If you’re a 3 Doors Down fan and an accredited investor, then you might be intrigued by a new investment vehicle that lets you own royalties from the band’s popular songs.
Just last week, the band’s producer put up for auction his royalty rights to 11 tracks. Starting at $5,400 a share, you can own a portion of that portfolio and receive royalty revenue monthly for the next 35 years.
He’s among a growing number of songwriters and producers using a three-year-old technology platform called Royalty Exchange to sell intellectual property rights at auction and, in many cases, to use the cash to fund other projects. The 3 Doors Down producer plans to use his proceeds to build up his indie label and fund a new studio.
For investors weary of the stock market’s ups and downs and interested in diversification, royalty rights are an asset class not tied to the success of financial markets and one that provides monthly income. Before Royalty Exchange came along, though, they had no easy way of learning about those assets.
The Raleigh, North Carolina, startup takes the platform a step forward this month with a new way to divvy up an asset into multiple units. An investor who previously spent $25,000 on the portfolio of one artist can now invest smaller amounts to buy shares of several portfolios, sharing in ownership with others. It’s an offering that Royalty Exchange CEO and co-founder Sean Peace believes will put royalty auctions on the radar of anyone who holds intellectual property or royalty rights around the nation, in addition to the music industry, which is still reeling from the move away from physical album sales.
Over time, he expects laws to change to allow non-accredited investors to participate and a secondary market for royalty shares to form. He’s positioning Royalty Exchange to be the platform everyone uses for transactions.
“We think that will be a game-changer for the whole music industry,” he says.
One investment adviser is so bullish, he foresees clients investing up to 15 percent of their assets in intellectual property royalties within the next decade. “This is the next big thing, and you’re going to see it explode, with these guys leading the charge,” says Jonathan Hoenig, managing member of Chicago-based Capitalistpig Hedge Fund.
Serial software entrepreneur Peace conceived the business after learning from a friend about the music industry’s challenges. He learned: broker-dealers were the only way for people to find out about the sale of royalties; offerings typically included an entire body of an artist’s work and cost hundreds of thousands or millions of dollars (think Michael Jackson and the Beatles); and it was hard for buyers to know if they were getting a good deal.
Peace thought he could bring transparency, repeatability and accountability to the industry. Besides that, he could play up the “cool factor" and the viability of royalty rights as an alternative asset class.
After many conversations with lawyers, Peace found a way to offer royalties as an asset-backed security without operating as a broker. A year ago, he raised $2 million from Virginia’s Grotech Ventures, helping to triple staff and add salespeople in Los Angeles and Nashville.
Royalty Exchange has now sold more than $2 million in royalties on more than 2,000 songs, and revenue has doubled each month this year.