Rap Is Run By Angel Investors

by | Jul 19, 2018 | Business/Finance, Commerce

Quote

“Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”

Ecclesiastes 11:2

Summary

Much like angel investors, angel rappers lend time and resources to promising individuals—with the hopes that at least one of their investments pays off in the form of commercial success and profit sharing.

The Background

In order to understand this comparison, you will need to understand who an angel investor is, and what is it they do. If you are familiar with the role, then feel free to skip to the next heading. If not, read along.

An angel investor is a high-net worth individual who provides startups with capital and advice, in exchange for ownership equity. In simplest terms, an angel investor is a rich person that gives young businesses money and mentors them in return for owning a percentage of the company.

They tend to have worked (or work) in tech or finance, and/or have started businesses of their own.

Angel investors are selective, for obvious reasons. Given that they only have access to their own money (unlike a venture capital firm that has much more capital at their disposal), their resources are limited and their risk is higher. Therefore, they invest in very few of the ideas that come across their desk.

Angel investors work their asses off to make sure their portfolio of companies succeed. Angel investors usually get in near the ground floor of a startup, since they could have little impact or offer much to mid-stage to late-stage companies. As a result, each one of their investments is like a baby to them.

They do everything in their power to counsel the founders/employees, make introductions to their network, and offer strategic guidance derived from their own industry specific or entrepreneurial experience. For especially prominent angel investors, simply attaching their name to a project can bring in more fundraising and media coverage—as they are known for making robust investment decisions and their reputation is to be respected.

There is a give and take aspect as well, where angel investors learn about the future or current business trends from the startup founders they are mentoring.

Sometimes things can get nasty and angel investors and/or VC funds screw over founders through a multitude of ways—culminating in founders being pushed out of their own companies or receiving a diluted stake in their own company.

Anyone can become an angel investor so long as you make at least $200,000 a year, or are worth $1 million dollars at the minimum. The harder part is knowing people who can put you in touch with smart founders that have viable ideas.

On the other side, startup founders have many options when it comes to growing their company. They can do so organically, by simply using their revenues to gradually build up their organization. They can reach out to friends and family to fundraise. They can crowdfund, and allow the general public to contribute to their fundraising efforts.

This process involves building a slide deck, a powerpoint presentation that runs through a summary of the company including: problem, product solution, market fit, plan for achieving profitability, competitive analysis, team description, projections/timeline. This slide deck is sent around and presented to potential investors, who may also ask for a live demonstration of the site or app.

The most popular forms of fundraising that are glamorously portrayed in the media are that of external investors—namely angel investors and venture capital firms. These are the hardest to get, but usually come with the most money and resources, as well as the most strings attached. Not everyone should have external money as their goal, as a matter of fact, most founders recommend concentrating on building your own company’s profitability before worrying about outside funds.

Still, the allure of big checks and A-list co-signs remains. The facts are also the same. Startups fail in excess of 90%, and angel investors and venture capital firms rely on a few winners with asymmetrical returns to make up for the millions they lose on the majority of their portfolio companies.

Eventually, the most successful startup founders often become more wealthy than their investors themselves. They then turn around and repeat the cycle by deciding to become angel investors themselves.

Sound familiar?

The Comparison

An angel rapper is a high-net worth individual who has achieved his wealth and fame through the commercial popularity of his music (and outside ventures such as endorsements, liquor, clothing lines etc.).

Angel rappers seek out up and coming rappers to provide them with resources and advice, in exchange for signing them to their subsidiary label and taking a percentage of their profits.

Angel rappers tend to have spent years in the rap game, and have experience building their career from the ground up (sometimes with the help of an angel rapper that helped them).

Angel rappers are selective, for obvious reasons. Given that they only have access to their own money (unlike a record label that has much more capital at their disposal), their resources are limited and their risk is higher. Therefore, they co-sign very few of the rappers that they meet or hear.

Angel rappers work their ass off to make sure their group of aspiring rappers succeed. Angel rappers usually get in near the ground floor of a rapper’s career, since they could have little impact or offer much to well-established acts. As a result, each one of their rappers becomes like family to them.

