curious. So you've seen it almost before anybody else has. and you know, it'll be public by the time people are hearing this podcast, but it's not public right now. Like, where do you wanna start?

[00:18:15] Like, it's an interesting list. there's probably a couple companies on there you've heard of before and seen, , I'm actually like, I'm happy to talk about any of them and I'm just as fascinated and curious to hear where you wanna start and what you, saw when

[00:18:27] Dan Runcie: Yeah. So we gotta start with Confetti. We gotta start with the wedding planning there and looking at the website, this wasn't a company that was on my radar before, but that's why I love stuff like this. You know, you're able to have unique access to things and it points out, and for me it stuck out.

[00:18:43] There's an experiential aspect. We all know how many people would love to be able to see and attend and experienced weddings and can't normally do so, but they're integrating brands. They're integrating music and culture in different ways and I think that's a unique thing. And yes, of course you could always throw a Zoom link.

[00:19:02] I've attended Zoom weddings before, especially during the pandemic, but I think there's something different here. And that one, let's start there. That one stuck out to me.

[00:19:10] Bob Moczydlowsky: Yeah. It's the most polarizing company, within our sort of internal community coming into the program. Andrew, the CEO knows this, like you've mentioned all the things like people wanna attend remotely. People might watch and buy a ticket to an influencer wedding. As weird as that sounds like it's totally believable thing that could happen.

[00:19:26] but I also think like there are, ways to organize media and everybody's at these events with a phone in their hand the entire time. like, you know, you're dressed up, you're in your suit, you're in your cocktail dress, whatever it. The only thing you need besides yourself and a fancy outfit at a wedding is your phone.

[00:19:42] Bob Moczydlowsky: You're taking pictures, you're making video, you're sharing things. So the concept of can we provide and experience people who are not there, can we generate and organize content with people who are there? Can we do virtual gifting and tipping or challenges and organize some of that stuff, especially as that pertains to the big moments in a wedding, which also, let's be honest, revolve around music in a lot of ways.

[00:20:04] I mean, it's very few weddings you've been to that don't involve music in as a core key ingredient in different places. this is a thing where there's enormous number of these events that happen over time. There's enormous potential in organizing this already existing behavior. and this is a good, it's a good hack as a venture investor if the behavior already exists and the company is gonna capture value by organizing it.

[00:20:27] that's a good opportunity as opposed to like, oh, we have to create some behavior and convince people to do this action. We have to change the user behavior before the company works. Those are companies that just have a much steeper hill to climb. And so this company comes to us with some traction.

[00:20:43] They've done some influencer weddings, they've got kind of a cool philosophy around it. We're gonna run a bunch of experiments and see if we can turn this into a

[00:20:50] Dan Runcie: So what does the business model look like

[00:20:52] Bob Moczydlowsky: for them?

[00:20:52] Come along for the ride, like, if right now it is a share of ticketing for the influencer stuff, right?

[00:20:57] and that's kind of marketing if you think about it. Like how do I get people comfortable with, how do I participate in a wedding remotely? but we actually think the much larger opportunity is just in people moving cash around during the wedding, gifting, buying things for each other, participating or having the account to organize the media.

[00:21:14] So there's several different revenue streams inside of that, and we're gonna experiment with like, what makes people happiest and they'll do sort of at volume. but right now the virtual gifting thing is a real thing. And it's easy

[00:21:24] Bob Moczydlowsky: for a bunch of

[00:21:25] people. Like, you don't have to bring the gift with you.

[00:21:27] you know, you're not just sending, like, who wants to just buy something off an Amazon registry link that's boring. Like, let's instead, you know, put a bunch of money on at the moment and, you know, run up a cool tab for people to go have a good honeymoon with during the reception itself. Totally believable.

[00:21:41] Dan Runcie:

No, I think there's something there, especially even with brand opportunities too. Just think about the number of brands that want exposure. Think about anytime you see a wedding and even just a way to like share that information in a way that's more clear. I know friends get weddings, literally, they'll reshare the Instagram story of every friend that was at the wedding, and it's like, all right, you know, happy for your nuptials and everything, but I'm not gonna sit here and tap through a hundred Instagram stories. Like, no, I'm not gonna do it. But if there's some type of interesting thing that's somewhat in between some, you know, $10,000 videographer, you know, montage that they put together and something that could be done here, I think there's something cool to be able to potentially tap into there.

