Fraud Fighters: Beatdapp's Mission for Fair Royalties

It was great. This was like one of my favorite podcasts we've done for sure. Thanks for having us. This was great and a very different conversation than we get anywhere else. So you were right off the start when you said that this would be unlike any other podcast. This has been wonderful. And I know this comes at the end. So at this point, they've already heard it, but like definitely one worth listening to. Andrew and Morgan are uploading something amazing in the music industry. That is fraud detection.

There's a lot of things going on within streaming and Morgan and Andrew have raised $17 million to work with us through BeatDap. They have amazing perspectives on how it is to work with an ambitious company within the music tech industry. Hey guys and welcome back to Sound Connections podcast. Today we have an episode with a company that has really made its mark on media lately. It is the amazing BeatDap with co -founders and co -CEOs Morgan and Andrew Welcome. Thanks for having us. Thank you for having us. Jinx.

We haven't done a lot of episodes with more than one person, but you guys, you know, you're not only co -founders and co -CEO, which is seen once in a while, but not that often. And so this has got to be really interesting because we need to know about each of you, but we also need to know about the common journey of BeatDap. Before we start understanding too much about the company and you, I just need to know how did you guys meet? Like, is this long back? We met in grad school. Yeah, I know, like.

10 plus years ago and we were actually, it was funny, when you first go to your MBA program, we were the youngest ones by far and a lot of the people in the program basically thought we just weren't gonna work very hard. So when you had to pick your groups, we sort of three got left. We had another friend named Adam and it was us three and then this lawyer that no one also wanted in their group. So we were sort of like the group rejects maybe, I don't know. Like everyone just thought we weren't really gonna be great.

And I don't know if that put a chip on her shoulder or what, but we were always pretty great at school. And so, I don't know, we ran circles around the class and it wasn't very long before everyone was asking to join our groups on future projects. And we basically said no new friends and stayed with each other almost every single course for the entire like two year period. So, we just became really close and we joined like a traveling case competition team for the school and.

travel to compete against other schools. It just brought us closer, you know, traveling places and sort of having to think on your feet. And it was a really fun experience and we got to know each other really well. And we built a working cadence with each other that I think is quite unique in that kind of format. And that sort of translated later in life, because we always knew we wanted to do something together. We just weren't really sure what it would be. And it took us 10 years, but we got there. Amazing. OK.

BeatDap, I need to understand it a bit, and the audience needs to understand it a bit. I actually prefer asking guests to introduce what they do because it's really interesting to hear how we present it. Morgan, can you tell me about what BeatDap is and how you actually came about thinking about the concept? Yeah. I mean, today you can think of it pretty simply. We find fraud. We found fraud almost by happy accident, but fundamentally the company looks for anomalies in large structured time series data sets.

And the reason for that, the reason it's important is because ultimately the money that flows through to artists, to labels, to anyone who earns a living in the sort of digital music ecosystem where streaming is such a dominant part of their income, they're paid based on the split of streams between all of the other legitimate rights holders and artists, which should be where the journey stops. But that's also split between folks who are now trying to exploit streaming for fraudulent purposes to make money that really doesn't belong to them.

And so in an effort to make sure that everyone's paid correctly, we started working in fraud detection to shore up the kind of leaky bucket problem of streaming, which, you know, when we started down this path, we didn't realize quite how big it was now that we're further along. And we'll, I'm sure talk about it more later, but it's a great big problem. It affects artists of all shapes and sizes. And we know it's hard to make a living in music and it's hard to succeed and have a successful career at any sort of scale. And so anything that we can do to prevent.

artists from losing out on what's rightfully theirs, were sort of keen to do. I say we found this by happy accident because we actually started the business solving a different kind of related problem, or at least thinking we were going to solve a different problem, which was auditing, auditing the streaming services on behalf of rights holders. We'd heard from rights holders, friends of ours who worked in the industry on the recording side that every time they went and audited a streaming service, they would find discrepancies between what they were paid and what showed up in the log reports of the DSP. And so what we thought we were going to solve for was an accounting discrepancy. And what we discovered as we went down that path was actually that the DSPs are not terrible accountants,

but they had a fraud problem. And the kernel of insight, I think, that really presented itself to us fairly early on in conversation with DSPs was they were all talking about fraud. They just... called it something different, they described the problem differently, they described the motivation for the problem differently. And when you hear from a bunch of potential customers the same concept, articulated differently, you kind of realize there's clearly no one giving them a common vocabulary or shared understanding of the problem. And that's an opportunity to do some really meaningful work where you know there's a problem, you just see customers who haven't yet solved it in a uniform way. And for a bunch of reasons, again, we'll talk about later, we think a third party who's independent neutral sitting outside of the platforms themselves, is the best way to solve it. So we found our way to fraud really by finding out that

the auditing product that we wanted to build wasn't going to get to market. But thankfully, the underlying issue, the reason for the discrepancies that rights holders were complaining about was fraud. They just weren't getting that information. They were just seeing a mismatch between statements and blogs and wondering why that's there. And it became very clear, oh, OK, this actually accounts for the whole problem. And it puts the rights holder and the platform on the same side of the table because...

They're not competitive with one another. They're collaborative. They're trying to fight fraud together. Ultimately, the rights holders want to get paid and the platforms don't want to be a conduit for fraud. So it was kind of a happy win -win where music very rarely has truly aligned stakeholders where everybody sits on the same side of the table. But you'd be pretty hard pressed to find somebody who's pro -fraud. And that's a good position to be in to build sort of a business around a core tenant like that. Yeah. That's probably a few people that...

