Wednesday, May 21, 2008

ACA Conference Summit 2008 – Angel Investment is Becoming an Asset Class

I attended the Angel Capital Association Summit held in San Diego this year. The number of attendees grew from 325 attendees to 370 this year. While it’s a nice growth it’s not quite as dramatic as last year’s which went from 150 to 325 in one year.

The ACA now has 163 member groups representing 6,760 investors. Over 50% of the groups forecast increased deals and dollars for 2008. Trends this year for angel investors include:

--University-connected angel groups rising
--CleanTech groups forming
--More women involvement in angel investing
--More co-investment by region
--More communication with angels on a worldwide basis
--Growing relationship with VCs

The ACA continues to develop as an organization. Their goals for this year include:

--Public policy committee development
--Regional collaboration committee
--Offering D&O insurance to member groups
--Partnership with the National Venture Capital Association
--More research into angel group investment returns through a partnership with Dow Jones VentureOne

From the conference it was surprising how many attendees came from outside the US. The other major trend was the growth in the number of sidecar funds. Over half the angel groups have one. A sidecar fund is one in which the members invest a set amount and the funds are applied as an add-on to the deals the members fund. This provides both diversification as well as a means for investors to join the investment without having to commit time and effort to the process.

Also, angel investments were referred to several times as an “asset class.” I haven’t heard that before but given the traction around startup investments which most VCs have left behind for later stage deals we may be seeing the rise of a new asset class for investment. During the conference one speaker noted the slowing growth of the Venture Capital community. VCs had $300B invested in 1995 and in 2008 only $380B. The speaker defined VCs as a “compensation scheme in search of a business model.”

If you are interested in angel investing from an historical point of view you may want to check out Georges Doriot who was one of the first angel investors. You can read more about him in his book called Creative Capital.

Best regards,
Hall T.

Monday, May 19, 2008

Alexia Erlichman of Music Gorilla talks about starting Music Gorilla

Alexia Erlichman of Music Gorilla talks about starting Music Gorilla to highlight unsigned musicians, how she leverages South by Southwest, and how she came to Austin.

What is Music Gorilla?

Music Gorilla is an online service company which provides unsigned musicians access to film, TV, video games and songwriting opportunities and to play at major label showcase events among other things.

How did you come up with the idea for Music Gorilla?

Lawrence Erlichman came up with the idea from interaction with musicians in Austin. He’s an entrepreneur in general. He saw musicians needed access for their music to get out there. You don’t necessarily need to make a record with a major label to become known and, right now, even if you tried, you’re not likely to get one since they’re not signing a lot of new artists. Musicians are using MySpace and Facebook to get their music to fans and sites like ours to find success.

How do you make money?

Mostly Membership fees with a few other revenue streams. Placements happen but can be infrequent at times so it’s hard to live off a percentage of placements.

How about advertising?

No. The site is industry focused and is not highly trafficked by the general public.

How did it start?

We built it up from nothing. We self-financed it ourselves. It’s built up a reputation in our industry. We even have a partnership with Starbucks. They had those Hear Music kiosks in some of their stores a few years ago. They missed the technology because the kiosks burned CDs but you couldn’t plug your MP3 player or iPod into it to download music. They selected artists from Music Gorilla to highlight in their kiosks.

Are they going back after it?

No. They developed a partnership with iTunes to place their music there.

How many users do you have right now?

We have about 1000 Artist Members and 300 industry members use the site and 10,000 fans. S0me artists register as fans first to check it out so some of those fans are prospective artists.

There are quite a few music sites out there. I just read about one in Scotland where the registered members decide which artists get to play in the festival. How are you different?

There are a ton of music sites out there. On most of them, you can just put a profile on their site with your music. They are not at all geared toward the industry. We are one of the few that markets to the industry. We also showcase the artists in showcases such as those that take place during South by Southwest. We also do a lot of film, tv and songwriting submissions where we put together a cd and send it to the music supervisor or producer for the project. They don’t necessarily want to download it from the internet.

When did you launch the site?

In February, 2003.

Have you ever done any cross promotion with music festivals like the ACL Music festival?

ACL is less our target market because they showcase established artists. South by Southwest is a more interesting festival for us. We used to have a booth at South by Southwest but the longer it goes on the better venue it becomes for artists who are already signed. Record labels are breaking their bands to the public and other industry at South by Southwest. We now do our own showcases during South by Southwest by getting our own venue. They wanted to select some of our artists and place them in venues all over Austin. We decided to do our own showcase because they charge a significant amount for an afternoon party. We couldn’t afford that so we do our own events and have done so for the past four years. We bring in an A&R rep to give feedback to the artists we showcase so it’s quite helpful to the musicians.

How much are you trying to raise?

$150K to $200K.

Are you trying to expand?

There’s no need to expand geographically because everything is done online and we have members all over the world.

So what would you use funding for?

Marketing and advertising to get the word out on the service. We want to get articles into the magazines such as Billboard. We have found that when people find out about our services they sign up because the membership fees are reasonable especially for the amount of opportunity that we provide.

How did you get to Austin?

Randomly. I used to work for Robert De Niro as a production assistant. I was driving across the country after college when there was a film/TV strike in New York. Austin was one of the places we visited. We returned to New York three days after September 11th, 2001, and the city was shut down. I later decided to return to Austin because it’s such a laid back city and they have a great film community which is what I was doing at the time.

Best regards,
Hall T.