Music Business Finance for Entrepreneurs

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Authored by Peter Alhadeff

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Course Code: OMBUS-555

Accepting applications for the inaugural Sept. 2018 class!

3-Credit, Graduate Level Course

Music Business Finance for Entrepreneurs breaks down finance into three digestible components: (1) determining and understanding financial calculations, both focused on the music industry in particular, as well as used more broadly across industries; (2) money, markets, and the music business; and (3) funding music. You will learn how to access money, take advantage of microfinance opportunities, and apply financial tools to assess the financial health of an enterprise. Topics include capital markets, startups, stocks and IPOs, cash flow, balance sheets, price elasticity, and exit strategies. We’ll also explore nontraditional forms of music funding, such as venture capital and crowdfunding opportunities like Kickstarter, PledgeMusic, and others. You will also learn about bonds, grants, business loans, financing in rounds, and more.

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By the end of the course, you will be able to:

  • Assess the role of venture capital for music entrepreneurs
  • Assess the cash flow dynamics of music startups and evaluate a company’s cash flow statement
  • Explain how to leverage the loan market for a music business
  • Employ best practices and budgeting in crowdfunding
  • Define equity in a music enterprise
  • Use stock indicators to track publicly-traded music companies
  • Understand bonds and use them in the music business
  • Prepare a pitch for venture capitalists
  • Apply the methodology of price elasticity to music goods
  • Evaluate profit and loss statements
  • Assess government funding and non-profit grants
  • Plan entrepreneurial exit strategies
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Overview Syllabus Requirements Instructors Request Info

Syllabus

Lesson 1: Financial Calculations, Money Markets, and Crowdfunding

  • The Compound Interest Formula
  • Present Value
  • Useful Math
  • Order of Operations
  • Exponents
  • Scientific Calculator
  • Money, Markets, and the Music Business
  • Investors’ Perspective and Sources of Capital
  • A High-Tech Music Business Startup
  • The Power of Crowdfunding
  • Music Crowdfunding Examples
  • Crowdfunding Risks
  • Assignment 1: Compound Interest and Crowdfunding

Lesson 2: The Compound Formula, Business Equity, and Crowdfunding II

  • Periodic Compounding
  • Future Value
  • Present Value
  • Stocks and IPOs
  • Capital Markets: Key Concepts
  • Short-Term Stock Price Fluctuations
  • Jumping into the Crowdfunding Pool
  • Crowdfunding Websites
  • Assignment 2: Periodic Compounding Within a Year and Crowdfunding

Lesson 3: Money Growth, Stock Quants, and Crowdfunding III

  • The Algebra of Interest and Time
  • Fractional Exponents and Interest Rates
  • Logs and Time Problems
  • Music and Wall Street
  • Startups
  • Return on Equity (ROE) vs. Return on Assets (ROA)
  • Buying on Margin and Selling Short
  • Launching a Successful Crowdfunding Campaign
  • Insights from Failed Crowdfunding Projects
  • Assignment 3: Payment Streams and Crowdfunding

Lesson 4: Payment Streams, Bonds, and Crowdfunding IV

  • The Future Value of Payment Streams
  • Ordinary Annuity
  • Annuity Due
  • Annuity Formulas
  • Bonds and the Music Business
  • How Bonds Work
  • Par Value, Market Price, Coupon Rate, and Yield
  • Bond Metrics
  • The Bowie Bonds
  • Blockchain
  • Budgeting for a Crowdfunding Project
  • A Crowdfunding Workbook
  • Assignment 4: Backdating Annuities, Bonds, and the JOBS Act

Lesson 5: Present Value of Payment Streams, Bond Yields, and Crowdfunding V

  • The Present Value of Payment Streams
  • Deriving Present Value
  • Example: Buying a House
  • Example: Victim Compensation
  • Bond Payoffs and Music Securitization
  • Defining the Yield to Maturity
  • Instant or Current Yield
  • A Bond’s Long-Term Return after Purchase
  • Yield to Maturity
  • Promises and Perils of Music Royalty Securitization
  • Crowdfunding and the Capital Market
  • Equity Crowdfunding and Music
  • Assignment 5: NPV Valuations and Bond Yields

Lesson 6: Net Present Value, Discount Rates, and Venture Capital

  • NPV Valuations
  • Perspectives on Venture Startups
  • Risk and Discount Rates
  • The Components of Interest and Discount Rates
  • Present Value and Discount Rates
  • Music and Venture Capital
  • Assignment 6: Net Present Value and Venture Capital

Lesson 7: IRR, Risk vs. Return, and Venture Capital II

  • The IRR Rate
  • Interpreting the IRR
  • The Hurdle Rate and IRR
  • The Hurdle Rate or Weighted Average Cost of Capital
  • A Music PRO’s Hurdle Rate
  • Hurdle Rates and Investment Decision
  • The Market for Venture Capital
  • Venture Capital Logic
  • Interview: Jason Mendelson on Venture Capital
  • The NVCA on Venture Capital
  • Assignment 7: Loan Payments and J-Curve Analysis