Pro Thraud, but I don't think we like them. There's plenty. We just don't work with them. No, that's good. That's good. But the thing is you don't just start such a niche product without knowing the music industry. So there must have been like a natural in of understanding who to talk with about what problem. I think that it's interesting that twofold. One, in a former life when I first started my career, I was building tech on top of Facebook when it was still EDU based. And how we used a lot of that stuff was to promote artists. So we were really early in launching artists using, at the time they called like a new media strategy or you'd hear online,

like no one really called it digital yet. And our main target at the point was can we leverage Facebook to drive downloads and purchases for artists? And we found this, Kid had a bonfire in Nantucket and we made him a number one rapper. I think he went number one iTunes, number seven Billboard, all albums. No one saw it coming. It was completely novel at the time, which seems obvious that you would have social now. But believe me, when I tell you back in 2007, we would be pitching this and we would be told we have an email list, Facebook's for kids. We have a website. We don't need this as part of our mix. And it was a unique experience to be the first one through the door, successfully leveraging that.

And so I actually worked a lot on the promo side. I was one of the first 50 beta advertisers on Twitter. I was really great at hacking the YouTube algorithm. I was known for something called fanjacking on Facebook, which now is definitely looked down upon. But the things that I did were like hacker -esque, like in that realm. But we're always based on giving an artist a chance. In that...

compensation model, artists weren't making money from the streams necessarily. The goal was for you to try and find an audience base. And if you could tap into a channel, you either had product market fit with your music or you didn't. And so what I learned really early was around tactics for leveraging platforms to gain exposure, which I think...

my mindset naturally, now that we're in this place of fraud detection lends itself to that because when I look at a brand new platform or I look at somebody's product or I look at things, the first thing I'm visualizing is how I would manipulate that product to accomplish some other objective. And like that was, that's like ingrained in me for you from years of doing that. And the techniques may change, but the sort of methodology and framework you run through to accomplish that necessarily, that doesn't really change. And so I learned a lot about what Froster's mindset might be early in my career without realizing it. And again, at that time, our goal was just like, can you get an artist on the front page of YouTube? And if you got on,

you knew really fast whether they were a fit or not. You either got a bunch of negative comments and people hating you and it coming off really fast, cause they would know that this isn't a fit or you got promoted and everyone sharing the content and you went really viral. And so the... you kind of knew really quickly if there was a product market for or not with that artist or with that track. And I think now with a lot of the way people listen sort of passively, you can rack up a bunch of streams that no one's really paying attention to and make a large amount of money without necessarily having a product market fit. And that was just never the case back then. So my argument to what I did back in the day is more that we were a marketing tool to gain exposure, to see if an artist could make it or not.

And now a lot of the people that are doing this type of thing, they're not trying to be artists. Like we'll get, I'm sure further into this, but 80 % of the fraud we catch is financially motivated fraud. They are trying to break an artist. They aren't trying to have a brand. They aren't trying to connect with an audience. They're trying to extract pennies quietly that add up to large amounts of dollars that steal from the industry. That's a very different motive than someone who's trying to really make it in music and is just looking for a shot. So.

I think that part of the business really helped me learn every aspect of promo, every aspect of marketing, how systems work and system thinking. And then, you know, when Morgan and I met, I was already doing that before Morgan and I met in grad school. When we met in grad school, Morgan had, you know, he'll probably tell you his story, but had a lot of experience on the regulatory side and copyright protection, worked with a lot of the big labels in a completely different way.

I'd never worked with them either. So I think the mind share from both of our ends coming together. already put us in a position where we were basically music industry people that had developed technology that helps the music industry. We weren't outsiders trying to be like, oh, they have a problem there. I think I'm the savior to go fix that. We really came at it from the industry, from the inside, and we're willing to change our model. As Morgan pointed out, we started with an audit product. And when we accidentally discovered fraud, we knew we could solve fraud and that was probably a much larger issue for us to tackle.

because audit doesn't work without fraud detection ultimately in the way that we had sort of gone about it. So I think that we learned the industry early in our unique ways. And I think three years of learning to audit also put us in a nuanced position that very few people are in. Like if you go and pull 100 label execs and ask them how royalties work, I would bet that a huge percentage of them just know generally money comes in, they get a cut.

But if you said, please build a calculation of exactly how royalties are going to be split with publishing and what pools there are and how the money moves. Very few people know that level, especially on other parts of the organization who are focused on brand building and artist development and booking. They just don't know that level. And so I think, I think we were in a unique position and built, we already knew the industry and then built a subject matter expertise around royalties and payouts through audit.

that when we saw the opportunity with fraud, we knew exactly how to solve it. Right. That's really interesting. We'll spend some more time on that and sort of the three years into the journey as I understand it. But I just want to go a tiny bit back. You were in grad school. You met, you both come from comparable backgrounds, at least when it relates to the music industry, but from different perspectives, one from compliance and another one from revolt. And, you know, there's some mindsets that met there.

There was a journey in between where you guys didn't work together, but you consistently talked together and sort of were looking for opportunities. What was the dynamic in that time period between you started and you graduated? Yeah, I mean, we had careers for quite a few years that were, I mean, for me, it wasn't really in music for a while. Just rewinding a little bit to finish Andrew's thought, I started my career in sort of public policy and consulting and by total fluke and good luck.

had two music clients on day one. So we represented Music Canada, which is the trade association that represents the major labels. And then we had Entertainment One, which is now the music arm of, well, it was the music arm of Hasbro and then it was spun out. Now it's called Monarch Music. But I got to know the copyright side of the business. And truthfully, it's the less exciting side of the business. I think promotion is far cooler and definitely gets in more interesting conferences and events. But...

you know, foundationally, the way you make money in music is understanding copyright and the flow of revenue. And so that was a great education really early in my career. And then I went away for music entirely. I went to a telecommunications company where my job was to keep Canadian cell phone bills high. And we were successful. Amazing. I'm just kidding. Sorry, Tellus. No, it was actually an amazing company, but it had no sort of music overlap at all.