They do everything in their power to counsel the rappers, make introductions to their network of producers and musicians, and offer strategic guidance derived from their own industry specific experience. They lend studio time, instrumentals, and access to an extravagant lifestyle that plays well on social media.

For especially prominent angel rappers, simply attaching their name to an artist can bring in more plays and media coverage—as they are known for making robust music decisions and their reputation is to be respected.

There is a give and take aspect as well, where angel rappers learn about the future or current music trends from the aspiring rappers they are mentoring.

Sometimes things can get nasty and angel rappers (not usually, more likely to come from record labels) screw over artists through a multitude of ways—culminating in atrocious deals that limit how much (or how little) music an artist can put out, and severely reduce the profits they receive.

On the other side, aspiring rappers have many options when it comes to achieving commercial success (success=sales and fame). They can do so organically, by simply posting their songs on streaming sites such as Soundcloud, and gradually build a buzz through social media. They can reach out to friends and family to spread their music. They can advertise or perform their music in local outlets, whether they be blogs, print publications, open mic nights, concerts, etc.

This process involves creating a mixtape, a demo album that showcases the rapper’s lyrical abilities, style, and usually the best beats of the producers he works with. This mixtape is sent around and shared with potential fans, who usually end up attending a local concert, or ask for a more intimate performance.

The most popular forms of growing your popularity that are glamorously portrayed in the media are that of external investors/co-signs–namely angel rappers and large record labels. These are the hardest to get, but usually come with the most money and resources, as well as the most strings attached. Not every artist should have external money as their goal, as a matter of fact, most artists recommend on staying independent for as long as possible, to maximize your creative freedom and minimize profit sharing.

Still, the allure of big checks and A-list co-signs remains. The facts are also the same. Aspiring rappers fail to gain commercial success in what I imagine must be excess of 95% (there are no concrete statistics on this), and angel rappers and record labels rely on a few winners with asymmetrical returns to make up for the hundreds of thousands they lose on the majority of their artists.

Eventually, the most successful aspiring artists often become more popular than their angel rappers. They then turn around and repeat the cycle by deciding to become angel rappers themselves.

Usually the biggest and most successful startups have had the help of some sort of prominent angel investor, or VC fund.

The Examples

In order to make the comparison more apparent, here are some of the most notable angel rappers and their mentees:

  1. Dr. Dre
    1. Dr. Dre is arguably the father of West Coast rap. He started off as a DJ, before achieving mainstream success with N.W.A. and then branching off to his solo career.
    2. Portfolio of Artists
      1. Snoop Dogg
      2. Eminem (Who angel invested in 50 Cent)
      3. Warren G
      4. Nate Dogg
      5. 50 Cent (Who angel invested in Lloyd Banks)
      6. Anderson .Paak
      7. The Game
    3. Arguably some of the names on that list became more popular (Eminem) or equally as popular (50 Cent) as Dr. Dre ever was, and they can thank him for propelling them to that success. As previously mentioned, there are also names on there (and left off the list) that achieved mediocre success (Xzibit), or largely flopped.
    4. Note that Dr. Dre’s sound has changed over the years, largely due to this working relationships with younger rappers.
    5. Because of his own success, and the success of the artists he has signed to his subsidiary record label Aftermath Entertainment (along with ventures such as Beats Electronics), Dr. Dre has achieved a net worth of an estimated $800 million.
  2. Jay-Z
    1. Jay-Z is an East Coast legend, who like Dr. Dre is worth in the billion range because of leveraging his own musical success to invest in business ventures that have out performed expectations. His first record label, Roc-A-Fella records was at the peak of the industry in the early to mid 2000s, and his current label Roc Nation has an impressive roster.
    2. Portfolio of Artists
      1. Kanye West (Who angel invested in Kid Cudi, Cyhi the Prynce, Big Sean, John Legend) 
      2. J Cole
      3. The Diplomats
      4. Beanie Sigel
      5. Vic Mensa
      6. Rihanna
  3. Diddy
    1. Another East Coast heavyweight, Diddy has expanded into television, clothing, and other lines of business to grow his net worth to near billion territory.
    2. Portfolio of Artists
      1. Notorious B.I.G.
      2. Ma$e
      3. Craig Mack
      4. Lil’ Kim
      5. Young Joc
  4. Birdman
    1. The only Southern name on this list, Birdman’s net worth isn’t up there with the first three–but he still has an impressive track record. Birdman has had less direct involvement with his aspiring artists, and has run most of the day to day promotion and direction through his first protege, Lil Wayne.
    2. Portfolio of Artists
      1. Lil Wayne (Angel invested in Drake (who also angel invested in The Weeknd and others), Nicki Minaj, Tyga)
      2. Youngboy Never Broke Again

