Music tech in 2025: What investors really think

By: Cherie Hu

Published: 2025-06-30

On June 25, 2025, nearly 150 Water & Music community members packed into Perkins Coie's New York offices for a frank conversation about the state of music tech investment, as part of New York Music Month.

The timing couldn't have been better — or more paradoxical.

2025 is shaping up to be one of the biggest years ever for music tech funding, with over $700M poured into music startups in just the first half. Yet if you ask ten early-stage founders in the space about what keeps them up at night, nine out of ten will say the same thing: How do I raise money?

This disconnect between record funding levels and founder frustration set the stage for one of our most candid discussions yet about what's really happening in music tech capital.

I had the honor of moderating a panel featuring three perspectives rarely seen in the same room:

What followed was a masterclass in understanding not just where music tech money flows, but why, and what founders need to know to navigate this landscape moving forward.

The state of play: Big numbers, bigger challenges

Before diving into the panel discussion, I wanted to ground everyone in the current market reality of music tech. The numbers tell a compelling story, but not the one you might expect.

First, a reality check on terminology. When most people hear "music tech," they might think of AI music generators like Suno or mass-market streaming platforms like Spotify. But the scope is much broader: Technology touches every corner of the music business, from how songs get made to how they get discovered, sold, and experienced.

Our data at Water & Music reveals impressive momentum across this wider lens:

The investor landscape in particular has evolved dramatically. Five years ago, music tech was largely the province of specialized VCs and strategic investors from within the industry. Today, private equity firms account for a significant portion of the investor pool, with giants like Flexpoint Ford, Hellman & Friedman, KKR, and Sixth Street deploying billions of dollars in capital last year alone.

2025 has already seen some massive rounds for music tech, including:

Generative AI and fan engagement are leading the pack as the two categories attracting the highest deal volume, followed by live event tech and marketing/business operations.

Notably, a majority of the generative AI startups being funded so far this year either are focused on rights management and attribution (e.g. Musical AI, Vermillio, Bria), or have a strong B2B angle in their partnerships (e.g. Music AI, ElevenLabs). This suggests that industry alignment, rather than disruption, is the thesis that investors are betting on in 2025.

The music tech exit data tells a slightly contrasting story from prior years. Music tech M&A momentum has been healthy so far this year, with over $400M in deals — not including Virgin Music Group's pending $775M acquisition of Downtown Music Holdings, which is going through a regulatory approval process.

That said, we’re seeing consolidation happening primarily within the industry via strategic acquisitions (e.g. Concord x Stem, Fever x DICE, Splice x Spitfire Audio), rather than the private-equity or tech-giant acquisitions that create returns closer to venture scale.

The uncomfortable truths

Next came the slides that made the room collectively hold its breath.

Challenge #1: The TAM

Despite its universal impact and appeal, the music industry trails behind its peers in market value.

Music generates roughly $100B annually when you add up recording, live, publishing, and merchandise. That sounds impressive, until you put it in context of other verticals that investors are eyeing:

By traditional investors' standards, music tech is still a niche.

Challenge #2: The exit funnel

The second challenge hit our audience even harder. According to data compiled by Perkins Coie and Crunchbase, out of approximately 10,000 music tech companies:

Compare that to healthcare (9% acquisition rate) or fintech (6%), and you start to understand why generalist VCs approach music tech with caution.

Behind these percentage points are hundreds of music tech founders whose potentially world-changing ideas ultimately never found sustainable homes. That said, the point of these stats is not to discourage but to reframe the conversation with a much-needed reality check. What kinds of businesses actually make sense in music tech? What type of capital should founders pursue? And how can the industry evolve beyond these constraints?

With this sobering context established, we turned to our panelists to understand how sophisticated investors navigate these challenges, and where they still see opportunity despite the odds.

Three themes that defined the conversation

Theme 1: Revenue reality check, i.e. the end of "we'll figure it out later"

Our panelists didn't mince words about what's changed in the funding landscape. The old playbook — slick demo, big vision, worry about revenue later — is largely dead.

"You get one round where you can raise off of the dream,” Sinha said. After that? It’s all about going back to the business fundamentals of revenue, retention, and burn rate.

"I would like to at least hear a founder be able to articulate how this might one day make money," Sinha added. "You'd be surprised how often that is a trick question."

Even revenue-generating music startups have faced a tough uphill battle in recent years.

As an example, Yung brought up Gimme Radio, a superfan platform founded by Tyler Lenane that focused on heavy metal and country. On paper, Gimme Radio had built what many would consider the holy grail: Hundreds of thousands of engaged metal and country fans generating over $100K monthly in revenue through vinyl sales, tipping, and subscriptions.

But despite proving fans would pay far more than Spotify's ~$60 annual ARPU, they couldn't raise the capital needed to scale beyond their $1M annual run rate before the funding window closed. "They had engagement and they had users … but the revenue model wasn't there fast enough," she explained. When the funding market froze, so did their runway.

While harsh, this new reality may have actually improved the ecosystem for the long run. "Companies right out of the gate are figuring out how to generate revenue right away," Yung observed. "Those are the ones showing the most signs of success."

The focus on fundamentals extends to funding strategy itself. When a founder in the audience asked about bootstrapping versus raising capital, the investors' response surprised many in the room. Rather than evangelizing the VC path, they endorsed staying independent whenever possible.

"I say this as someone who’s been investing for 10 years," Sinha began. "I would avoid raising from VCs... If you're going to bootstrap a company, own it, and run it sustainably, that's the best thing you can do for your business."