But through that whole period, we stayed in touch. And like Andrew said, we weren't sure what we were going to do together. But I think we were pretty confident early on that we'd do something. And it was a matter of finding sort of that right fit. And so our careers continued for a number of years where we were friends, but not business partners. And it wasn't really until the idea around auditing crystallized for both of us. And then we were able to mash up the, hey, your background fits pretty neatly here and mine fits here. And we both know that we're capable of learning. And We know this other co -founder, Andrew Dwork with Poria previously, who would be an amazing technical partner for us on day one. And so that was the sort of nexus. It was waiting for the right thing to strike. We didn't want to go and just throw darts. And I

think the combination of technology and music and complementary subject matter expertise and a pretty deep well of understanding, like we can talk more about founder journey, but like. truthfully, I don't know that I would start a company with someone I didn't know because you need to just bow load of interpersonal goodwill, a lot of deposits in the bank of trust before you can really make a company successful. And so we were very fortunate to have all of those things, the right sort of preconditions for success. And then we had to go and find product market fit and make sure that we were doing something that was viable and that took some time. So yeah, that's sort of the journey we pursued our own careers for a while and then we're fortunate to find.

this, you know, to lay down the first idea that let us get to the second one that really let us build the business that BeatDap is today. And that happened over, you guys were at a bar, like what was the first conversation that sparked this idea? Well, we - I was everyone's weird crypto friend. So I would say like, that was the first thing. I started mining in pretty early 2011, 12, and then built - some trading stuff and was part of some foundation teams, but it was never part of my professional journey. It was just stuff I did on the side, like, cause I loved it. And I, uh, but I, you know, I was a regular tech person. I'd founded a couple of tech companies and sort of

done that thing. So I w I would say that I think that was the first piece because Morgan calls me one day and goes, what do you think about auditing on blockchain? And I hear about talking about what came to his idea. And I was like, you know, It makes a lot of sense because there's no trust here. I think the other common thing is we both went through the same schooling when it comes to frameworks of building a business.

So I think we also had a very similar approach. What are the problems here? What are the jobs that need to be done? What does the market map look like? Why isn't someone filling this? What information do we know that others don't know? Where did others fail? I think the first... three months were really just about us, like, ideating on why we shouldn't do this business and what are all the reasons or insights we have and if we're going to win, what is that trajectory?

Because there is a graveyard of dead music tech companies out there. So the question is, how do we chart a course that doesn't land us dead, but is actually the right one of solving this problem? And I think because we'd probably just gone through a lot of this exercise and A hundred different projects through schooling. It kind of felt like second nature, like almost like you're doing a school. You're attacking it with a structured, you know, approach to like what this should look like. And I think that, I don't know for me that I just remember being so clear before we'd ever written a line of code or even at a product person of like, why us? Why now? Why this problem? And I just felt so clear on what our journey needed to be.

and what the milestones like we knew we'd need, you know, ex partner to come in and we know we need this data set. Like we just had such a clear roadmap of what the business milestones needed to be in order for this business to work. And I think that those like post markers were a really great blueprint for like, you know, roadmap for us to follow. And I think we were very aligned on that from the beginning because we both.

really needed to be convinced that this was the business for us to spend our time on. We'd explored other things that we thought that, you know, in the past, if you talk about other things, it's not like it was like out of bar one day. We've talked about other ideas. We kicked around other apps. We've gone as far as building an MVP on something and then going, ah, that's not really the right fit. And just we've, we've sort of like worked with each other a lot over the past. So I think, um, I think we just knew that this was the right thing because we'd sort of cleared all of our own hurdles from.

our own sort of objective viewpoint of this business and why this business was needed. Morgan, I need to understand because when you look at Andrew's career, it's been, let's call it a hyper -entrepreneurial and always pushing the boundaries. And then when you look at your career, it's very much, let's call it step -by -step performance in like a career environment. That's at least how I read it. So it must have been a quite, big, that's called leap of faith for you to say, okay, I'm actually taking a leap of faith and pursuing this. Yeah, I mean, it was fucking terrifying. Pardon my French. It was,

it was scary. So I'll give you the rewind. I come from a mother who was a banker and had the same job at a bank for 45 years before she retired and did an amazing job and worked really hard, but was in a very sort of traditional corporate environment. My dad was an entrepreneur, ran an RV dealership, founded, sort of started his own company, grew it to be fairly successful over the years and always had that sort of risk taker mentality and that he was going to work for himself and he was going to win or lose on the sort of merits of his and his team's ability, but he was going to guide it. And so I had those two, I think highly complimentary, you know, parrot types growing up and getting to see the trade

-offs of both. When I went to Crestview, which was the consulting firm I started at, It was unlike most of the consulting world. I mean, we were only seven or eight people. It's now about 150 people globally. But at the time it was rather small and we punched way above our weight. Client roster when I joined was Facebook and Uber. Backward Uber was like really disruptive and the ultimate sort of government relations client you could ask for.

Tell us the telco, the music industry, the liquor industry, mining and potash, Perry Winston, the diamond company. Like we had this incredible roster of clients. and a very entrepreneurial firm, and at the time, three founders who all were making a bet on themselves. And so in a way, even though it was consulting, again, I was exposed to established company clients and founders of a firm who were making a bet on their ability to do the work and attract and retain really quality consultants. So that was really cool exposure, because it wasn't like going to Deloitte or KPMG on day one.