[00:22:21] So excited for that one. The other one, come meet them.

[00:22:25] Dan Runcie: I know. Yeah. The other one that stuck out to me is Five Mics. So Ace Patterson, "Call Me Ace". He's been a guest on this podcast before. Him and I are friends, and I remember him telling me about this startup that he is playing as a while, and I think that he has, interesting landscape into the industry from both his work in consulting, working in big tech, working at YouTube.

[00:22:49] So he understands how that piece of it works, but then he's an artist himself, so just tapping into the collectibles opportunity, and I feel like so many people have been talking about that hip hop gaming collectible intersection, so I feel like there's something there.

[00:23:03] Bob Moczydlowsky: Yeah, I mean, well, so we should tell people what it is, so anybody listening, the picture is very simple. Imagine a card game like Magic: The Gathering or horror stone that is started around hip hop. And so instead of playing my or versus your Wizard, I'm playing Snoop versus, you know, Chief Keith, I don't know, like I don't know if it requires name and likeness.

[00:23:21] I don't know. Like the whole thing could happen. It could be Snoop Lion versus Murder Was The Case, Snoop, right? There's a bunch of different ways you could think about the organization of the characters. They could even be. Made up characters just in a fantasy hip hop world, if you don't, you know, need name and likeness, right?

[00:23:36] but the concept of those cards as digital collectibles, not physical printed things, you can store them, right? You can tokenize them, you can play them back and forth. if that game is fun and can entertain you, that's a real opportunity in a very cool and interesting way. And so I think, you know, I think Ace and Adam, are really talented guys who needed a shot, they needed shelter to actually like get this idea off the whiteboard and into practical reality.

[00:24:01] Bob Moczydlowsky: And part of the reason our program exists is to take really talented people who need that and need a little capital and need a little shelter to really like, feel like they gave that thing the full effort it deserves. and that's an idea that deserves real effort. Like that's a great concept. And if done correctly, I think we all could believe that could be played by millions of kids around the world.

[00:24:21] No problem.

[00:24:21] Dan Runcie: The other companies that stuck out to me from the list, there was a large focus I felt on community. There were a number of the startups that are either tapping into it, in some way, trying to bring music fans together, bring collaboration with other folks together.

[00:24:32] Bob Moczydlowsky: A hundred percent a theme for this year's process. Yep. Like very intentional. we talked a lot about what's happening around our own behavior, and the way we are all kind of interacting with each other. And it's like, I don't know if I need to have millions of followers.

[00:24:46] Like that's not a community. I need to have, you know, hundreds of people or thousands of people that are really like-minded that really teach me things and move me together. And, and so, the future being a massive niches is a thing we've all been talking about for a very long time.

[00:24:59] And there's a lot of evidence happening right now that these things are starting to become really lucrative, really valuable to people, and are becoming places rather than just online destinations. so we got a couple of companies that, touch this sphere, One called Homeroom, founder named RJ Ruggles.

[00:25:15] the Lazy investor way to describe this company is it's Google Analytics for your online communities. it's the, console you use to monitor Discord, Slack, other community-based environments where your community manager has to report metrics back to the business. Are we getting people out of the community into the transactional purchase funnel?

[00:25:33] Bob Moczydlowsky: Do we have people leaving the community because the commentary is toxic they're getting harassed? How do we monitor and what are the standard metrics by which we operate as community managers, like that's pretty loosely defined these days. and we think we can build a piece of software that defines that for people and then also helps them do better at it.

[00:25:51] and then in that same world, there's a company called Highly Liquid, run by Izzy Howell. If you imagine if you build a new fashion brand, and the buzzword of the day is a fi digital brand, right? Where you have digital and physical products.

[00:26:03] Bob Moczydlowsky: You have physical experiences, online community. So if you took a company like Supreme and we're gonna start at today, not everything would be skate decks and t-shirts. but you'd have collaborations. You would have some products in person and in her mind, Highly Liquid is targeted at women who care about online and tech communities, her first, product drop is actually a pair of panties. It's like a lingerie product. The second product will be in a totally different sort of category. but the idea that there's sort of a, what's the company, mischief.

