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Why This New Form of Funding Has the Music Industry Amped Up The music industry tests a new way to fund growth.

By Melinda Newman

This story appears in the December 2015 issue of Entrepreneur. Subscribe »

Nigel Parry
Banking on artists: Music biz veteran James Diener.

As CEO and president of A&M/Octone Records -- home to such acts as Maroon 5 and Flyleaf -- James Diener had a front-row seat to the habits of music creators, specifically the monetary shenanigans and squeezes that could derail their careers. After selling Octone two years ago, Diener decided to do something about those problems, coming up with a financing idea that would offer minimal risk to artists.

Diener and his partner, financier Howard Lipson, launched New York-based Alignment Artist Capital in April. Backed by investment colossus BlackRock, AAC provides structured capital (from $5 million to $20 million) to music artists, songwriters and producers. In return, it takes 15 to 20 percent of adjusted gross income from the artist's core revenue streams: record sales, touring, publishing and licensing -- over a four- to five-year period. "We earn when they earn, and we don't earn when they don't earn," Diener says. "We take a calculated risk that during the four- to five-year period, they're going to earn enough that our negotiated percentage will not only pay back our principal, but there will be enough profit in there for us."

Giving up 15 to 20 percent could be a hard notion for artists to swallow. But AAC says that, unlike with traditional loans, the investment doesn't threaten an artist's personal assets and doesn't require collateral at closing. "If you take $10 million from Bank X, your copyrights, your masters, your houses, your guitars, everything [is] in the pot for them to recover against," Diener says. "Artists literally wake up one day and they're on a sofa, because it all went out the door. This is a middle ground that doesn't exist right now in the industry."

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