The list could go on and on, as evidenced by the sub-bullet points in each list. Feel free to chime in with notable examples of your own.

Usually the biggest and most successful rappers have had the help of some sort of prominent angel rapper, or record label.

The Conclusion

The comparison is not perfect by any means. Angel rappers have a more direct impact on their investments, as they often create songs or entire albums with their artists. Angel investors may join the board of their companies, but are rarely engaged in the day to day.

Angel investors also have a greater risk than angel rappers. Angel rappers can subsidize their investment by utilizing the record label’s resources and not their own. A closer reading of my comparison could certainly draw out more contrasts.

There also might be some unanswered questions:

  • Why would anyone angel invest?
    • Money of course. You never start to make the big bucks until you are your own boss.
    • For as long as you work as an employee, you will only make a small percentage of what your work is actually worth.
    • By having multiple investments and employees, you’ve now reversed your situation, and dipped your finger in the profits of others.
      • Kanye can only make so much money with his own albums, merchandise, and touring.
      • Now Kanye could hypothetically do nothing all day, and still be making money every time one of his artists is out generating profits.
  • Why is this only prevalent in hip-hop and not in other genres?
    • I do not have a satisfactory answer to this question, and I would love to hear some thoughts.
      • Also I know that the phenomenon exists outside of hip-hop, but in much smaller amounts.
    • The best I can I offer is that hip-hop has had a history of being a collaborative art.
    • It is a genre primarily dominated by young males of economically disadvantaged backgrounds, and usually African-American as well.
      • This lends itself to a fraternal aspect, where rappers who “make it” have the desire to turn around and help others.
    • Rappers have more creative latitude and flexibility (than artists of other genres).
      • Being that it is a genre that receives a great deal of play on non-traditional mediums (i.e. Soundcloud, YouTube, mixtape websites), rappers are more mobile in how they change their sound and release their content.
      • Here is what I mean: rock or alt bands, and pop/R&B singers usually spend months working on a project, polishing it, and then releasing it on more traditional outlets (correct me if I am wrong on this, I don’t listen to these genres as much).
      • Meanwhile rappers nowadays are known for the prodigious output, and their speedy creation process.
        • This means new trends are quicker to emerge than in other genres, and also there is a larger population of aspiring artists to choose from given the low barriers to entry. A hungry rapper can buy a beat off the internet for a few hundred, download a audio recording software, plug in a mic bought off Amazon, and release a track the next day all without leaving his or her home.
        • Therefore staying ahead of the curve and remaining relevant forces established rappers to constantly be in contact with the newest wannabe stars that receive underground traction.

Ultimately, I think this model of angel rappers has been a large part of the mainstream success of the genre of hip-hop.

In the free market of rap, there are tens of thousands of mediocre artists that would take too long to sift through–dedicated fans pick out the few ones worth listening to, then angel rappers follow the buzz and propel these artists to stardom for the rest of the listening population to enjoy.

Thus the genre keeps evolving, with this dynamic interplay between loyal fans, ambitious artists, and angel rappers/labels at the heart of it all.

And it is just like how we get the best and most useful apps/sites/products thanks to angel investors/VC funds, loyal customers, and courageous startup founders.

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