[00:26:32] She references a lot that does like crazy online campaigns with artists and gets, like, creates trouble online and gets people to follow. If you combine that with sort of an ongoing community that was about female empowerment, about being active online in a, cool community, had a little bit of your favorite R-rated sex comedy jokes and attitude about it, that's a really interesting brand.

[00:26:51] That could exist in lots of different channels. and so we're excited about that and you could see how a company like that would need a company like Homeroom, as part of its core, you know, control center for running the, business. Right. on the other side of that is this company, Seed,the founders come out of a small town in Puerto Rico.

[00:27:07] They're living in Florida now. They've built an online music community slash school for learning about the music business. Entirely in Spanish and targeted exclusively to Spanish speaking markets. So they're not trying to like have multiple languages and everything's in English, like very specifically Spanish language, Spanish language contracts, dynamics and explaining the way the business works from the perspective of someone who sees Bad Bunny or sees Shakira and aspires to be in that world.

[00:27:37] and that company is doing gangbusters business already. and could be, I think the definitive brand for how music business expands in Spanish speaking, territories, right? Again, driven by a combination of school and curriculum, but also community and professional development, and a place where you can go and talk to people and develop your career and make like sort of lifelong contacts.

[00:28:00] Bob Moczydlowsky: As opposed to something like LinkedIn where it's like, oh, everybody's on LinkedIn. So there's not really any real community there, right? yes, you need that because you need the publicly available place where you're, you could be found professionally, but in your industry, in your category, in your specific vertical, you need much more interaction.

[00:28:16] So, we're headed that way with sort of, with some of those companies. So I'm glad you noticed like this. It's not an accident that all that stuff's

[00:28:22] Dan Runcie: Yeah, and I'm sure too with this cohort, this is a hybrid cohort. With that, we're talking a little bit before we record it, but you're gonna have a week in la, you'll have a week in Atlanta. There'll be a lot of remote time, and I think that reflects a lot of the trends we've seen over. The past few years, and even how Techstars has run, because you started out where the teams were all in LA, at least for the duration, working outta the office during the pandemic.

[00:28:49] Everything's remote. Now it's hybrid, which I think does reflect a lot of this that we've seen. and I know that the focus of teams and the people that are building these is so important, especially in early stage startups. How is your evaluation of teams? And that piece of it evolved with knowing that even the startups themselves may not be directly working in the same place.

[00:29:11] Like the founders themselves may not be directly in the same location.

[00:29:14] Bob Moczydlowsky: Yeah, I think the idea that you have to run your startup in a specific room with everybody all together, or you have to be in a specific geography like, the trend was that that wasn't true pre covid, but Covid just wiped it off the, board. You know, like we, we've had companies in the past, like investor, like go to see investors and the investors is like, oh, like everything about this deal except that your company's located in Europe or your company's located in Australia or whatever, so we're gonna pass because of your location.

[00:29:44] I haven't heard that in years, you know what I mean? Like we're in a new world now where people can be multiple places at once in a really weird but true way. Like, one of the teams coming in, Baton is working on organizing all of the pre-release, like work in progress music.

[00:29:59] And their teams are all over the place. They've got guys in, they have a guy in Dubai, they've got a team in Italy, they've got Americans, they have people in New York, they're gonna be with us here in LA. We have a team, working on online virtual nightclubs, specifically targeting African teens.

[00:30:15] They're based in South Africa and London. They're gonna be with us in LA and New York and probably raise capital in the US and build a product targeted towards, you know, teens in Africa. So the idea that these things are geographically focused, or your thesis could be geographically focused, I think is actually a detriment if you're operating that way.

[00:30:32] and so we've resort of rearranged the way the program works to try to add a maximum amount of value for Serendipity. Be together in the office, talk about hard things, have accountability, do an all hands, meet each other, share contacts, and then break apart and go back remote and focus on shipping product.

