The Hip-Hop Startup World is the Answer to Creating Generational Wealth

Well known startup investors Nas, Jay-Z, Diddy, Pharrell, Beyoncé and more

I have already talked about the issue of frivolous spending in Hip-Hop and how we as a culture have the power to create generational wealth for our offspring. In this article, I take a deep dive in how the rap elite are breaking their bread— via startups. You may have heard Nas cashing in on an acquisition or Jay-Z + Beyoncé laughing to the bank with Uber’s IPO, but what does that really mean? Here, I break down what a startup is, why they are lucrative (and very risky) and how you can get in on the action if you so decide.

Let’s all aspire to create generational wealth because we already have the tools and resources at our disposal.

What is a startup?

First thing is first, please do not confuse a startup with a small business.

  1. A small business is looking for a business model that works from day 1, where a startup is always iterating their model to find the right “fit.”
  2. A small business is often a self-sustaining business, where a startup often requires outside capital to keep the lights on.
  3. Small business are often targeting a small market (town, city region), while startups are typically looking for the next billion dollar opportunity by taking over a specific market.
  4. Small business often plan on staying in operation, compared to a startup who intends to conduct an Initial Public Offering (IPO) or get acquired by a bigger company (exit). *

Small business and startups are both important to global economy, with different types of risks and rewards that are involved. Now that we live in a “digital age,” startups are hot because of their ability to scale (Instagram’s operating costs don’t significantly increase with each user added to the platform) which means that they are more lucrative in the event of an exit (IPO/acquisition).

*I will get into the nitty-gritty of an IPO as well as other technical terms later in the article

How do startups operate?

Now that we understand how a startup is different, let’s talk about how investors make money and how that process works. Of course, I won’t be able to get super-technical, but this is enough for you to get involved if the opportunity arises.

Before I go in, I want to make the analogy that startups operate similarly to musicians whether they may be independent or signed to a major label. Whatever way you may see it, musicians are startups because they require a lot of capital to get their careers started (recording albums, producing music videos, going on tour, upfront cost for merchandise and so much more). Just like a startup, musicians require investors (or alternative revenue streams) to keep them afloat. Before we continue, it’s important to understand the major players of the startup world and the roles that they play in the ecosystem.

  1. Startup (Ex. Uber, analogous to musician) — These are the entities looking for an investment by offering up a percentage of their company to investors in return for cash.
  2. Angel Investor (Analogous to an independent label) — These individuals are known to invest on average $25k -$100k in capital. Jay-Z, Nas, Pharrell, Diddy & Beyoncé would be considered “angels” because they are investing as individuals instead of a firm.
  3. Venture Capital Firms (Ex. Andreessen Horowitz, Analogous to a major label) — These are firms have funds that average $135M in capital to deploy to promising startups (funds fundraise in a similar fashion to startups). Depending on a bunch of factors, they can invest anywhere between $150k — a couple million in capital.

Now that we know some information and the major players, just know that each person plays a specific role in the journey of a startup (because everyone works together in a sense) to reach the goal they are all working towards — an exit (an exit for a musician is developing the next big “star”).

If Jay-Z is Hip-Hop’s first billionaire, why can’t our culture breed another 5–10 in the next decade?

Why Startups are instrumental to building wealth today

Before I go in, there are a lot of other ways to build wealth today such as real estate, investing in the stock market, getting into cryptocurrency and so many other alternatives. Despite the risk they assume, I believe that startups are the best route to go IF you understand the market in which you are investing in. Why? Because each alternative requires a LOT of knowledge about the market to make money and mitigate risk. Often, people don’t get into the stock market because they love trading stocks, they get in because they want to make money.

Startups are different because while they are for-profit, they have the intention of solving a problem that affects millions of people everyday. Uber has fixed our transportation troubles, Twitch has created an ecosystem where gamers can make a living from their passion and Robinhood has created a platform where investing is accessible to everyone, not just the elite. Again, people invest in startups to make money, BUT they invest in a cause that will change the lives of millions of people.

Long story short, investors make money because they own equity (a percentage in a company) that determines their cashout when the startup *luckily* exits. Some may wait until an IPO (when a company transitions from private to public and is listed on the stock market), some will cash out when a company gets acquired (Amazon has acquired Ring, Whole Foods, Twitch, Zappos, etc) and some can cash out before the exit happens if they want to get out of the game. To close, let’s use Jay-Z & Beyoncè as an example because they cashed out with the Uber IPO.

To avoid going down a rabbit hole, just know startups are like fires and to keep a fire going, it needs fuel to operate (money). As the fuel begins to run out, startups raise another round of funding to keep the dream alive. Ok. Back to Jay-Z and Bey.

This was back in 2013 when Jay-Z participated in Uber’s Series C round of financing. There, Mr. Carter invested $2M (tried to wire Uber $5M for a bigger stake, but its former CEO returned the difference) to see a return of around $70M after Uber’s IPO as reported by Forbes. Beyoncè was also able to cash out during the IPO as she took a $6M equity stake as compensation for her performance (she was initially offered $6M in cold, hard cash). Today, that $6M stake is worth an estimated $9M if you consider Uber’s market** cap and her dilution*** in shares since her compensation.

**Market Cap (Market value of a publicly traded company)= Amount of shares * price per share

***Dilution refers to the way that an investors equity stake decreases as additional investors fund a startup. Because Beyoncè got in later while Uber was still fundraising, her share in equity was diluted making her gain smaller compared Jay’s.

Closing Thoughts

While Jay-Z & Beyoncè are special in their talents and gifts that they offer the world, they were able to win big because of their investments in Uber (as well as additional startups). Outside of cash, they were able to leverage their name recognition and relationships to propel Uber to the mainstream, where they dominate the ridesharing market today (worth $57.8B). If Jay-Z is Hip-Hop’s first billionaire, why can’t our culture breed another 5–10 in the next decade? As a reference to one of my previous posts, instead of we as a culture glamorizing material wealth, why don’t we celebrate investments and glamorize when our peers win big with exits?

If you’re looking for the hottest startup to invest in, please consider my startup Wavlength. Our mission is to help independent musicians make a living from their music and we do this by allowing the fans to become stakeholders in an artists’ career. To learn more, click here or feel free to reach out via my LinkedIn, Twitter or Instagram.

Let’s all aspire to create generational wealth because we already have the tools and resources at our disposal.

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Victor Ariyo

Founder/CEO of Wavlength l Self-proclaimed Hip-Hop Economist | Legitimizing Musicians, One by One.