The Pitch: In hip-hop, the record label that pioneers a regional sound dominates that market. In New York, it was Def Jam. In New Orleans, it was No Limit. The Grid is the first hip-hop label in Phoenix. There's lots of energy here. In the past six months, 50 Cent and The Game have both signed Phoenix artists. I have three artists whose tracks were produced by top people from Los Angeles, who've worked with Jay-Z and 50 Cent. Those producers cost a lot, but they make my artists more marketable because they have a reputation. We sell ring tones of our artists' music on our website and MP3 tracks on iTunes, but our primary revenue will come from securing agreements with major record labels. I have a lot of relationships in the industry, and I can get people to pick up the phone.
Company: The Grid Records
Owners: Mark Schmitz, 24
2006 Revenue: 0
2007 Projected Revenue: $200,000-$300,000
Financing So Far: $10,000 from personal savings and $15,000 from Arizona State University's Edson Entrepreneur Initiative
Investment Needed: $300,000 for album production and marketing
Clients: Hip-hop fans
Recent Buzz: Phoenix Business Journal. Grid artists have been mentioned in the hip-hop music magazine XXL.
Launching a record label has never been more difficult. The major record labels don't promote talent the way they used to; they pull the plug at the slightest excuse. The other problem is that Schmitz's $10,000 investment isn't much. When times get tough, he might walk away and leave me hanging. That said, $300,000 probably isn't enough. To support the talent he's signing, he really needs $2 million. He could try to raise that from someone who shares his passion for Phoenix hip-hop, but he's not going to find that person by going to angel groups. He has to rub elbows and make his pitch to everyone he meets.
This is a nonstarter. There are 10,000 people who like music and want to start labels. But the music industry is in the doldrums, and investors won't back a start-up label unless it offers something unique. There's nothing unique about Schmitz's pitch. He has to prove that something significant is happening, like one of his artists is consistently selling out at local clubs or a record label wants to sign a deal. The only interesting angle is Phoenix. He's right: Sounds tend to be regional. Motown came from Detroit, grunge from Seattle. Maybe he could get some money from a local sports star or from people who want to promote Phoenix music.
Tannen Media Ventures
New York City
To raise capital, you have to paint a picture beyond the first version of the product. You have to sell a larger vision. For example, Schmitz could build a network of talent, starting in Phoenix and then replicating the concept across every tier-two city in the country. He could be a source of talent for major labels. But right now, he doesn't have a scalable business. Most investors are looking for an operating system, not just an individual's gumption. I'd suggest he set up his business as a partnership, and look for associates in other cities. That's how talent management agencies like Creative Artists Agency are set up.
Hummer Winblad Venture Partners