And being put into a fairly rigid framework of what a first year analyst would do to graduate to a second year to be on a partnership track over time. And then I went into Telus, and Telus is a much larger sort of traditional corporate environment. But government relations within Telus was a very small shop and functioned almost outside the sort of hierarchy of the company because it was so relationship driven. And you worked across functions. We'd work with the Telco team on, you know, wireless auction strategy over one period of time. And then we'd work with the healthcare team that was a startup within TELUS building, you know, the rails for personal health records and electronic medical records in the Canadian healthcare space. And so again,

Like it was corporate, but there was also a lot of flexibility within that. Ultimately, like fast forward a few more stops along the journey, moved to LA, got married, moved to LA, had my first child, was working at Zippercruter and the real sort of you know, make a decision one way door you have to either go through or not came after the birth of my second kid. And so when my son was born, uh, it was July of 2019, we really had to make a decision. Like, are we making a full go of this or are we going to go back to our day jobs? And I think that was probably one of the most anxiety inducing, stressful, exciting, certainly. And in retrospect, it's easy to put rose colored glasses on and

Just go like easiest decision of my life. But it wasn't because I had a one year old and a newborn. And I had a very comfortable, very good job to go back to at a wonderful company called ZipRecruiter or jump both feet in and do this. And so ultimately I think the team that we had, Andrew, Poria, like, you know, the sort of earliest employees that we had at that period. And then the support of my wife who was like, look, you're going to bet on yourself, bet on yourself, go for it. Like.

But you're not getting any younger and there's never gonna be a better time to do it than now. And I believe in the idea and I believe in you guys, so go. And so I think if I was gonna give a founder advice, it's like, marry well, find someone who's supportive, find someone who believes in you probably more than you believe in yourself in that moment, and then take the risk. But it definitely was a terrifying period that in retrospect was the best decision I've ever made. But in the moment, you know.

It wasn't quite a coin flip because I was leaning that way already and I had a few months, all sort of a paternity leave to think about it and decide if this is what we were going to do and if we were all going to commit. But yeah, there was definitely some element of like, you can't go back through that door once you go. And so yeah, that was, I guess it's a really long way of saying, was able to balance the bank manager and RV dealer.

Sides of my personality and ultimately land on better to bet on yourself and your friends and your team and the potential of building something, um, then to just carry on the ladder. That's amazing. And I think if it's up with you guys, we'll stay a bit at the terror because I really want to understand this best because what is so easy from the outside, you know, and now in 2024 and you read, you know, beat up a number one company and crunch bass within music technology and the 17 million series A round. You just like, this is easy. These guys just did it. Obviously that is never the story. So I do want to understand.

You launched this company, take this bet. Birthed with your second child, like you were a nervous wreck. I mean, the backstory here was we weren't really sure. Like in the very beginning, I had a bunch of free time and Poria was committed and this was early 2018. So there was about a year and a half before that moment came. And the question was, could we build the technology?

We didn't know. Like at the, keep in mind at the time it was an audit technology. Could we do a million transactions per second per region? That is what is required to have a scalable business. The fastest blockchain in the world at the time was 40 ,000 transactions per second. I think it was Visa. So the question was like, could we build something that was multiple times better than what is currently in the market? And that took us the better part of 11 months of R &D to get to where we actually had the breakthrough and said, oh, we found a strategy that works for this. We now have the tech. The second part was, can we get funded? So one of the benefits I had at a previous company was they'd forced everyone to use all of their own personal credit cards for purchases and I ran a really large department. And so I

Had millions of credit card points. And so the crazy thing is I remember using credit card points to book flights and hotels for a road show to basically go and find investors. And I actually thought this was going to be really easy if I'm being honest, because I'd raised a lot of money for other companies. And had some successful exits and situations that I really thought people would just throw money at me. I kind of felt like I'd walk into a room and say, look, we have a potential customer. Morgan had lined up like a real, like a label to be our E1 to be our first like real customer. And we, I felt like we have the customer, we have the team, we've built this amazing technology. I have a track record that you can trust in startup

Specifically that like checks the boxes the way that they, I would expect them to see. And it was not the case. Like I remember pitching and people just not getting it, people not understanding the music industry. Like so the first, you end up trying to pitch a business, but then you realize they don't understand your industry at all. So you have to explain why the industry is positioned this way, why it's relevant and why payouts occur. So then you're deep in the weeds of explaining how royalties work. So you have to find a way to simplify that for investors to understand. And it just was, this was the very first round we did was the hardest.

Round I've ever raised. And I think the sort of cutoff point for that with Morgan and I talked is I said, look, we just need, we either have the money by June or we don't. Like this was like January, 2019. And I ended up being able to raise the round within like a couple of months. I think we kind of had it cleared by April, April. And then the next big thing was we really were worried about the DNA of the company. So, you know, should we go to 500 startups or not? Because we had already raised a million dollars.

So do we really want to go to an accelerator program? But I think the view from Morgan and I were having spent both of us in tech companies in the U S was we wanted the DNA to be the DNA of like what it's like to grind, what a real tech company looks like. And, and a lot of times, especially in Vancouver, maybe not as much in Toronto or elsewhere, but in Vancouver, there's a really strong live work balance. People will come into work early. I'd seen this in tech companies being in Vancouver previously.

So you'd see people come in at like 6 a .m. and leave at two so they could go to the beach and barbecue for seven hours while it was still sunlight. So it was like a different mentality and I wanted our guys to understand that just because there isn't a music tech company in Vancouver attacking this problem doesn't mean there's not someone trying to eat our lunch in San Francisco who will happily work 20 hours a day. And so I think that they needed to see that and Morgan agreed and so we had decided to go to 500 Startups.

