Andrew Beatty Best known in the music industry as the founder of streaming fraud prevention company Beatdapp. But over the past six years, Betty has also built a venture capital firm called Side Door Ventures. “I’ve always wanted to be known only as a founder, but Beatdapp may be my last company,” said Batey, a serial entrepreneur who has also founded companies in the restaurant and digital marketing industries. “I started thinking about where I ultimately wanted to transition to, and I believed that was investing.”
Beatty said he has mentored hundreds of companies at different accelerators over the past 15 years, which is where he was eager to start in an investor role. After years of working as an angel investor to test his abilities, he realized, “I felt like I was really good at picking the right companies.”
Side Door launched quietly in 2018 and consists of 14 different small funds covering a wide range of disciplines – space travel, blockchain, manufacturing and more. Investors are also interested in music and entertainment, although Beatty said it needs to be something he thinks can “grow 100 times,” and that “there aren’t that many” entertainment startups that fit that bill. To date, he has invested in companies such as SpaceX, Pipe, Plaid, Varda and EtherFi, as well as music-related startups such as JKBX and the now-defunct superfan app Renaissance, of which he is particularly interested.
Batey said that since its inception, Side Door’s average gross internal rate of return across all funds has been 61%, with more than 100 companies in its portfolio.
Now that Beatdapp has established itself as an industry leader with partnerships with Universal Music Group, Mechanical Licensing Collective, Beatport, SoundExchange, and more, Batey is ready to talk about Side Door Ventures for the first time.
Six years after joining Side Door Ventures, why make your media debut?
Talking about it too early is like a giant, “Look at me! Look at me!” That’s not really what founders need – founders need help. I’ve always been comfortable with being the neck that moves the head, but as we The more checks I wrote, the more I lost the ability to secretly lead it all.
In the beginning, many startups only thought of me as the founder. Once we build founder-to-founder rapport, this person starts sharing all these things that he wouldn’t share with investors. But none of them are deal breakers. I find that transparency is actually pretty good. Meeting founders at their level without them knowing you are an investor is an advantage.
I named the fund Side Door Ventures because when I met with the founders, they never saw it coming. They just think I’m coaching them, and then all of a sudden I’ll say, “I want to write a check for $500,000.”
This really worked in our favor because I didn’t convince them why they needed our money. I give them advice and guidance first, and then tell them I want to write a check, which is exactly what they want. Many people want someone who can help, not someone who just writes a check. In really tight funding rounds, people get squeezed out and we often step in very early when we shouldn’t.
But the secret was out and I was ready to have it.
How does Side Door Ventures differ from other companies in this space?
Fundamentally, the way we market ourselves as a fund is completely different to other funds. We intentionally start with small grants of $10 million to $30 million each. We have a total of 14 funds.
When I started the fund, I had a large family that was willing to give me $100 million to start, and they wanted to know what my strategy was. I always feel that it is really difficult to get back large amounts of money. So my strategy is, why don’t we create a group of smaller funds that have higher returns and have traditionally performed better?
However, when I started talking to fund managers, they thought this was crazy. They’ll say, “Institutions aren’t going to fund this—retirement funds want check sizes to be at least $10 million.” If you build a fund to please people, you’re not building a fund to get the best returns. If I were building a fund to optimize returns, if it were my money, I would do the opposite and build a bunch of small funds. So my client investors are completely different than most. My clients are high net worth individuals and families who care more about returns than whether I check a box.
For each small-cap fund, our iterations are slightly different. We partner with the state of Michigan to focus on manufacturing, advanced materials, and mobility—Michigan has the talent pool. We have a web3 fund focused on blockchain. We have a seed fund that focuses on seed investments. We have a European fund specifically for European university students. I don’t know of any other fund that does this.
most advertising billboard Readers know that you are the founder of Beatdapp. Given this background, are you interested in investing in companies that complement Beatdapp’s business?
Thanks to Beatdapp, I have my own perspective on where the industry still needs a lot of help, and I may have some unique data insights on where there are strengths to be mined. But I think Side Door and Beatdapp are completely independent. We don’t have any of the same investors, so I’m not taking money in one entity and taking it to another entity. It was a completely firewall situation, we had different investors, different teams, different everything.
If there’s something that I know too well because of my work outside of Side Door – say I’m related to the founder of a company – I usually sit on the investment committee and let the other members of the committee dictate the decision-making process There is no bias in it.
I love music and entertainment. That’s a big part of my background, so I obviously wanted to invest in something in that area. But most music companies’ exit prices are below $15 million. The reality is that music is not the best venture capital investment, which means there are very few companies that meet our venture capital requirements.
We have a lot of funds, but they basically invest in things we think we can do [provide] 100 times [returns]. So, if you’re a music startup valued at $20 million, how many companies valued at over $2 billion have exited? The answer is probably just a few — Spotify, for example.
This means one of two things. I either have to catch you earlier, like in your first round, or you need to be an outlier and I believe the market will move in your direction. For example, we invested in JKBX. Why? If you think of JKBX as a trading entity, and the fact that it’s more of a fintech play than a music play, then you might see a platform gaining traction. Now, will they succeed? Only time will tell. But if they can develop this habit and become another asset type, their assets could be worth billions of dollars.
You mentioned before that you learned a lot from investing in Renaissance, a super-fan company that ended up going bankrupt. Monetizing superfans is a hot topic in the music industry right now. What did this experience teach you about the viability of superfan-related startups?
We see 7,000-8,000 transactions a year, and I can’t think of another case where I’ve seen a consumer-facing app like Renaissance have fans stick around. They’ve had a million downloads – all organic, without any marketing. Their 90-day retention rate is 47%, which means 47% of users are still using it after 90 days, which is great. I think the average user launches the app 21 times a day – that’s like Instagram levels.
The problem is I don’t think they know how to fully monetize it. Artists don’t want to pay for it, and labels don’t want to pay for it. There aren’t big enough venture-backed businesses out there. It’s more like a $10 million to $15 million business, but how do you make it a $100 million business? They’re trying to figure out what can be expanded upon.
If this company has viral, organic growth and completely collapses and it can’t figure out how to get these customers to pay, can’t figure out how to get the artists to pay, and can’t figure out how to get the record labels to pay, then how do these other fan apps make money? ?
I think the only way to build a successful “superfan” business is to own the merchandise pipeline itself – basically, you need to become a vertically integrated business. You need to integrate and sell the actual merchandise yourself so that you can build enough profit there to support the business. If you’re just a third party marketplace for all the other goods and services like posters, tickets, and merchandise, I don’t think there’s enough money there. I don’t believe this is scalable.
This summer, major record labels filed lawsuits against two artificial intelligence music startups, Suno and Udio, and in early September it was revealed that the use of artificial intelligence music played a role in an alleged scam in a $10 million streaming fraud lawsuit played an important role. Do you think this will affect confidence in AI music startups?
It may affect consumer confidence, but I don’t think it will deter investors. The reality is that investors are not afraid of breaking things. Many people are angry about the change in status quo, but many investors see it as a positive – as they say, “Volatility breeds profitability.”
However, whoever can come up with a business model that benefits everyone, facilitates consumers, and enjoys the experience will be successful. I haven’t seen anyone win yet. I haven’t seen a business model that consumers really like.
Check out Drake’s weekend guys [anonymous TikTok user Ghostwriter and his song “Heart On My Sleeve,” which used AI to deepfake Drake and the Weeknd]. His songs have been listened to millions of times, but by a pretty equal number of listeners. This means people only listen once or so and then leave. This is a novelty. It’s not something people see long-term value in.
