Making Cents Of EMH Partners Investment In Native Instruments

By Dan Brotman, Editor-At-Large
Special To FutureMusic

When I walked into the office today, a few colleagues rushed up to ask what I thought about some hedge fund or something making a €50 million investment in Native Instruments.
I hadn’t heard.
Who?
EMH Partners
Who’s that?
A Munich-based private equity firm, one stated reading something from his phone.
After spending the last few days trying to get my arms around funky, tube-infused Eurorack processors, I was clearly out of the loop.
Maybe they’ll open a New York City office, I said, thinking aloud.
They looked at each other dejected, and then went back to their phones, thumbs flying. Clearly, they were hoping for a ray of insight from the “old guy” at the office who has had a track record making sense of new product announcements, industry acquisitions and other business maneuvers by companies large and small. I’m no sage, but standing on the front lines of the electronic music and DJ industry for the last three decades has give me a unique perspective.
How much was the investment?
They turned back.
50 million euros.
It will be a consumer play.
They scattered.
That was easier than I thought. Time for coffee.

I immediately went online and began to get caught up. Billboard had a solid article about the investment, announced at the Amsterdam Dance Event. DJTechTools chimed in and offered some suggestions on what to do with the funds. Peter Kirn dissected the quotes from CEO Daniel Haver and Co-Founder Mate Galic, chiding the two of them on their “corporatespeak” and attempting to figure out exactly what the hell they were saying. Others put their own spin on the news, but it was clear that the announcement took many by complete surprise.

Weight was put behind the concept of “services” a term that popped up a few times in the written statement with Matthew Adell’s name being mentioned. Adele was the former CEO of the floundering Beatport music service who departed to start “monetizing remixes” with Metapop. The startup’s value proposition of allowing users to officially remix popular tracks and then provide royalties to the rights holders was aligned enough with NI’s stems initiative that the company purchased Metapop and brought Adell onboard as their Chief Digital Officer.

Despite the unfortunate name, Metapop was an intriguing idea whose time had come. The major labels haven’t leapt at the opportunity, mostly because they lose another element of control, but I can see this working, if and only if, there‚Äôs real money to be made. Native Instruments liked the strategy well enough, and overlooked some of Adell’s backend development misses when he helmed Beatport. But to his credit, Adell put enough “lipstick on that pig” to seduce the technology-challenged at LiveNation to bite.

EMH-Partners-Logo

So who exactly is EMH? It’s a good question, since they’ve only been around for seven years and only seem to be testing investments in a wide, if not weird, array of seed rounds. One was an investment in an online company that ships tires for cars and motorcycles, which they exited rather quickly. Another was for vacation rentals. But then they established a €350,000,000 EMH Fund this past summer to become lead investors in technology companies that want to enter new sectors.

It looks like my knee-jerk response to my permanently hunched-over Millennial cohorts may be on target, especially after reading Daniel Haver’s quote: “Native Instruments has written a remarkable success story since its foundation over 20 years ago, and we are now ready for the next chapter. By developing intuitive and powerful products we’ve empowered music creators globally to further realize their potential. Today we’re seeing demand from increasingly diverse market segments, which opens enormous potential for growth. With EMH Partners we have a strong partner at our side to exploit this potential.”

Looking at this “strong partner,” the one thing that stands out is that the two co-founders are both around 30. Why is that important?

They need game.

 emh-invests-in-native-instruments

Telling people – and by people, I mean single women (or men) — they run a fund that invests in tire delivery or kitchen remodeling is not exactly sexy. However, telling scantily clad women in hip Berlin nightclubs that they are taking Native Instruments into the consumer sector to sell music accessories, well, that’s certainly more appealing. Now I’m laughing as I’m writing this, but sometimes, this isn’t as far from the truth as you think…

Will the “consumer play” be a Super Beatport service (hopefully with a search utility that actually delivers relevant results, full track descriptions and deep data mining tools) that feature track downloads, stems, user remixers, DJ mixes, samples and more? Mix in a collaborative, online digital audio workstation. Add a nice dash of social features. Sprinkle in the ability to monetize each users contributions without the need for a record label gateway. Stir in full legality by providing digital rights management and royalty payouts. Bake in the extensive Native Instruments user base at 400 degrees. Wah-La! A full, five-course, farm-to-table music creation meal with something for everyone. Did I mention it’s organic?

Or will their consumer initiative be a hardware play, think NI Headphones? Or maybe even a combination, think as Roli Blocks with full Maschine integration? Or a combination of the above? I will tell you one thing I know for sure, Native Instruments won’t be investing that 50 large in a high-end, mastering compressor.

Berghain? Good Call Mate!

One aspect that may be unearthed five years in the future is this investment may mark the beginning of Haver and Galic’s exit strategy. Not that I’m suggesting that we put these guys “out to pasture,” they’ve been sensational at navigating the unpredictable and turbulent music industry waters. However, both have been helming Native for quite a long time and if they can build out the consumer division, which could multiply their annual sales exponentially, it would allow them to cash out in style. Of course, this is mere speculation, but I’ve seen this “movie” many times, and it often has a happy ending.

Whatever materializes with the investment, it will be a lot of fun to see what Native Instruments “cooks up” in the EMH kitchen. Looks like we’ll have to wait until 2018 to witness any indication (or watch the NI Job Boards), but I’ve already reserved my front row seat. Who’s bringing the popcorn?

Author: FutureMusic

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