And make that sort of journey. And I think it was that moment of really when 500 was starting, when Morgan, that is the point Morgan's talking about when he is like, we're either in or out because we've raised the money, we have a team, we have a tech, we've done a lot of these big pieces, do we really believe in ourselves? Like, is this the moment? Like, a lot of people would say that they should have probably figured that out before they raised the money. I think a lot of that stuff.

Especially for Morgan, I'm happy to jump in the fire. Like I've been there. I've literally, I remember sleeping in a U -Haul once at South by Southwest because U -Haul is $19 a day. It gets unlimited mileage. And we were doing all these events and I would put all the event stuff in the back, drive it to the next event that we were doing at South by Southwest, unhook it, you know, do it all, sleep in the trailer. You basically can sleep in a U -Haul for $20 a day and get a free car rental.

Uh, like that I am, I'm a hundred percent. Okay. With not having money and going the distance here. So for me, there was, I actually had no terror. I feel very comfortable in that chaos, but I knew, I knew that, and I think Morgan, I'd been very communicative about this and this is where it's, um, interesting to have a backstory. I knew Morgan had all the things I didn't have in terms of like T -shaped skillset. Like he had a lot of things that were polished that I couldn't be.

He had a lot of unique viewpoints that I didn't have. I thought collectively we made a great unit. And so really the question I had was, are you willing to really go in with two kids and a wife and like really do this because there isn't, this is that, this is now the one way door you have to choose. And I can't make that decision for you. I'm obviously selfish and I'd love to shove you through the door and down the stairs to start up. But you know, like he's got to willingly come and I think.

I think that was the moment and he made, I think he made the right decision. And I think the whole company, hopefully together we've, we're a six year overnight success. That was exactly the quote I was gonna use. That was that and earlier when you were talking about music tech and it was like, the planes are littered with the bodies of pioneers. There's so many music tech, except for horrifying.

Place for so many investors. If they don't know it, it's confusing. And if they do know it, it hasn't probably been that fruitful. And so you're sort of like, you know, caught between and there are plenty of obviously successful examples, but there are so many horror stories that you're constantly explaining why this will be different either from what you've already experienced or this makes sense despite the fact that it's the most confusing system you could possibly architect to try to make a business in. I hear this consistently.

For founders of trying to build companies so successfully exit companies that narrative is just incredibly difficult. Obviously the series A is not the end story, but I do want to understand how you got there because that is you know for a music tech company that is a significant amount. So what is it that you did from the period of raising that round and as far as I understood a small round in between to then doing the series A that you must have proved something.

That gave some investors that confidence, okay, these transactions can get even bigger. I'll let Andrew talk about the fundraise on the A, but I would say the in -between period definitely was moving from the sort of blockchain -based audit product to what is now the core of the business, which is the streaming fraud product. And the milestones along the way that were sort of critical was one, successfully navigating the like quote unquote overly used cliche pivot.

Um, which can be a sort of the end of a company if not done well, or it can be a pretty awesome new beginning if done successfully. And I think we were fortunate to be able to navigate that. Um, and then it was just sort of proving out that market need bringing on some early customers. I mean, the moat, if you think about our business and it's sort of defensibility, um, one of the sort of key questions is like, why can you do this and others can't? And the reality is you need a very granular data set on day one to build the types of models that we've built.

To apply that same modeling to other customers. And someone has to take a chance on you as a company and make a bet and give you access to data. Because there is no API, there's no publicly available data set. You can't go and scrape a bunch of sources and the chart metrics and other places of the world to try to cobble together the data set that we needed to do fraud detection effectively. So we were very fortunate to have a partner basically trust us enough and trust our technical chops, trust our ability to safeguard their data.

To give us some historical data to build the very first version of the models that are now, you know, quite a few versions of the models that go, but were successful. Without that, I don't think the pivot would have been successful because we would have still been thinking about an idea that we had a lot of reason to believe was smart, but we couldn't prove it. And so that first data set gave us the ability to show one, roughly the scale of the problem. Not every platform is the same, but they have similar characteristics. And so if we knew that the fraud rate on the first DSP was, you know, north of 10%, we were probably going to see a trend persistent across other DSPs. And that gave us a way to validate the size of the problem, the size of the potential market. It gave us some sense of how we were going to have to staff the business if we were able to grow it and we're

Going to bring multiple customers on board. And then we needed a handful of other proof points, additional partners and customers. And I think that was sort of proven over time. And just that our ability to retain those early customers actually held up. We worked a pilot that then turned into nothing and sort of fizzled out. So we were actually able to retain the people we were working with early. And that got us to a place where we had, I guess, you know, for folks who understood the fraud detection space in particular, an opportunity to win the market.

And we were positioned then as having customers, having a business model that made sense, having a technical team that could deliver and really in need of rocket fuel to scale. Because music, for all the reasons we've talked about, but particularly because of the market size, it feels huge to us. It's amazing how much music is growing. But if you look at it even just within the entertainment verticals, music is the smallest of the gaming and film and television segment. Gaming, I think, is first, film and television, second, music is a distant third.

And so there wasn't really space in our category for a second beat dap to emerge. We really needed to go fast when we pioneered a category. We defined fraud detection for the industry. But if we wanted to be successful, we effectively had to win. If a new entrant came in that was better capitalized and had got their hands on the same sort of data set that we did initially, we could be in second place in our own category really quickly. And so that was sort of the turning point where, you know, we had clients, team, technology, a roadmap to go ahead and just basically the need for capital to grow as fast as we possibly could. And then we also were able to bring, and we can talk about this more later, but we were also able to bring universal music into the mix.