[00:30:50] Bob Moczydlowsky: And you can do really great mentor meetings in, you know, 20, 30 minute sessions via Zoom and get access to amazing people because they don't have to come to the office to have that meeting. and so if as long as you're balancing the hard conversations and the development and the team organization in those in-person weeks.

[00:31:08] And then you're breaking apart to go actually focus and accomplish stuff. I think you end up with the best of both worlds. So we've always had an international program by thesis design. Half our investments are outside of the United States because we think that's where most of the future revenue opportunities are and growth is gonna be.

[00:31:25] So the hybrid model just makes this whole thing, you know, easier for us and allows us to actually, you know, have European portfolio companies that are just as important to us and accessible to us as Americans.

[00:31:36] Dan Runcie: Definitely, especially in this industry, with any company that's trying to improve problems for music, it's most likely gonna come from places outside of the us so that makes a lot of sense. The other shift that I've seen over the past couple years, especially in music, is the increasing amount of non-music or non-music people that have a big checks or they're trying to get involved in some way, usually at later stage rounds.

[00:32:03] And in your case, those could be the folks that are marking up some of your companies that you've already made investments in, do you feel like that has shifted what the success likelihood or the type of companies that may get follow on investing in that, that you're then looking at your end of obviously trying to fund those companies out to be most likely to exit and how that may have shifted the portfolio companies or just the likelihood of success one way or another for companies solving problems in.

[00:32:32] Bob Moczydlowsky: Hmm. Yeah, I would say it's like, so it kind of depends like, the companies that are related to music, there are a lot of people coming into music who have bought catalog or who have, who have bought music related assets, who now wanna help further that ecosystem. and we have a company in this year coming into this year's class called Royalty that's working on, like, the analogy I would use for that company is, a company that was very boring, that wasn't very sexy, called Athena Health that automated the medical billing process.

[00:32:58] Like it was too hard for doctor's offices and clinics to submit their procedures to the insurance company. Insurance company reject it cuz it didn't have some special code on it. They have to go refile it and try to get paid to qualify. Right. That model looks a lot like, royalty registration and making sure you're collecting money from copyright assets around the world.

[00:33:16] And so you see people funding companies like that and like entertainment intelligence, although I guess entertainment intelligence in the program a couple years ago. We sort of co-own that as a program with Concord and secretly Canadian, and it's used by Monarch and secretly, and Hopeless Records and a bunch of other folks, to do data warehousing and trend analysis, right? It's the ability to watch what's happening to your streaming data and then react to tiny signals in that data. So, for example, you have a catalog track that you haven't done primary marketing on or 15 years starts to get a little traction on TikTok. You now need to call your rep the DSP and get that thing onto a playlist or you need to call your music supervisors and get that in somewhere, right? And so investment and capital and growth is happening for those companies. and they're so like that's the kind of company that the person who's coming to music because they bought some assets or they've had extra cash and they're developing, those are the kind of companies that we're seeing that kind of investment going to.

[00:34:15] and like I'm really excited about royalty this year because of that opportunity, right? There are people now who have gone and purchased these assets, who now need the way the music business operates to become more efficient and more streamlined so that they can get growth that justifies the multiple they paid for that catalog.

[00:34:30] Bob Moczydlowsky: If you bought a catalog at 20 x annual revenue, you need to make sure you're collecting every penny that's due to you, and you need to work on streamlining the way the business works to get more money in the future, right? So you get a faster payoff and better ROI on your deals. The companies that are most valuable for us, however, I still have to cajole, convince, arm twist network with, you know, grade A venture investors and show them those deals.

[00:34:56] And I almost have to leave out the fact that we operate in and around music on those deals, right? Like when Splash goes to COSLA or Endell goes to, true or, gogogo comics goes to BitCraft or Circle Labs goes to light speed music isn't part of the conversation at all in those cases. And we still have a stigma of music as a category is a smaller, not as interesting place to play for those investors and instead of convincing them that they're wrong and they should look, I have found that the way to be effective is just to show them the opportunity uniquely to that one company and let them judge that and forget how it relates to music altogether.

[00:35:38] Dan Runcie: That first point you mentioned I think is really interesting because if you're a company that has purchased a catalog, it would also be in your interest to make sure that those payments are being processed as efficiently as they should, or any other type of financial activity that could benefit your asset that you just spent 50, 60, a hundred million on could be even more beneficial.

