Learn About Music Industry Investors and Patronage
When you're looking for investors in your music business, it's important to remember that in exchange for the cash, you'll be giving up a chunk of your business, some of your autonomy, or both. Make sure you carefully consider the real cost of the investment -- not only what you will have to pay back, but what you will be sacrificing when you work with an investor -- and make sure you are clear on these points in advance.
Here are some of the options when it comes to raising money.
Music business angel investors can take several different forms. Your angel might be a family member or friend with deep pockets, or they may be a complete stranger with loads of cash who is interested in investing in start-up companies. Some music business angels are people who have made their money in music and want to pass along their good fortune and their expertise. Other are simply people with money to spend who like the idea of getting involved in music. Angels will help with start-up cash, but your proposed business needs to be of a certain size to make it worth their time (see "Small Print" section below).
Venture capitalists (VCs) will invest in businesses both at start-up and at times when the company needs a cash injection to grow. If you're looking for VC funding, make sure you look for a group that has a history of investing in music-related businesses.
Although VCs look for high-risk investments, they're not always good matches with creative industries unless they're used to that realm. In other words, if you can even get them to take you seriously, to begin with, then they don't really care about your "artistic integrity" - they want the loot, and they want it fast.
Americans can all but forget about this one, but outside of the States, most countries have funding bodies that provide money for the arts, including the music industry. These arts funding groups can be great places to get the money you need because they are willing to work with music businesses of all sizes and have the ability to take chances on projects profit seekers like angels and VCs wouldn't touch. Even better, most of the time they give grants rather than loans, so you don't have to pay it back. You'll still need a good business plan to work with them, however - though in most cases, they can help you write it.
For indie labels, investment by a major label is an option. This kind of investment will typically only after you've built a proven track record of success as a label and need money to expand - start-up cash from a major is usually only given to someone who has either run a successful indie label in the past or has a good sales record as an artist.
Of course, funding from a major will require ceding some control of your label, which has not always ended well for indies.
This is another one that is specific to labels, and it's getting a bit harder to find.
However, in some cases, you may be able to get a distributor to invest in a release on a project basis. For instance, if you have a chance to work with a big name artist, but you can't really afford to come up with the advance or the money to give the album a proper push, your distributor might step in with an advance against future earnings on the album or with a loan that would make them an investor in the project, giving them a larger cut of the album's profits. Distributors might also help with manufacturing.
Important Things To Consider When Seeking Out an Investor
Does your investor want to be involved in making business decisions? If so, do they have experience in the music industry or another creative industry (and if yes, do you share a similar philosophy in terms of the business)?
Working with an investor with tons of music industry experience who wants to help you shape and build your business can be a great thing.
Working with an investor who simply has a lot of money and wants to invest in your music related business because they think it would be kind of fun might not be such a great thing if they want some say-so in your business decisions. (Note that not all investors will want to become involved in your business. Some just want to make an investment and wait for the payoff.)
Make sure you understand if you are getting an investment or a loan. Investments bring risk for the investor, and so they understand they may lose their money. A loan needs to be paid back. If your investor is pressuring you to sign over a large share of your business, be cautious. If large amounts of money and large shares are involved, get legal advice.
Music Investors Generally Seek Bigger Investments
Another thing to remember when you're seeking investment is that the hardest kind of business to find funding for is a very small one. Generally speaking, VCs don't want to talk to you unless you need at least several hundreds of thousands in investment. Music business angels will invest in smaller companies than that, but typically they're looking for investment opportunities at least in the tens of thousands range. Raising a few thousand dollars is the hardest thing to do. In the absence of arts councils or generous family/friends, you may need to consider savings, personal loans, and credit cards if you need a relatively small amount of money to get going.
Also, be aware that music investment is usually given to businesses like labels, promotion companies, etc. Bands looking for investment will have a difficult time going through one of these routes and will need to look to labels, distributors and so on for their needs.