Along that path right sort of in advance of the series A closing. And all of those things taken together set up the preconditions for success. And then that's where Andrew's expertise and actually going and navigating fundraising environments, you know, he had the tools and the toolkit to go and do the work and was fortunate to sort of find the group of investors that we raised from. So I'll let him talk about the fundraising story a little bit more, but like the intervening, you know, between round one and the bridge and the series A was setting up all of the preconditions to say, we could make a bet on this company and trust that the outcome will probably be binary. They will either win or lose, but it's a bet worth making. And that's sort of where we needed to get to. Yeah, I'd say that.

The good news about doing this multiple times before is that you learn the kind of investors you don't want and you learn what sort of tactics work and what don't work and so I'd say that one of the things that I was really particular on in the beginning was making sure that we controlled our destiny when it came to fundraising, when it came to who was allowed access to even our data rooms, when it came to what we were raising and on what terms and so from the very beginning, I had a lot of things in mind. So when we did the first raise, one of the reasons we set the company up in Canada actually is there was a bunch of R &D grant money that I knew was available and a lot of free Canadian grants in general that you could stack and layer on top to reduce the need

Of equity -based financing. And so we actually ended up gaining a huge amount of money from the Canadian government across multiple different grants, which do the exact function like you. Get into market, you hire people, now you have people that are employed and you're, the end game for the government is more employment in Canada, which is exactly what we were creating while we were creating product market fit. So I think with that in mind, in terms of alternative investment channels, that was really helpful for us controlling. The other thing that I think a lot of founders make the mistake of is trying to fundraise when they need money instead of momentum -based funding.

So when you think about the way that we did the funding rounds, the first round was really about moment, like this is our idea and why you should bet on us. The second round we raised three months later and it was on momentum. Love what we've accomplished in three months. All of you who didn't believe us now should get in now. So when we finally closed that second round right off the back of the first round, it wasn't like a small extension. We went from like four to 20, like it was like a huge jump. So it wasn't like we went four to six or.

Six to eight or eight to 10, like we did a whole nother round at a different valuation three months later when we probably didn't need the money. But we knew Morgan and I from all of that early analysis I talked about with what we were gonna need to do, we knew that we probably needed three years runway because anything in the music business is gonna take three years to like really seep and gain adoption. And so from the very beginning, the prop, the question was, how do we fundraise when we have momentum?

How do we conserve our capital as frugally as possible so that we have runway so that we can build that adoption? And then when is the time that you flip the switch for the next round? So we were really lucky at getting those first two rounds done off the bat, getting a bunch of free government money over the time period. So even when we did this series A, we had a year runway still. Like we were nowhere in like, and there was a real chance we could hit profitability without actually having to fundraise.

But the question became to Morgan's point, how fast do we want to go and how important is it to be the market leader and win the entire market quickly? So when we talked about all that, you know, another benefit of having done this before and Morgan coming from like, you know, the more entrepreneurial background in terms of like some of the startups within bigger companies that he's basically worked at that are now bigger or even at Crestview is that the thought was if we know it's a winner take all market and we know that we're going to need to eat, we...

We want to go faster and accelerate and win that market as quickly as possible, then it behooves us to take more money now. And we have a investor pool now that has been built that really wanted to push us to go faster. And we were always in a position that we got to choose when we flip that switch. Now the first round, truthfully, like I said, hardest round I've ever raised in my life out of however many fundraising rounds I've done, that was the hardest, that round was the hardest. This round, was difficult because you're dealing with like nuances in terms of, you know, deal points, but it was like momentum -based investing that we have UMG here, we have all this proprietary data,

We've proven that we can stop fraud, we've proven we're better than anyone else at doing it, we have hundreds of models already developed, and if you think about it, when we first went to Partners and said, we think you have a fraud problem, let us help you, the answer was, what fraud problem? So when we started showing them the fraud problem, there's a credibility and trust that's built with your partners. When you're showing them something about their own business that they didn't see or didn't know, and all of a sudden you're helping them solve that problem.

You didn't just point out a problem, you came with a solution. All of a sudden you quietly win all these big logos and you become, whether people know it publicly or not, the back room doors and channels of everyone talking are like, those beat up guys are legit. Like, oh, you're having this issue, you should go talk to beat up. So even if we didn't necessarily shout it from the rooftops, our customers or the people we were targeting knew who we were, that we had been validated, that we were from the industry solving an industry problem, not an outsider trying to solve a problem that didn't exist. I think all of those things lined up to us saying now is the time and we have the investors to kind of pull the trigger. And so when we finally pulled that trigger, initially we only wanted 5 million.

We, uh, it was not, we weren't trying to raise them. In fact, if I could go back in time, I would have changed our valuation. Cause the, the miss I had was, uh, obviously how much we took at that value. So, um, we really only wanted to have five and keep in mind, we had always controlled the board. No one was on our board. We didn't owe anyone anything. We kind of controlled our destiny. We had the cash we needed. We had a pathway to profitability. If it didn't work out.

And we kind of knew what the friction would be and whether or not we'd reach the milestones that were required. And if we had a real shot at winning this entire thing. So all that to say, I think the previous experience, at least from my end of raising and sort of just knowing if we could get this across the line or not, I felt very confident we could get a round done. I did not expect it to be as big as it was. I think we ended up at the...

As is with investors, a lot of times everyone starts piling in and you start being like, oh, well this guy can be a value add. I mean, it's public, but one of the best investors, but you know, one of the ones I'm most excited to leverage in the future or have help from is this guy named Jamie, who he built Verifin, which is the, the really huge Canadian success story. They sold to NASDAQ, I think for just under 4 billion Canadian and they are fraud detection for the finance industry.

So when I talked to him, he was like, your business is exactly our business. Like you have a bunch of big players that control the market. Uh, in our case, it was government that mandated it. You're dealing with a tech stack. He's like, let me guess, this is how you transform. This is what your models might look like. And he was pretty dead on with all of it. And so I think that our view was, was not just about money, but was really about how do we become this major brand and win this entire category?