Yung reinforced this with examples from her work: "LyricFind was bootstrapped. I'm dealing with a creator economy company right now that generated $9M in EBITDA last year, and that was totally bootstrapped."

The key insight for founders here is that bootstrapping isn't seen as a negative signal anymore. In fact, Lindsay noted it creates "an allure": Investors see a company that's reached scale without outside money and think, "If they can do this without capital, imagine what they could do with it."

Theme 2: The expansion imperative, i.e. music is just the starting point

Yung dropped one of the evening's most actionable insights for founders seeking capital: "Companies that have a real core focus in music need to play outside the sandbox in order to make themselves more attractive."

Beyond just expanding the TAM, this advice is also about recognizing a fundamental shift in how the creative economy works, and how it’s impacting many artists’ careers today.

"When you speak to musical artists, they're like, ‘I’m not just a music creator,’" Lindsay explained. "’I'm now a designer. I'm creating consumer goods, I'm an actor, I'm everything.’"

The smartest startups are building for this reality from day one. Some key examples from our speakers:

The key takeaway for music startups isn’t merely to pivot out of music. Rather, it’s to recognize that music was always just one application of a broader solution.

This mindset solves multiple problems simultaneously: Pacifying investors worried about TAM, building more defensible businesses, and actually serving modern creators better.

Theme 3: AI's double edge, i.e. thinking beyond the “ChatGPT for music” hype

While expansion strategies tackle the business model challenge, technology presents its own can of worms, especially with AI.

Our speakers' take on AI was refreshingly grounded. First, they addressed what's not working: the "ChatGPT for music" model. Since the major labels sued Suno and Udio in 2024, that particular gold rush has cooled considerably.

"I think a lot of founders in the Valley have learned from that," said Sinha, adding that when he now asks founders if they've thought about whether they’ll get sued, "it's not a trick question."

So where's the real AI opportunity? Our panelists highlighted two areas:

“Boring” B2B tools that actually work. Our speakers highlighted examples such as Music AI's business-focused audio processing tools, AudioShake's stem separation technology, and Panjaya’s real-time translation and lip-syncing. These cases match a trend we've seen at Water & Music around investor momentum increasingly coalescing around AI tools that embed into existing creative workflows, rather than those trying to disrupt the industry as a whole.

Enabling non-musicians to create — but not through prompting. "I don't know if prompting into a black box hits that same feeling you get when you're a musician and you play something and you're like, ‘wait, that was really good,’" Sinha reflected. The form factor matters as much as the capability.

Lindsay shared an anecdote around a compelling demo he saw from Daaci, a London-based company that enables rapid iteration in the studio with AI — e.g. adjusting keys, arrangements, and production elements that would typically require expensive studio time. "The ability through AI to allow people who do have that creative spark to create and iterate, I'm pretty excited about," he said.

Lindsay also proposed a perhaps counterintuitive design principle for the future of music AI: the core tech will be most valuable when it becomes invisible. "We don't talk about all the other technology that powers everything we do," he observed. "We as consumers love living in blissful ignorance of how things work."

A note on moats

One investor in the audience asked a question that is on many people's minds in the age of “vibe coding” tools like Lovable, Bolt, and Cursor: How do you think about moats as a startup, when the act of product development has essentially become commoditized by AI?

Sinha didn't sugarcoat it: "I don't know if moats really exist in a product sense anymore."

Instead, he outlined three alternative forms of defensibility:

Practical takeaways: What this means for founders and investors

In an almost amusing turn of events, perhaps the most radical thing you can do as a music tech founder in 2025 is make money.

Not eventually; not after you hit scale; today. When the investors on our panel called out monetization as their unexpected “trick question,” they were exposing an uncomfortable truth about how many founders still can't answer it.

Another useful shift in mindset, and business model, is to think beyond music from day one. Several of the successful companies praised by our panelists started in music, but eventually expanded beyond the industry as their path to scaling, fundraising, and exiting. Again, this isn't about abandoning music; it's about recognizing that modern creators don't live in genre silos, and neither should a music tech product.

Lastly, the way music tech founders think about competitive advantage is changing in real time — and, in particular, shifting away from technology. With cutting-edge product development going from impossible to commodity in a matter of months thanks to AI, pure technical advantages evaporate unless you’re focusing on deep tech and R&D.

Focus instead on what actually lasts: Specific workflows, deep industry relationships, and building something people use every single day.

Looking ahead: Cautious optimism

Despite the sobering statistics and funding challenges, our panelists shared a measured optimism about music tech's trajectory.

"The music industry is evolving underneath the incumbents," Lindsay observed. "That's going to create a lot of opportunities for tech." But these opportunities look different than they did five years ago. They may be less about disrupting the industry outright, and more about solving specific, tangible problems.

Yung pointed to a shift in founder sophistication as cause for optimism. "Entrepreneurs are approaching problems with more maturity," she said. The days of building a cool product and hoping revenue follows are over, with today’s founders being more focused on building actual businesses from day one.

Perhaps the most revealing moment came when Sinha addressed the TAM question head-on. "Music is such a global, universal experience, unlike anything else,” he said. “I don't actually need to be sold on the TAM piece as an industry."

This gets to something that perhaps counters part of my opening presentation for the panel. Maybe the challenge for music tech was never really about market size; it was about business model clarity. The $100B TAM means nothing if you can't capture value from it sustainably.

In short, good business beats grand disruption — and that may be the healthiest shift music tech has seen in years.

This panel was possible with the support of Perkins Coie and the New York City Mayor's Office of Media and Entertainment.