“We are an artist-centric model that is poised for success,” Karen Chiftalaryan talks about Show4me platform

The Show4me Music Interaction Network, founded by a Ukrainian of Armenian origin, Karen Chiftalaryan, has raised $27.5 million in investments. It is a social media where fans can interact with musicians working based on the artist-centric model: on the platform, music artists create their artist clubs, attract fans, share with the audience their pieces of art, sell merchandise and concert tickets, organize live streams, etc.

Show4me provides a unique business model — all subscriptions for artist clubs have a fixed price of $1 annually. Fifteen percent of it is the company’s part, and the rest belongs to an artist. By doing so, the musicians can monetize their fan bases far more effectively than on Facebook, Instagram, and other social media. The startup’s founder and CEO, Karen Chiftalaryan, believes this unusual model is the core of his project’s success.

The startup is rapidly growing and getting presented in new markets, attracting partners and musicians. Even Madonna herself is on Show4me, but she has not created an artist club yet. Currently, Chiftalaryan added, the company is in negotiations with other stars. The editor of AIN.UA interviewed Karen to find out how he came to the idea of such a product and how he managed to convince investors to spend tens of millions of dollars financing his project during the pandemic and time of uncertainty.

Karen Chiftalaryan. Photo credit: Danil Privet for the magazine AUGHT

How did you come to the idea of Show4me?

I have a diploma in banking and, as an investment banker, I had to do with investments all my professional life. However, since 2014, the investment climate in Ukraine has dramatically changed, so my business partner Yurii Lesyvyi and I must have made a pause in our activity. As a result, I left the job and decided to do something else.

One day, my British friend, a promoter, came to me. He offered to make a 1990s retro show at the Kyiv Sports Palace with famous music stars: Dr. Alban, Corona, Mr. President, Haddaway, and others. At that point, I wasn’t aware of the show business, especially the concert business. I started to learn it and found out that it is very risky. To organize such an event, you need to attract at least a $200,000 investment. I wasn’t ready to invest in this project, and then my friend decided to find at least 20 people prepared to invest $10,000 to collect the whole sum.

My idea was to create a kind of fund where people can invest their money and get “super tickets,” including meeting with artists and other bonuses. And if the show is successful, they could even make some profit.

So I began working on the structure of this fund. At the same time, another friend came to me and offered to create a service like Kickstarter in Ukraine. I didn’t know anything about crowdfunding and Kickstarter in particular. Still, after I deeply learned this topic, I liked applying the crowdfunding mechanics in our concert idea — to organize a concert without risk, with presold tickets covering the total budget of the event.

For example, an artist may have poor ticket sales in some cities during a tour. It is a common practice in the musical industry. First, it is a reputation and mental damage to the musician; second, it means losses for the stakeholders of the future show.

The model I offered neutralized all those risks thanks to an open concert date and the ticket presale. For example, we run a campaign under the title: “We will bring Madonna to Kyiv if we collect $100,000.” After that, people purchase tickets until the total amount hits the required sum, and then the promoter gets his first bonus from our portal and the budget needed to cover fixed costs: concert hall rent, artist fee, PR campaign, etc.

I and my business partner, a friend of mine since childhood, Anton Solomko, believed in that idea and developed the first version of the website. That is how we succeeded in making dozens of concerts. Then website users asked us: “Why we cannot post photos of the concert?”, “Why we cannot comment on it?” etc. At that point, several new partners joined us, and we decided to convert our musical business into a global one.

Photo credit: Danil Privet for the magazine AUGHT

We started building the Music International Network. Our idea was to create a social media for musicians and their fans to interact. According to the B2B2C model, there are PRO accounts where the users can communicate for specific tasks. So, by producing music, merchandise, and other music-related stuff, they can focus on their audience through their artist clubs and directly promote their “products” to the end-users.

In 2015, we registered a legal entity in the United Kingdom and started implementing our idea into the Show4me Musical International Network.