And do we have not just the team, but the investors behind us to make this happen? And so again, the series A looks big on paper. I'm enough of a veteran to know that we're still at the starting block. I think I always say a funding round gives you the opportunity to compete and now it's our job to compete. And I think that it doesn't mean you've made it. Like I have no illusions. I've raised way more money and failed. So that's not, that's definitely not my.

my marker of whether we've made it or not. I just happen to believe as I'm putting words in Morgan's mouth too, that we will be a multi -billion dollar company. And I think that this is more importantly, solving a problem for the industry that is very needed. When you think about the billions of dollars being stolen from artists and how we're well positioned to help each individual platform. No streaming platform wants to be the FBI of streaming. None of them want to go and build and spend tens of millions of dollars trying to combat this problem. It is better to have a centralized service.

that can look across the industry, like keep these models up and say, oh, look, there's a new type of fraud popping up here. We should defend everyone at once, not wait for it to cause a bunch of problems and then try to react. So I think that we've just been well positioned and now well funded to sort of make that happen.

I'm going to create a hypothetical scenario because I have a hypothetical question that I believe is quite important. And that is, you said to yourself, investors experience with the music tech industry, maybe generally speaking, hasn't been the best. And you know, there's many aspects of why that is. When and when you succeed, whatever success means, but let's just say when you do something that has significant positive impact to investors.

how do you see the general investor network thinking about music tech in a different way or will they at all? Like in that aspect, which is a global issue, do you think you will contribute with your success into that narrative or like how does this work? I think everyone does. When you think about like the B2C side, you have a Spotify take off or one of these big platforms that takes off or even, you know.

to some extent, AI generated music that consumers like or they're using. Like whatever the thing is that's consumer, when one takes off and it does well, I think investor sentiment tends to follow and say, oh, there is a market here. The problem I think a lot in music tech, if you're an outsider, like, and you get someone's deck, I've invested in a lot of companies as well. So like, I kind of, I'm putting my investor hat on. What you see is like this advisor page, team and advisor page.

And almost always there's someone from a major label, some are from a streaming service, some are from artists management. They all seem important. They all have some connected tissue to somebody who's important. And what's interesting when you see that from an investor side in music is if it's your first one you're seeing, you're like, wow, this team has got it. They've got the reach. They've got this connection here, here. Then the company fails or you see a hundred others that are basically the exact same thing, but with a different person.

because these organizations are large. There's going to be a ton of VPs. They're all doing different things and you know, in different departments and have interconnected tissue. So, but decisions don't get made by one person in these organizations. Like it has to be aligned for every department, for their resources, for their time globally in different regions. So even one person isn't necessarily going to be the catalyst the same way it would be in a B2B SaaS company or enterprise business.

where you're like, oh, I have a deal with Chime or a deal with Stripe and the CEO is behind it or the CEO of YouGov's on board. Like you just can't, that is a very different scenario than when you're going into an industry with well -developed incumbents with thousands of employees. But if you're an outsider and you look at that deck, it seems like they have an inside scoop. And I think that's really hard for someone who's not from music to understand.

how legitimate is this team and how legitimate is this traction? Because often the only way that you know is money. Do they make money? Do they not make money? How much money are they making? How fast are they making that money? And so if you don't have those things, I think it's really hard to tell that story in the beginning to people who don't know any better because you just look like, like not credible yet. Like they don't know how to judge what that means. Like does this person's logo and this person's...

mean anything to this or not because they've been burned or because they haven't. So to answer your question full circle, I think the more that there are winners that aren't just consumer facing, the more that there's like lending applications like you brought up Scott before. So the more that, for example, that there's like applications that allow artists to cash in on royalties early with some revenue splits, like with Jukebox or whatever, the more that there's other applications within the music world.

that create real platforms with real substantial venture backable outcomes. I think that opens up the door for other investors to think that the impossible is possible, that it doesn't just have to be a streaming app. It doesn't just have to be an admin rights company. Like there are lots of pathways here to sort of create value. And I think that the more companies ideally like BDAP that grow and sort of...

build themselves into this space, I think the more doors and opportunities open for everyone else behind who's trying to show that it doesn't just have to be the creative side or it doesn't just have to be some admin side for you to make money. That was a great answer. I would add one note on that, which is I think the thing that I'm excited about for sort of the next generation of music tech companies, and I like this as a hypothetical because I...

think we are still, you know, like Andrew said, we're sort of at the starting blocks of an exciting journey. But if I put myself on our shoes 10 years from now, hopefully someone is saying I'd like to be the beat dap of X. One of the things I hope that sort of us and other companies like us open the eyes of the investment community too, is that there are lots of opportunities in music that aren't like zero sum, we're going to take some market share at the expense of somebody else. But as music moves more and more online, like so many other industries, there are opportunities to grow the pie. And...

you know, in our case, our business is protecting the pie, which is an important part of it. But that growing pie and all of the different ways music is being used across the internet online, whether it's in applications or new derivatives of streaming or opportunities for traditional things like sync, but just that internet scale. There are just so many ways to grow the pie.

And I hope it gives investors some comfort as they look at music, because I think it's one of the most exciting verticals on the planet and still one of the best deals going. There's no... better deal to me than music streaming. And I think there's a ton of monetization still to follow. But I hope it gives investors some comfort to say, like, yeah, it's actually worth revisiting music because we've seen instances of not just company A stealing from company B or vice versa, but actually growing the pie entirely. And to the extent that we can be part of that, very cool. I don't think we're there yet. But like I said, I hope a decade from now someone says, we're trying to be the beat dap of X. And I hope we get a chance to invest in that company.