[00:35:59] So that piece, it made sense. And I think too, even the comparison to like Athena Health, right? How can you make a comp to some other industry where this thing did this and helped push things moving forward. I could definitely see that. I would like to imagine that the music conversation, maybe it would eventually shift at some point.

[00:36:17] I know that we often hear the comparison to gaming and how gaming's revenue continues to increase and I know a very different business model different in a lot of ways. So I still think that the big tams are out there, and I think because given. There's been so much investment activity, even from the major record labels or some of the indies.

[00:36:36] I know some of them are investors in your accelerator, or they have made big investments themselves or big bets like they want to be able to increase the overall pie. Just think that there's so much that is inherent with the complexity of the business and just some of the. Information that can be held tight, that can make some of it be a bit challenging.

[00:36:56] But if you do have that combination of someone that knows the space, someone that's willing to find efficiencies where it can be, I still think that there is big opportunity.

[00:37:06] Bob Moczydlowsky: I agree. Like If anything, there are more deals that I would like to do that I can't do. You know what I mean? Like, it's not like I'm like, oh, I didn't have enough deals to do. I think the next couple of years, there will be less cash. There will be less capital in the market.

[00:37:19] which will be good because there was sort of too much and prices were too high and there was too many and it was hard to sift through which founders are real and which ones weren't. but in these next couple of years, there is unbelievable opportunity based on sort of like the inertia of where the business is headed and whatever impact we get of macroeconomic downturn is gonna hit music less than it's gonna hit a bunch of other categories.

[00:37:42] And so the concept of music driving culture and culture driving everything else, and things starting in around music, and music, being willing to find these other revenue streams. music was at the forefront of the direct-to-consumer online shopping revolution. Music was at the beginning of the, how do I become, an entity that can have multiple brands and collaborations and have new consumer products driven by fandom.

[00:38:03] Music has been at the forefront of these movements over and over and over again, and the company doesn't have to position itself as a music company to benefit from working in and around music, right? Like that's the way we think about it. And I just think that's gonna be more and more true over the next several years.

[00:38:18] It's just gonna be, and the things that people wanna do in and around music, like go to events and go have experiences with their friends outside. are going to become even stronger. That demand is really high now, and we have a bunch of tools and platforms that allow people to do that at scale.

[00:38:37] That was never possible before, right? Like this company coming into this year's class, I think it's the last one maybe we haven't talked about. Haven, they have multiple brands, one called Floating and one called Ambient Church. Where they put on events that don't have artists on the top. They have sort of experience like, we're gonna go to the park and there's gonna be a sound bath, and we're going to like 40 people, no alcohol Sunday afternoon out in nature.

[00:39:00] Connect with each other, talk to each other, be mindful and relax and like de-stress from our overly technical scheduled lives. That company, you know, sold tens of thousands of tickets last year across their two brands. And they're connecting everybody with, you know, SMS community and membership belonging to a community that furthers those brands and those events.

[00:39:22] But the event itself is like unplugged, disconnected, like that's the level we're at now where the tools allow you to have sort of music style experiences that don't necessarily involve the legacy music business at all. There's no promoter there. There's no primary ticketer, you know, there's no tour merch, there's no back production company.

[00:39:43] There's not a huge rig and a negotiation like there's none of that stuff. It's just humans agreeing to go do something and enjoy some music and sound out in nature. But everything around it makes like you can have the entire rest of the company that looks like a really awesome modern promoter company because you can scale it horizontally into multiple cities.

[00:40:03] Through community, right? So these are the things where everybody says there's no more green space in and around music. It's a low limited category, there aren't big, huge opportunities for these companies to have a hundred, 200 million in annual revenue, a billion dollars in annual revenue.

[00:40:18] I just kind of chuckle cuz it's like the perfect, you know, like it's the perfect great garden bed to plant these seeds in. Like yes, they grow up to be trees in other forests, but they start there.

[00:40:28] Dan Runcie: And when you hear that pushback, do you have like stats that you can show or anything that like I'd be curious to hear what does the Techstar Music Accelerator returns or success look like compared to maybe other Techstar non-music accelerators like we.

