GOING FOR A SONG
Mini IPO offers fans of rapper Eminem a chance to buy slice of back catalogue,
LOS ANGELES— Compact discs were replacing records when Jeff and Mark Bass took a chance on a young white rapper named Marshall Mathers 25 years ago. Eminem, as he’s known, blossomed into one of the world’s most popular musicians.
Now the brothers, who still own part of Eminem’s catalogue, want to cash in.
They’ve agreed to sell up to 25 per cent of their interest to Royalty Flow, which will buy the stake with money raised in what’s called a mini initial public offering, company executives said. They planned to file Monday with the U.S. Securities and Exchange Commission to sell shares to the public in a Regulatory A+ offering and will ultimately seek an exchange listing.
Music fans and investors have little opportunity to invest directly in the music business, where the biggest players are closely held or parts of larger corporations.
Thanks to a 2012 law that made it easier for small businesses to raise money, investors who believe the growth in streaming will make Eminem’s catalogue more valuable will be able to buy a slice. Spotify Ltd. will be another opportunity, when it goes public.
“If you’re a fan and want to bet on that artist, you’ve got some skin in the game,” said Joel Martin, a business partner of the Bass brothers. “It takes the average investor and puts them in a position they wouldn’t be in before.”
Royalty Flow is looking to raise $11 million to $50 million (U.S.), founder Matt Smith and chief financial officer Jeff Schneider said in an interview. The Bass brothers agreed to sell15 per cent of their interest and are in line to get the first $9.75 million from the stock sale, or $18.8 million if they commit to selling 25 per cent. Any additional capital will go to the Denver-based company to buy more music rights and, eventually, pay dividends.
Smith comes to the deal through his 2015 purchase of Royalty Exchange, which has held about 180 auctions of music rights. Smith saw an opportunity to sell music to a wide swath of investors after former U.S. president Barack Obama signed the Jumpstart Our Business Startups Act in 2012 to help small companies raise money. So he created Royalty Flow.
A Tier 2 Regulation A+ offering, such as Royalty Flow’s, is like crowdfunding in that it lets non-accredited investors buy a stake in a company with certain limitations. It’s seen as a potential on-ramp to the traditional IPO, but shareholders have no guarantee there will ever be a market to trade the stock. The company must file offering documents and audited financial statements with the Securities and Exchange Commission. A song can have many owners — from writers and performers to record labels and music publishers — with each entitled to revenue it produces. Smith pitches Royalty Flow as a way for average investors to take part in the gold rush from streaming.