Los Angeles-based distribution and services company Stem, led by CEO Milana Rabkin Lewis, has launched a funding tool for its Stem Direct users – backed with a nine-figure amount of capital.
Stem has confirmed that the new financing product, Scale, is backed by CoVenture via a capital partnership that will enable Stem to deploy over $100m of advances to both its independent artist and record label clients.
Once artists have received their advance (i.e. loan), they will gradually pay the money back via what Stem calls a “flat percentage fee”, which includes a margin for the company itself.
For example, according to the dynamic Stem Scale online calculator, if the company advanced an artist $8,000 who usually pulled in $1,000 in monthly income from digital sound recordings – and if that artist committed to sacrificing 60% of said income each month until the advance was paid off – the artist would ultimately pay back $9,920 over the course of 17 months, i.e. a total interest charge of $1,920 (see below).
The 24% fee incurred in this example is not set for every deal, however; for example, a $5,000 advance on the same terms would incur a $725 total addition payment, working out at a 14.5% interest charge (‘advance fee’).
One of Stem’s big selling point for the advances is that artists get to keep 100% ownership of their masters.
In a press release revealing the product this week, Stem explained: “Scale offers artists and independent labels advances in the form of a revolving credit line with the ultimate draw limit and fee based on their net share of income. Uniquely, Scale allows any of the content’s shareholders access to capital.”
It continued: “Unlike typical industry advances, Stem’s financing allows artists to determine what percentage of their earnings they contribute to paying down the advance each month, allowing them to keep a percentage of flow-through versus sending in all of their earnings for recoupment.”
Scale builds on Stem’s existing platform, which both distributes music and allows monthly earnings to be split amongst all collaborators of a track.
Stem Direct is Stem’s curated ‘concierge’ member service – announced last summer when the company revealed that it was getting out of the DIY distribution game.
According to Stem, advances granted via Scale come with “transparent fees based on how much money the artist needs and how much the artist wants to pay back each month”.
In a certain light, this could be seen to be a challenge to traditional record labels, who have often relied on getting to an artist early in their career – taking risk on an unproven prospect – in order to gain leverage in a signing negotiation.
Stem’s offering would prospectively enable unsigned / independent artists to forgo such a deal while still gaining financing during a crucial development stage of their career – while not giving up any ownership of copyrights.
As Stem puts it: “Standard record deals involve a revenue split in favor of the label with the artists recouping all operating expenses, studio time, marketing, and distribution out of their share. This common structure makes it difficult for an artist to maintain financial freedom and often includes a structured equity position and a 5-20 year license in favor of the label.”
Said Milana Rabkin Lewis, CEO of Stem: “It’s heartbreaking to witness people take money without clearly seeing the amount they have to pay back, how long it will take, or how much ownership they are giving up. Then, they compete for attention and resources that are already spread thin. It’s a fight for creative and financial freedom.”
Rabkin Lewis added: “With Scale, we intend to raise the bar by providing favorable, clear financing that enables artist-driven businesses to thrive at every stage of their growth.”
Brian Harwitt, Principal at CoVenture, said: “At a time when investors are looking at music as an attractive asset class, we are excited to partner with Stem to provide an alternative way for musicians and labels to access capital
without having to sell all of their rights in perpetuity. We look forward to working with Milana and team and invest in the future of emerging artists.”
Artists can also set up face-to-face meetings with Stem’s team “to build a custom financial model to see the real cost of the deals being evaluated”.
Stem has previously attracted investment from high-profile industry execs including manager Scooter Braun (via Upfront Ventures), lawyer Dina LaPolt, songwriter Savan Kotecha and Red Light Management Bruce Flohr. Other investors include Aspect Ventures, WndrCo, Gary Vaynerchuk and Mark Cuban.
(These investment rounds have been worth $12.5m in total, with $4.5m raised in 2016 and a further $8m raised in 2017.)
In August, Stem welcomed ex-Venmo COO Mike Vaughan to its Board of Directors.
Milana Rabkin Lewis spent five years as a Digital Media Agent at United Talent Agency (UTA) before co-founding Stem in 2015.
SOURCE: MURRAY STASSEN