Why SoundCloud Will Rule the Digital Audio WorldBack
By Somesh Dash and Dennis Phelps
“Sound is the most absorbent medium of all, soaking up histories and philosophical systems and physical surroundings and encoding them in something so slight as a single vocal quaver or icy harpsichord interjection.” - Geoffrey O'Brien, Sonata for Jukebox: An Autobiography of My Ears
IVP is excited to announce that we led the most recent investment round at SoundCloud. In just five years, the company has experienced explosive growth and become a cultural phenomenon. And things are just getting started…
For those of you who do not know IVP, we are a leading later-stage venture capital firm dedicated to technology investing. All our professionals are based in the San Francisco Bay Area, and we focus exclusively on funding rapidly-growing enterprise and consumer companies. Thanks to our loyal and generous Limited Partners, we have plenty of capital to invest. Our current fund, IVP XIV, is capitalized at $1 billion, and we are actively managing close to $3 billion.
We have known SoundCloud for quite some time, but from term sheet to wire transfer, it took us only three weeks to close the investment. When we see something we like, we can move fast.
We have been fortunate to partner with a number of the leading consumer technology companies of the modern Internet era, including Twitter, Dropbox, Netflix, Supercell, Buddy Media, Zynga, and Snapchat. We proudly add SoundCloud to this list and believe it has the potential to be an iconic tech success story. Here are the top reasons why we believe SoundCloud will rule the digital audio world:
SoundCloud is the YouTube of Audio – Our core investment thesis for SoundCloud is centered around our belief that SoundCloud will become the dominant online digital delivery platform for audio in much the same way that YouTube has become the dominant online platform for video. YouTube is the most fundamentally disruptive thing to happen to video content since the advent of cable TV, and it is not just the dominant online video platform, it is also now one of the leading search platforms, social media platforms, and smartphone apps. Many investors do not fully understand or appreciate YouTube from all these perspectives. In addition, YouTube is clearly one of the most successful technology acquisitions of the past two decades. If Google were to spin out YouTube today as an independent company, it likely would be worth tens of billions of dollars - perhaps a 10-20x or more multiple of the $1.6 billion Google paid to acquire the company in 2006.
Audio and Video are Fundamentally Different – We generally do not watch TV while writing important emails at work, while driving our cars, or while jogging along the beach. When it comes to consuming audio and video, many of us own separate devices for separate use cases… an iPod mini for working out at the gym, and a full-screen iPad (with retina display) for that 10 hour Breaking Bad binge on an overseas flight. Fundamentally, audio and video are two very different media. Digital delivery does not change that fact.
Evolving Audio Consumption Patterns – Ever since the advent of digital music delivery, consumer expectations have evolved rapidly. In fact, the very idea of an “album” or even a “single” is changing with the growing popularity of live performances, remixes, and mash-ups. Artists and fans are now interacting with music in ways that were impossible just a few years ago, and SoundCloud has become a key connective layer between music creators and fans. For example, Band of Horses were so impressed by a fan's cover of their song 'Part One' on SoundCloud that they decided to cover her rendition. Music has always been an inherently social experience and SoundCloud imbeds social connectivity as a core element of the platform.
Scale Matters – comScore recently listed SoundCloud as one of the top ten fastest-growing websites in the United States. In any given hour, SoundCloud touches users from over 200 countries. These users post 12 hours of audio content every single minute with 90% of tracks played most frequently on the day that they are posted (and more than half played within the first hour of being posted). We believe that this global reach, combined with very strong networks effects, will continue to expand and solidify SoundCloud’s position in online audio.
New Discovery Medium – Many users go to SoundCloud to discover new bands, to listen to songs or artists that they cannot find on the radio, or to follow the creative explorations of their favorite artists. People also use SoundCloud to hear the latest episodes of podcasts, catch up on breaking news, and listen to spoken-word performances and audiobooks. Even Snoop Dogg/Lion/Snoopzilla uses SoundCloud to find and sign new talent to his label, helping to define SoundCloud as a new medium for artist discovery.
New Promotion Medium – Innovative record labels also know that SoundCloud is not only one of the best places to discover new sounds and artists, it is also one of the best places to promote work. SoundCloud’s massive global audience has made it the hot new platform for artists to break out. One notable recent example is Lorde, the 17-year old singer/songwriter from New Zealand whose debut song 'Royals' topped Shazam’s “Most Tagged” worldwide charts for several consecutive months in 2013. Where did Lorde’s viral popularity first build? On SoundCloud.
It’s Not All Top 40 Hits – Sure… and that’s the point! SoundCloud turns the traditional audio discovery model upside down, allowing everyone to upload original content – including songs, podcasts, news events, etc. – for people to share across the web (the comedy selections in particular are some of our favorites). However, with an audience as large and expansive as SoundCloud’s, even top artists such as Drake, Skrillex, Macklemore & Ryan Lewis, and NIN are starting to utilize SoundCloud to engage with fans that are otherwise becoming increasingly difficult to reach through traditional media. Beyond musicians, on SoundCloud you can find shows from the BBC, comedians from Comedy Central, and popular podcasts like 'This American Life.'
Rock Star Team – SoundCloud’s co-founders Alex Ljung and Eric Wahlforss are true visionaries who are working to make SoundCloud a fundamental element of the evolving social/mobile web, and they are building a top-notch management team to support this vision. They also have chosen to partner with a world class group of venture investors, including Union Square Ventures, Index Ventures, Kleiner Perkins Caufield & Byers, and GGV Capital, as well as media and technology veterans such as Peter Chernin. We have worked closely with all of these firms and individuals before and look forward to collaborating with them in the years to come.
“Ich Bin Ein Berliner” – Despite its young age, SoundCloud is truly a global company, and has been global virtually since its inception. The company was founded by Swedish entrepreneurs who established its headquarters in Berlin, and then subsequently expanded into offices in San Francisco, New York, London, and Bulgaria. SoundCloud now employs individuals from over 30 different countries, and the majority of its staff is located in Berlin. Remarkably, many of these Berlin-based employees decided to relocate internationally specifically for the opportunity to work at SoundCloud. We visited the company’s offices in Berlin and San Francisco and witnessed first hand the collaborative and vibrant start up culture that many leading Silicon Valley companies would aspire to build.
We urge each of you to visit, share, discover, and connect on SoundCloud!
Somesh Dash is a Principal and Dennis Phelps is a General Partner at Institutional Venture Partners in Menlo Park, CA