[00:40:43] Bob Moczydlowsky: Yeah, so some of that's pretty proprietary. couple of the stats I'll give you just because I'd like you and I'll probably get in trouble, but it'll be okay. So our multiple on invested capital from the accelerator is a little over three. And, you know, we've deployed, like I said, that 7.4, you can do the math on that about what our positions are worth in those companies.

[00:41:02] The reason that is true is because, you know, the way an accelerator works is you, you know, there's gonna be a power law, right? You're gonna put 10 companies in, you're gonna work on them together. They're not all gonna end up being equal, but the things you learn from the ones that fail are gonna help you make better decisions on the next batch.

[00:41:19] Bob Moczydlowsky: And, so, you know, the last couple of years the market has been so, frothy, right? There's been so much cash looking for assets to the price of assets just went way up, right? Interest rates were effectively zero. If you had cash, you had to do something with it to get a return. You couldn't just put it away and get 3, 4, 5, 6% on it.

[00:41:37] There was no interest to be had. So that drives up asset prices, it drove up the stock market, it drove up private company valuations, drove up the prices of seed rounds and pre-seed rounds and everything, right? That is deflating quite a bit at the moment. So, in those two years where our deals stayed the same and we make the same sort of fixed term investments and there was, it got even more competitive for us to try to get into companies and invest in them.

[00:42:00] And great companies had their pick of investors, we decided to go the other way and go even earlier and even crazier because instead of competing for those really high, overly marked up deals, we're gonna help start some things. And yes, we're gonna have a high mortality rate, but if you grab a couple that work, the markups are so gigantic that you end up with a pretty good performance on your fund, right?

[00:42:22] So if you invest in a company, you know, at a 3 or 4 million dollar valuation, and the next round to capital for that company is in the twenties like, now you look like you know what you're doing and it's okay that a couple other ones like that seemed crazy, turned out to be crazy and went to zero, like the magic of venture capital is you can only lose your principle.

[00:42:42] Dan Runcie: Right. Yeah. Asymmetric upside for sure. Especially with,

[00:42:47] Bob Moczydlowsky: That's for sure. And so if you're thinking about deploying capital in the category, you kind of need to be promiscuous, right? You need to have a long-term horizon on it, and you need to be willing to think about it that way. And I think the way to do that is at the very earliest stages. Now to do that, you have to know how music works and you have to be able to get people on the phone, and you have to be able to argue about stuff, and you have to have the stomach for the crazy one, you know, going belly up six months after you wrote the check. but if you're willing to do those things, the amount of information you learn by doing that is sort of creates a, little flywheel around you making this better and better and better

[00:43:21] Dan Runcie: decisions.

[00:43:22] Right. And I think for you, at the end of the day, it's being able to get that buy-in from the LP base. And I'd be curious to hear from you, how has your LP base shifted over time? Are there any trends you've seen there? And does that say anything about what types of companies have been more or less interested in investing in the future of solving problems for music in the past five, six years

[00:43:44] Bob Moczydlowsky: Yeah. they've definitely gotten less conservative over time. More experimental, more willing to like try stuff. Like to the point even where like if you look at Warner from Warner's comments in, I think they maybe were in Music Ally or MBW a couple days ago, like late January, I think she even said publicly like, the era of conservatism is coming to an end.

[00:44:06] We need to start experimenting with the way our content is used to build these businesses. I can back her up, she's awesome by the way. Very thoughtful looks at it at a really good high level. I can back her up and then I've actually felt and seen people's behavior change against that rhetoric.

[00:44:22] when we first started the program, it was a lot of question about what are returns gonna look like? When are these companies gonna be valuable to us? When are we gonna get something out of this that's we can have, you know, financial ROI on and as the companies have evolved, as Endell became Endel and Splash became Splash and Community did its thing, and Gimme Radio is moving, you know, hundreds of thousands of dollars for catalog divisions, you know, in specific genres.

[00:44:47] Bob Moczydlowsky: When AI became, you know, the source of data warehousing and is helping people understand TikTok and Concord is the secretly Canadian are like, oh, we need to actually own a piece of that company, you know, when those things start to happen. Everybody looks at it and goes, oh, all right, like, we just need to water the garden.