Why did you register in the UK and not in Ukraine?

Unfortunately, our national legislation doesn’t provide enough protection for investors. If a company is registered in Ukraine, it is nearly impossible to attract investors. I knew it pretty well as an investment banker. However, we didn’t plan to focus on the Ukrainian market because it is too small compared with the USA and Europe. So, we chose Great Britain.

This country is better in many aspects such as finances, taxation, and others. It is more about organizational issues. We worked hard with our lawyers to make our business maximally comfortable and transparent. Because if it weren’t transparent, any investor would have interest in it.

Please, tell me more about financing Show4me. How much did you personally invest initially, and how did you get your first foreign investor?

Initially, my business partners and I invested about $600,000 of our own funds. In 2019, we received €11 million (about $12.5 million) from an investor in Great Britain. It is a British company doing business worldwide. There are different products in its portfolio; it is an Internet project holding.

At the moment of the investment, we haven’t started. Actually, we haven’t had any traction yet. The platform was 95% finished but not published online. We got MVP investments.

During the second round, we received $15 million from a German company at the end of 2021. The first-round estimate was $60 million, and the second-round estimate was over $100 million.

How did you convince the investor to believe in Show4me? It is a unique project.

You believe in a product if it has specific parameters required to believe in it. I created my own “hexagon theory,” an investment attracting theory described in my book that I will publish soon. Now you may see a lot of cases like “let’s make a square pizza and call it a startup.” I know I hyperbolize a bit. But the thing is that people don’t do market research, don’t study the competition. They just take an idea that sounds great in their opinion, and they don’t know that there is already plenty of such products in the market. So, to find a really unique idea is pretty hard nowadays.

But we did it. Show4me is an alternative for the existing music streaming model that covers 99% of the needs of the music business and provides promotion and monetization tools.

And then, my business partner and I worked with businesses as advisers all the way. So we knew all the details of the “right” cooperation with an investor and how to awaken their interest.

Does it mean you can speak to investors in their language?

Yes, we like to think so. During my whole life, I attracted investments for others. But those businesses were some plants and factories, not IT companies. However, both of them are businesses and work on the same principles.

Even with a good idea, the main problem with attracting investments is a wrong structure, starting in the legal field and ending with a failed approach and a founder’s misunderstanding of how to estimate the company. It happens not because of someone’s stupidity but because of the lack of experience. 90% of startups are run by guys who have different expertise: they are not lawyers, not financial experts, not investors, but just developers. They can brilliantly manufacture but have no idea how to cooperate with the investors, structure the business, and work on daily routines.

We are not IT men; we are investment bankers. Thanks to my 20-year experience and the experience of my business partners combined with a great idea and start capital we invested from our private funds, the first round was not as hard for us as it could be, based on the stories I heard.

For example, my friend Anton (I met him when I was three years old) and I were in love with computers as we were teenagers. Our small job was website development. We were not superprofessionals, for sure. In the late 1990s, when it all started, there was no Facebook, no payment systems. As a result, we now understand how it works. Thanks to that, we created an IT startup, most likely.

Due to such a combination of experience and knowledge, we could structure everything right, register all the required patents and trademarks in over 50 countries worldwide, and become professional managers in general.

What did you patent? And why?

We protected our model in the USA — a Business Process Model. Unfortunately, you cannot patent it in Europe and many other countries, but you can do it in America.

Plus, the trademarks. The Show4me trademark and our logo should be protected from the very beginning. I have an example explaining why it is essential. When we uploaded our Show4me app into Apple Store, 5-6 weeks later, there was another app with the same name — Show4me. The goal of the application was different, but the name is critical because people will search for Show4me and get two of them. It means your advertisement will be partly supporting the product that is not yours.

One paper confirming that Show4me is a registered trademark was enough for Apple to block another app within only two hours.

How did you determine the sum for the first round? What were your plans, and how did you spend the money?

Our technology is complicated. It is a big portal localized for different countries in many languages. Everything runs on microservices with advanced technologies. About 50% was spent on the development.

