Techstars Music Is Shutting Down — So What’s Next?
Written by djfrosty on October 20, 2023
Founded in 2017, Techstars Music was known as the premier music technology accelerator, providing funding and support to now-thriving companies like Endel, Splash, Hello Tickets, Community and Replica Studios. The company chose 10 startups each year and provided $120,000 to each, along with mentoring from its network of 316 music and entertainment executives from HYBE, Sony Music Entertainment, Warner Music Group, Concord, Quality Control and more.
Of the 70 startups that Techstars selected, the most successful 21 have gone on to raise over $263 million in follow-on funding since. Despite those successes, managing director Bob Moczydlowsky says that the company chose its final class this past summer — but his career as an investor is far from over.
Why is Techstars Music shutting down?
Even though the way we have been investing has been working, it has been held back by the constraints of an accelerator, which we feel is an outdated model. The amount of capital we can provide is limited. It is also held back by the constraints of labeling it “music.” We want to invest in companies solving problems for music, not music tech companies, but the reality is that founders see “Techstars Music” on the door and they bring us their startup to help kids learn to play a violin. We actually believe instruments will become irrelevant and software will mainly replace them. Our thesis now is we want to fund the future of entertainment, self-expression and live events. This changes almost nothing in how we have already been operating and evaluating companies, but we want this thesis publicly understood.
Why are accelerators outdated?
The accelerator is a great product. It was designed around the time of the financial crisis of 2008. Because angel and pre-seed investors largely disappeared, accelerators fit a need and had great returns. Plus, it helped new companies get the mentorship they needed. Now the cost of running a business — talent, travel, etc. — has grown. Smart founders can now find online most of the information accelerators provide on how to structure a company. The economic deal that accelerators offer to founders has not evolved in that time, so every year, the accelerator is providing the same amount of capital investment, buying the same amount of equity from founders, but that capital is buying fewer and fewer things … We need to make more investments and do it on a rolling, year-round basis. We need to provide more capital too so companies can better leverage the connections we can give them.
What does the future of your investing look like post-Techstars Music?
The goal is to be the best investor in this category. To do so we need to make more investments and do it on a rolling, year-round basis. We need to provide more capital too, so companies can leverage the connections we can give them better.
You’re not trying to invest in music companies but “invest in companies solving problems for music.” Can you explain what that means?
Music startups typically do not generate venture returns … You also have competitors like Apple, Amazon and Google that use music as a loss leader for other products. That makes investing in that sort of music startup very difficult, especially a pre-seed investor like us.
Because streaming has become the dominant way we are listening to music, it has altered a lot of other habits around it as a consequence … I want to invest in companies solving problems for music, like Community, a direct-messaging service. It’s not musical at all, but it is used by artists and enables them to connect to their fans directly better than ever.
Do you think it is helpful, given investors know how tough music businesses are to run, to define themselves as something besides primarily a music company?
Let me be clear: You cannot change how you define your company to make investors happy, or you will not raise capital, but you need to be savvy as a founder about how you present your business and find investors who are looking for you. One of the myths about raising venture capital is that founders persuade investors to invest in them. Investors are out there looking for companies to invest in all day long, every day. We are just trying to find companies that match our thesis.
We think about it like this: we see the problems the music business has. We see how music and entertainment are going to change over the years, so let’s invest in the things that solve the problems or get us closer to those new realities, not just saying “Hey, let’s see all the music tech startups.”
Do you think this is a particularly fruitful time for investors, given the rapid rise of AI, the maturation of streaming, etc.?
There is more opportunity and more radical change coming in the next five to 10 years than we’ve had in the last decade. The last 10 years were about maturing the streaming market and putting rights owners and artists on stable financial footing. The music business is now as big as it has ever been by revenue, but growth is slowing in the number of new subscribers. We’re at a point where music streaming 1.0 is perfected — what does streaming 2.0 look like? We’re shutting Techstars Music down so that we can come back with the right vehicle for the next 10 years.
In your crystal ball, what do you think Streaming 2.0 looks like?
If Streaming 1.0 was about making all the music play, Streaming 2.0 should be about being able to play with all the music.
Your thesis focuses not just on music now, but live events, self-expression and entertainment altogether. Do you see these sectors converging?
Absolutely. What is the difference between an athlete, a musician, a TV star at this point in terms of the media they deliver? They all have podcasts, documentaries, merchandise, fashion lines — of course, they all have their specialty, but I think it is evident that there will be even more convergence coming soon.
This story will appear in the Oct. 21, 2023, issue of Billboard.