And all of our employees. If our employees go and start the next thing, you know, like I would love nothing more than have the BDAP alumni network that we all just sort of invest in each other's things and they go build really cool stuff. And I always tell our employees if they leave us to start a company, we hope they pitch us first. Because I would love to invest in all the people that work with us. So that's amazing. Well, you guys, just sort of soon ending the episode, you've been so generous with your time.

I do want to stand though. What is the motivation for going all in? Is it a legacy thing? Is it simply the process of the nature of wanting to solve problems? Maybe if I can have an answer for both of you. Like what is the intrinsic motivation to being on this journey?

I've got like for me there's two, there's one that's sort of personal and there's one that's more, you know, to the music community as a whole. The personal one is the idea of building something that's enduring, that has value, that employs a bunch of talented people where you get to work with your friends and, you know, turn colleagues into friends over time, but also build something that's really valuable and serves a market that's, you know, important to you, to me. That means a lot. So like the...

I think the primary motivation is the desire to build something awesome and to actually build it, not be just part of something that was already built. The other one for me is, you know, I knew academically kind of going into this from my early work, that music was a hard industry to make a living in on the creative side. I didn't fully appreciate how many places there are for dollars to just fall out of the pipe along the way and for artists who probably have the talent and the sort of tenacity to succeed, just don't get a fair shot because the economic conditions aren't conducive to a career. And so, you know, protecting the pot of money that artists legitimately and rightfully earn has started as a,

that seems like a good thing to do. And as I've gotten to know folks in the industry more and more, realized it's like more of an imperative than ever. And so the motivation of being part of, you know, protecting artists' livelihoods and seeing you know, folks from all kinds of backgrounds and all kinds of parts of the world have an industry where the conditions are there for them to be successful and they don't have to take three side jobs and not fully commit to their art is really valuable and important. And so those two things I think are incredibly motivating and, you know, live on well beyond the like success or failure of a given day. Like, you know, that's sort of the aspirational target you're building towards both personally and then professionally for the industry. Thank you, Morgan.

For me, I have a couple luxuries at this point in my life. And one of them is the, I'm not stressed about whether or not I can survive. Like I could quit and not do anything and be totally fine. My internal driver is that I actually love solving problems. And I love the challenge that comes with trying to build a company. I actually love the early stage the most because it's the most unpredictable. And I remember when I, When Morgan, I first talked, I was like, I hate the part when I'm doing one -on -one skip level meetings with people and we're talking about HR, like that is not,

I want to be the like sniper, like special teams that is just trying to do some sort of scump works project. Like I love to solve problems and see if they're scalable and try to put the puzzle together and figure out how the pieces work. And I think for me, This has been a very challenging company, but also such a fun and rewarding one to try to solve that problem. And I think the more that we solve it, the more problems we see, it gets me excited to keep going. And so for me, it is really intrinsic, like this drive to accomplish and complete a challenge. And like people will always tell me like, I don't know how you, you seem

just as excited about dentistry. I'm like, I don't actually care at all about dentistry. But the problem of our model and how we were growing and how we were going to scale that, that was like exciting to me. It's like, can I move these pieces around? How does this puzzle fit? And so the same thing here is that, you know, this industry is very difficult. It's there's lots of opportunities as Margaret pointed out for us to help different segments of the industry. What are all the places that BeatDap can be helpful? What are the artists tomorrow that will be?

that make just enough money to help produce the next album because our fraud detection platform existed and they made X percent more money and that allowed them to own more rights. And there's so many potential knock -on effects that I just love all of the pieces of that and the challenge of that is truly what drives me. I wake up thinking about it, I'm drawing stuff on walls, I wake up sometimes at night thinking about an idea, like I absolutely love it. And the more personal side that's not that, that I just joke about because Morgan and I have this commonality is I always said, I hope we meet Garth Brooks one day because we solved fraud. Like I hope that we build a

business that Garth Brooks goes, holy shit, those beat up guys are amazing and I have to meet those guys. And so, and like not a lot of people know Morgan and I's first concert completely separate was Garth Brooks. Like, love Garth Brooks, he is our pick. He's my favorite artist. I think she's Morgan's favorite artist. We love Garth Brooks and so like casually Serendipitously, I hope one day like Garth Just goes I've got to meet those beat -up guys Those beat -up guys are the guys and I will have felt full circle like we have done so we have delivered, you know We're using my dog's name is Garth

And I'm going to see Garth Brooks in Vegas this weekend So yes, there is a through line of Garth Brooks in our life that is like forever and always there So that's the that's the last thing in life. That's the validation from cars. No, I get that. That's a that's a good dream Thank you guys. This has been amazing. I thank you so much for sharing your story. I really hope that you guys are Sprinting fast out of the Starbucks as you define it yourself I think it's amazing that we have a company in the music industry. That is so progressive with building something so big and ambitious. I think we all need to look towards that. I think it's important for founders. I think it's important for the industry. And I think it's important for the investor community. So thank you for doing it. And thank you for being

in the podcast. And I hope to see you in person one. Yeah, I'm excited. Thanks for having us here. Thanks for having us. This was great and a very different conversation than we get anywhere else. So you were right off the start when you said that this would be unlike any other podcast. This has been wonderful and I know this comes at the end. So at this point they've already heard it, but like definitely one word. I'll edit in the start. It's perfect. Thank you so much. Really? You should. It was, it was really well done. I'd never heard the answer before. Like as an example was Morgan talking about the, he's never, I don't think he's ever been asked about like his corporate structure progression and just hearing him just talk about, I've never heard that answer. So like

hearing about how press view was a, you know, a handful of people, which is a now a huge fur. and how he was a startup within Alart. Like all of that I also learned through this process. So it was great. This was like one of my favorite podcasts we've done for sure.