Flexpoint Ford

Trending on Billboard

Mike Morris is one of music’s biggest new investors — and he’s placing his bets on the indies. The managing director of Chicago-based private equity firm Flexpoint Ford has overseen what Billboard estimates is more than $375 million of investments in some of music’s most influential independent companies since 2023. After initially backing the front-line music business at Nettwerk, the label that broke Sarah McLachlan and Barenaked Ladies, that same year the firm announced a “significant investment and partnership” in Goldstate Music, the catalog investment firm founded by former BMG president/COO and J Records co-founder Charles Goldstuck. Last year, Flexpoint led a $34 million equity financing round for Duetti, a music investment company that focuses on indie rights, and led a $165 million investment in Create Music, a music distribution, publishing and data analytics company. 

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Morris, who has previously held positions at Northleaf Capital Partners, H.I.G. Capital and Moelis & Co., says that Flexpoint’s focus on high-return middle-market companies serving independent artists has resulted in “repeated success.”

“We’ve really leaned into the independent sector of the music industry — it is just growing much faster than the traditional majors ecosystem,” Morris says. “This part of the market is so large and fragmented and there is so much growth…and tremendous opportunity for innovation.” 

What do you think of the maneuvers by the majors, like Universal Music Group’s proposed acquisition of Downtown Music, that target the growth of the indie segment? 

They are evidence enough of the fact they have been losing share to the independent ecosystem. They wouldn’t be buying these companies if it weren’t the case. We think our platform companies — whether one or more of them ends up in a major at some point, we’ll see — can outcompete because they don’t have the legacy infrastructure that some of the majors do. And they can complement the majors in serving this vast, fragmented and growing part of the market.

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What are the new modes of monetization you have talked about that excite you?

I’m talking about everything outside of the traditional streaming platforms: Meta, TikTok, YouTube, which is where Create started out. YouTube rights management, if you know how to do it correctly, is a very attractive and important area. Synch placement in video games, fitness apps — all of these tangential revenue streams. Not everyone knows how to monetize those streams, and it is core to the strategy for all of our portfolio companies.

What makes Create special? 

Create has only been around for about 12 years. They are a digitally native service and capital provider to the independent sector. It doesn’t have the legacy baggage around infrastructure that some of the services and labels have. Create started out as a pure-play rights management business and then went through a natural evolution, tacking on distribution, accounting systems, publishing — all built on this digitally native background. Their numbers aren’t public, but if they were, they’d speak for themselves.

Duetti was the first, but likely not the last, company to acquire the masters and publishing rights of indie artists bubbling under the mainstream radar. How are they prepped for competition? 

This is something [Duetti CEO Lior Tibon] has thought a lot about. They do have a first-mover advantage. But the reason no one else is doing it is because it’s really hard to do. Buying these small catalogs involves a high degree of sophistication, data, AI [artificial intelligence] and operational discipline to acquire thousands of catalogs and thousands of individual tracks. Most music companies and other funds in the space have not set themselves up to do that in a way that’s scalable. More competition is something we’ve planned for at the board level and among the shareholder group and management team. We feel like it’s going to be very hard to replicate the strategy at this kind of scale.

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Goldstate Music is more traditional compared with the other companies in your portfolio. What do you like about their method of investing in music intellectual property [IP], and would Flexpoint directly acquire catalogs itself? 

Charles Goldstuck is a best-in-class operator who’s proven over decades in and around the music business that he knows how to start businesses, take on institutional capital like ours, identify attractive parts of a market and use capital to create attractive returns for his investors. [He has a] sophisticated, important piece of the strategy: working on them actively to get the most juice out of those assets. Things like  changing and optimizing distribution contracts, synch placements, creating remixes and derivative works, getting [name, image and likeness] rights and doing merch and working actively with those artists.

Songs by Xania Monet, an AI artist that Hallwood Media signed to a multimillion-dollar agreement, are climbing the Billboard charts. How could the commercial success of AI music affect the value of catalogs? 

It’s fascinating to see AI-powered artists now being signed by labels. Yes, they’ll compete for listening time and could take some share. But in practice, I think it makes high-quality, authentic catalogs and artists even more valuable. So I don’t see AI destroying catalog value. Instead, I see it widening the gap: disposable, machine-made music on one side and enduring, human-driven catalogs on the other. The latter will continue to command attention, cultural relevance and investor confidence. 

What are you currently working on?

The most interesting things I’m seeing right now [include] international opportunities in Asia, the Middle East [and Latin America], both on the catalog side and with music service providers. Music-adjacent service providers and IP businesses in music-adjacent spaces like film, TV and video games are heavy users of music. We’re looking at a business in Korea right now that is in some ways like Create. It has evolved organically in the Korean music ecosystem to provide services focused on artists’ and independent labels’ needs.

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How long do you plan to be involved with portfolio companies?

We’re not quick-flip investors. We’re not in the quick-hits business. We’re about partnering with entrepreneurs and founders to build enduring businesses that can compound value over a long period of time. We think exits take care of themselves, as long as we’re helping build enduring businesses. Sometimes it takes three years, sometimes five and sometimes 10. 

Many companies, including Duetti and Create, are exploring raising funds through issuing asset-backed securities. Why is this a good strategy, and what are the potential drawbacks? 

To me, this is just music catching up to what other asset classes have been doing for decades. When you have reasonably predictable cash flow streams, it is a more efficient form of financing — no different from bank financing. But it’s in a more regimented form and checks the boxes the buyers of these types of bonds want. It’s a clear positive for the industry. The only real drawback is it is a significantly bigger undertaking in terms of the documentation and the ratings process than going to a bank and getting a loan. So it does require time, attention and effort from management teams and us. 

It’s hard to predict the staying power of songs. Do you have any concerns about very young songs being used to collateralize this type of bond or companies with high loan-to-debt rates adding to their debt this way? 

I hear all the same things. The performance of these bonds — both public and the private — has been 100%: no defaults, no issues. But it’s a relatively young asset class in the securitization market. So you might see some folks use the leverage very aggressively, which would be unwise. But I think the buyers of these bonds are sophisticated enough to know what they’re getting into and to analyze these cash flows and to structure them in a way that makes sense. These investors have a lot of experience now in both music and other asset classes where the modeling isn’t very different. It’s all a function of risk/reward tolerance and pricing appropriately.