4 minute read

M&A and IPO Outlook for London’s Most Promising Music Startups

A Game of Musical Chairs?    4 minute read

M&A and IPO Outlook for London’s Most Promising Music Startups

While FinTech has been attracting a lot of attention within London’s startup ecosystem, a lot of innovation and venture creation is also occurring elsewhere. Music Software, while a very niche segment to be distinguished from music streaming services like Spotify, has seen the emergence of new players offering disruptive technologies that can rapidly change the face of the music industry for musicians, hobbyists, as well as general users. Three of such companies in different stages of their growth may be facing great structural changes in future, all centred in Europe’s major entrepreneurial and musical hub.

JukeDeck

Founded by Cambridge University students in 2012, JukeDeck is developing an AI system that can compose its own original music chord by chord and note by note, giving video creators a way of sourcing original music royalty-free. To this day it has received $4.03m in funding from Playfair Capital, Parkwalk Advisors and Cambridge Innovation Capital.

Having won the TechCrunch Disrupt London startup competition in 2015, JukeDeck is set to continue its rapid growth, which could culminate in an acquisition, as its valuation climbs towards over $50m, by a big tech company. Google and Apple, for instance, have both shown a vested interest in launching audio creation and recognition platforms in recent years, though none likely to emulate JukeDeck’s. On the other hand, an IPO is unlikely to happen in the near future as it still needs to work on widening its product offering and pricing and business model to find long-term profitability and overcome the adoption chasm.

ROLI

Offering a myriad of award-winning hardware and software products such as MIDI keyboard Seaboard RISE, the London-based company founded in 2009 has shown a motivation to move beyond designing cutting-edge hardware instruments. It has done this by being a relentless acquirer of three music software startups: first JUCE audio programming framework in 2014, then audio collaboration platform Blend in 2015, and finally software instrument developer FXpansion in September 2016. Its total funding of $48m, including its most recent $27m funding round backed by Foundry Group, makes it a later stage company compared to JukeDeck, which has joined other illustrious backers such as Balderton Capital. A week ago the company surprisingly confirmed raising debt funding from Kreos Capital, a move that has gone to emphasise ROLI’s ambition to expand on its manufacturing capacity and inventory.

The chances of an IPO in the next five years are growing as the company has displayed a willingness to expand via acquisitions rather than seek an exit for which the optimal time would have been last year.

Shazam

The last company worthy of note is the one responsible for the most successful music app in the world by downloads, officially headquartered in New York but with an equally strong presence in London. While not classifying as a start-up given its lifetime of over 15 years, the company is still at a relatively early stage given its recent Series F funding round in 2015. Talks about an IPO in the future have been intensifying since Shazam’s foray into TV advertising to complement its music identification platform finally brought it to profitability.

An IPO is likely before 2020, but the company must adapt its product to satisfy a more demanding user base. Conversely, the chances of an exit are slim since its valuation already exceeds $1bn, and big tech companies such as Google have chosen to develop their own intelligent audio identification systems to integrate within their devices and operating systems such as Sound Search.

Overcoming Investor Doubts

The M&A and flotation market, especially the latter, has by no means been stagnant in the past two quarters within the TMT sector, but music startups’ business models’ sustainability has been under scrutiny especially following Pandora’s struggles. Hence, it appears that a lot of the potential for traction in M&A or IPO activity in the segment for even the aforementioned companies relies on Spotify, the most highly valued tech ‘unicorn’ in Europe, conducting an IPO to rival Snapchat’s in the US and prove that music startups can indeed thrive financially like their social media counterparts.

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