Photo credit: Danil Privet for the magazine AUGHT

Then we also needed a lot of money for legal issues. You know the music is a very pedantic discipline connected with different rights: related rights, mechanical licenses, and other rights. I don’t remember them all. And the lawyer services in the UK and the USA are pretty expensive.

There are also bookkeeping and many operational costs. In some countries, you have to deal with ticket sale licenses and fix several legal issues. And, of course, we run ads.

When was the second round? Why did you need a new investment?

The money we received after the first round was enough for two years. We are in development and implementing new features. If you are in the IT industry and bring nothing you with time, you will lose anyway. A lot of projects died because of that — MySpace, for example. hey chose the wrong strategy and became totally useless. We are constantly in development: we build our metaverse and virtual artist clubs.

The offices in London, Berlin, the United States, and Vietnam also cost money. It was expensive.

We are seriously working on souvenirs and merchandise — caps and T-shirts that the musicians sell during the concerts. It is a large subproject within Show4me. We haven’t published it yet as well as the metaverse. But it is already finished. It requires a significant amount of resources.

Software development is not a cheap thing. We decided that we needed to start another round. In December 2021, we got another $15 million from Germany. Most likely, in 12-18 months, we will run a new round. According to my plans, we will receive $50-60 million.

How do you choose investors for Show4me? What are your requirements for your business partners?

First, I don’t like to work with investment funds. I know what the funds are and what conditions they prescribe in their agreements. That’s why I am orienting on the investor who is really interested in my project, and not those who seek for 3x, 5x, 10x profit after exiting the project in 3 to 5 years.

Second, our first and second investors mean smart money. They have required expertise and contacts with added value for our development.

And third, I always check the reputation of an investor.

You may find a lot of investment funds that say they are super-multi-venture investors, and 80% of them are a scam. They can promise you one thing and then disappear or seek more funds.

Did you come to investors with an idea, or did the investors find you somehow? On the other hand, did anybody refuse to invest in your project?

For the first round, we came to them, of course. Then, during the second round, they came to us. It was very nice, especially after we got many “no.”

We started the second round in the middle of the pandemic, and various funds that almost sent us a commitment letter just paused everything. It was unclear when the pandemic would end or if it would have an end at all, which markets would be demanded after it, and which not.

We got many refusals, and it is OK for the first investment round.

It doesn’t work that you come, tell your beautiful story, and then they all run to you with their money. Maybe, in a movie or training “How to earn a million,” but in reality, no. In fact, nobody will give you money just so. Attracting investors is a big work that requires professionalism.

Why don’t you disclose the investors?

I don’t want to let them down. Once I disclose the investors, 25 million money-seekers will start sending them 500 million emails at once. That’s the only reason.

Considering that you have 11 business partners, could you say how the shares are divided? Does anybody have the majority interest?

We have three core investors — me, the first investor, and the second investor. Initially, I got 100% of stocks; after the first partner came, we split it by 50/50. Moreover, our workers have options from the very beginning. With time, the shares become smaller and smaller, and now nobody has the majority interest. As CEO, I make board decisions, and the shareholders decide through voting. Considering that everyone is interested and motivated, we succeeded with our project.

Many people may not like it and don’t understand, but it is better to have 10% of a company, which is valued at one billion, than 51% of a kiosk somewhere in Troieshchyna [Editor’s note: an outskirt of Kyiv].

You said that besides London and Berlin, you also have an office in Vietnam. Why this location?

Yes, we have recently opened it. We had some plans for the Asian market. And it so happened that we met a partner who had the necessary relations in the Asian market and lived in Vietnam.

But it’s a long story — we need a separate interview about opening the office in Vietnam. It’s just a different world there — the mindset, the approaches to business, the approaches to everything. It’s very interesting. We have a totally different mentality.

The office in Vietnam is a marketing office promoting the Show4me market in Vietnam and other Asian countries, except China, because China is also a completely different word.