Lesson 8: Business Loans, Investor Multiples, and Venture Capital III

  • Installment Loans and Open-Ended Credit
  • Interest and Principal
  • Sinking the Principal and Balloon Payments
  • Refinancing
  • Installment Add-On Loans that Don’t Recognize the Time-Value of Money
  • Investment Multiples
  • More on Multiples
  • Founders, VCs, and in the Round
  • Founder and Investor Goals
  • Contractual Terms
  • More on Term Sheets
  • Assignment 8: Owners’ Shares and Music PED

Lesson 9: Owners’ Shares, Price Elasticity, and Venture Capital IV

  • The Capitalization Table
  • Owners’ Shares by Rounds
  • Price Per Share and New Stock
  • Second Round of Stock Issue: Series B Round
  • The Employee Option Pool
  • Demand Analytics
  • Price Elasticity of Demand (PED)
  • Cash Flow Dynamics of Financing in Rounds
  • A Typical J-Curve
  • Early-Stage Investors and the J-Curve
  • Assignment 9: Sirius XM’s 10-K and Venture Capital

Lesson 10: Accounting Profit, Variable Pricing, and Venture Capital V

  • The Income Statement
  • Case Study: Sirius XM
  • Profits and Gross Margin
  • Gross Margins: Tech Startups vs. the Entertainment Industry
  • Demand Analytics and Sellers’ Revenue
  • Unit Price Elasticity: A Target Point
  • Silicon Valley and the Original Venture Capitalists
  • Chuck Easley on Venture Capital
  • A Startup’s Value and Ownership
  • Assignment 10: Cash Flow and Early Exits

Lesson 11: Assets and Liabilities, Business Reports, and Venture Capital VI

  • The Balance Sheet
  • Sirius XM’s Working Capital and Book Value
  • The 10-K and Company Research
  • Research on Private and Public Companies
  • Getting Out There
  • The Pitch
  • Assignment 11: Sirius XM’s 10-K

Lesson 12: Cash Flow, Off-Beat Funding, and Early Exits

  • Cash Flow and Free Cash Flow
  • Calculating Free Cash Flow
  • Public Money, Libraries, and Grants
  • The Small Business Administration (SBA)
  • Off-Beat Funding and Grants
  • Cashing Out
  • Typical Exit Vehicles
  • More Information on Exits
  • Proving the Value of a Startup for an Early Exit

Requirements

Required Textbooks

Guide to Money and Investing, by Virginia B. Morris and Kevin M. Morris, Lightbulb Press

Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, by Brad Feld and Jason Mendelson, John Wiley & Sons, Inc.

The Crowdfunding Bible, by Scott Steinberg (PDF)


Software Requirements

Mac Users

  • OS X 10.9 Mavericks or higher (click here for system requirements)
  • Latest version of Google Chrome

Windows Users

  • Windows 7 or higher (click here for system requirements)
  • Latest version of Google Chrome

Hardware Requirements

  • Scientific or Financial Calculator
  • 500 MB hard drive space
  • Webcam
  • Speakers or headphones
  • Internet connection with at least 4 Mbps download speed (http://www.speedtest.net to verify or download the Speedtest by Ookla app from your mobile app store)

Instructors

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Author

Peter Alhadeff, D.Phil., is a distinguished Oxford economist and historian who has a made his own unique and successful career in the U.S. music business. He has published and been engaged by the National Academy of Recording Arts and Sciences, the Harvard Berkman Center, the Latin Grammy, the InterAmerican Bank at the Di Tella Institute in Buenos Aires, and the Business and Economics Society International, for which he delivered the keynote address on the state of the music trade in Athens, Greece.

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Peter is a pioneering educator with a practical bend. As a professor and founding faculty member of Music Business/Management at Berklee, he taught the first ever courses in math, music economics, and statistics. He also taught the first HTML and Javascript courses at Berklee. He works closely with his students, as well as faculty from inside and outside the college to produce The Music Business Journal at www.thembj.org. Digital Music News identified him as one of the most important attendees at Midem, Cannes, 2012.

Alhadeff is the past chair of the Music Entertainment and Educators' Association's international conference and founded the monthly trade Recording En Español and its successor Músico Pro, passing the editorial baton to his students. He has built a prolific writing record of more than one hundred music business articles that he says is fed by his experience in the classroom. Read Less

Questions?

Contact our Academic Advisors by phone at 1-866-BERKLEE (U.S.), 1-617-747-2146 (INT'L), or by email at advisors@online.berklee.edu.

We can also answer basic questions in the comments below. Please note that all comments are public.

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