[00:45:03] We don't necessarily need to be beating any one deal up on its ROI as long as the garden has flowers in it, right? L et's look at the whole thing. And so we have a very real feeling of, collegiality and team inside of the accelerator. you know, it's not like Warners and Sony don't compete. It's not like Concord and Sony don't compete, right? But when it comes to a company that is providing the service that could help them be more efficient. They are more likely to collaborate and share information with each other, because everybody benefits. And that posture now, you know, in 2023 where, you know, compared to 2017 radically different.

[00:45:39] Like when we were first putting the program together in 2017, I had major label business affairs lawyers, like giving me checklists around making sure we didn't have like, you know, anti-monopolist or collusion issues or antitrust issues with the way we shared information in the program. Now we have a screening committee where we look at sort of the top 25 companies each year, and everybody's in the room together sharing ideas and like trading deal flow, and like, oh, I think we really like this one.

[00:46:07] Do you guys like this? If we wrote a check, would you write a check? Like the conversation is so radically different and collaborative compared to where we started. That I can just say like the music business knows that to get growth, it needs to be more experimental, and it's not like it was doing the wrong thing from 2005 to 2012 or 2013 when your annual revenues are declining,

[00:46:33] like anybody, you lose your job, you have less revenue. You're gonna be more conservative with how you spend your cash and what you do it, and you're gonna be more protective about the revenue you do have, right? Like when you are making more money and you made your bonus and you got extra money you didn't plan for, you experiment and you try new things and like that.

[00:46:50] So the good news is I think we're in an era that's gonna stay, you know, pretty steady for a while and that experimentation and growth is gonna occur, and it's a delight to see, you know, public rhetoric from the heads of major labels, like backing up the behavior they're already exhibiting in the accelerator, right?

[00:47:07] Like, I think it's time for huge

[00:47:09] Dan Runcie: optimism.

[00:47:09] Well said. I think that they we're in this transition moment, so hopefully we'll see more of this. But Bob, this has been great. Before we let you go though, for folks that wanna stay in touch with what's happening with this cohort, with the accelerator, where should they go?

[00:47:23] Bob Moczydlowsky: Okay, so we actually are recruiting some new mentors for this year's program. we have some specific issues and people that we're interested in and we want them to come, particularly from, hip hop, right? We are constantly trying to build a deeper bench of mentors and angel investors from the hiphop community all the time.

[00:47:42] And so what I would tell people, if that's you and you're listening or you are active in that area, just email me. I'm Bob Moz, bobmoz@techstars.com. I'll send you a thing to submit on mentorship, and not everybody will make it through. Some people will have to say no to. But we'll read 'em and look at all of them, but there are specific things where we wanna e expand and deepen our community, that that's one of them.

[00:48:03] the other thing, would be is that if you are an investor thinking about deal flow here, you're looking at a company we're in, or you're looking at a company that we're not in, and we can be helpful to you to like, here's what we've seen, here's the comps companies, here's the competing company or Oh, you know, we made an investment like that.

[00:48:18] Bob Moczydlowsky: Here's all the places that fell apart. Be careful of these places. Also just, email me you know, I'm constantly talking to investors about their portfolio, not mine, and trying to like just be useful to them. because ultimately I want there to be more capital in the category, right? I want people to raise funds. I want them to invest in deals.

[00:48:36] there's not one thing I can think of where I would've a competitive posture about any of that stuff. and I would tell people who wanna be involved, like, drop your competitive pieces off out of your own actions and your own behavior. Just be a hundred percent collaborative.

[00:48:51] There's only a couple hundred people who are really serious and really active in this community worldwide. There's nothing to fight over. Like there's enough for everybody. and, you know, deals that I can't afford. That's okay, I'll still tell people I think they're cool deals and if you wanna be involved and see some of that stuff, like just email me and we have ways to plug people into our, community. It's hundreds of people. So, it's not like we're off in a closet running the accelerator with, 10 folks. It's a lot of people.

[00:49:16] Dan Runcie: That's awesome. That's awesome. Love to see it. Well, thanks Bob. This has been fun. Appreciate you.