Which markets are you focusing on?

We don’t work with Eastern Europe. Yes, you can visit our portal and listen to free tracks, but you won’t buy anything. We are concentrating on the US, the UK, and Germany. We are also entering some Asian markets.

Ukraine is on our list too, but we don’t know when it will happen.

What are your paid and free features?

A crowd of musicians create their artist clubs and upload their music for free. So, anyone can listen to it without any cost, create playlists like on Spotify or Deezer, and enjoy the music online. The artists choose what they want to publish for free users and paid subscribers.

All screenshots in the interview: AIN.UA

Only for a dollar, any user can get one-year access to all music of the selected artist and unique content unavailable to free users.

One of the paid features is ticketing, which means selling tickets. There is simple ticketing: someone creates a ticket sale company, promotes events on their page, and sells the tickets. And there is ticketing we invented. For example, someone sets a minimum number of tickets with open date: “I will make an event if you buy 20 tickets.” If an artist fails to sell the set number of tickets, the users get refunded.

Our platform became a popular place for performing virtual concerts during the pandemic. You buy a ticket for a virtual event and get access to the live stream. Then you can also make donations to support an artist, text via chat, and get responses from the performer. We didn’t think about it before the pandemic, but after all the concerts in the world had been canceled and everything switched to online, we needed to adapt as quickly as possible. And the result was pretty good.

Another way of monetization is selling the music tracks in the FLAC format, in excellent, lossless quality. It is more for audiophiles who possess musical devices worth $15,000-$20,000 and can actually feel the difference between a 320-kbit MP3 file and FLAC, or WAV.

We are about to sell merchandise soon. It is not available yet.

And the last thing is our metaverse, where virtual artist clubs unite people like computer games, where they can walk, talk, and watch a concert in 3D space. They can also buy various virtual jeans and T-shirts. It is also a way of monetization.

There will be mechanical license distribution. We have finished it but are waiting a bit to announce the launch of a new feature.

Are virtual t-shirts your own development? Do you involve other services?

Everything except the payment system is our development — this is the principle of the company. We make everything ourselves from scratch and have full rights to everything we use.

The third-party services we use are Google analytics and the payment system. At the same time, we plan to make our own payment system in the future.

What famous artists do you have on the platform?

We even have Madonna. Unfortunately, she doesn’t run her own artist club yet, but she has a lot of fans because she’s Madonna. There are a lot of mid-level British musicians.

Now we are negotiating with several very famous artists. Unfortunately, I can’t reveal the names until I sign the contract because I might get it in the neck.

At the moment, 99% are mid-level and emerging musicians. There are no superstars except for Madonna. But we plan to have 30-40 of them by the end of the year.

How fast is the platform growing in terms of users, artists, and paid subscriptions?

We have about 3,000-5,000 new musicians registering a month. There are about 60,000 active users now, and musicians attract them to the platform. They can’t monetize anywhere else the way we do. If they launch an online or offline concert, of course, they post that information on Facebook and Instagram, where they say, “come to my concert.” People come, buy a ticket, see the artist club, and as a result, they sign up. In other words, it’s a perfect cross-sell for musicians.

Currently, there is about 10 to 15 percent of paying users. That’s a big enough percentage. People come to see specific artists, and the likelihood that they will pay again is high.

How do you attract artists to your platform? Do they need to pay for Show4me?

The ads on Facebook, Google, and Instagram are directed at beginning musicians. We work individually with every star.

The platform use is absolutely free for artists. Any musician can register here and start their own business with Show4me.

The $1-subscription is a significant advantage of Show4me. Users pay only a dollar and get access to all the content of the artists they love. It is far more profitable for the artist than any kind of streaming.

For instance, to generate $1,000 on Deezer, Spotify, YouTube, etc., you need about 400,000 views. In order to generate those 400K views, you need about 120,000 subscribers. It means that an average listener listens to an artist three times a year. You can check the public statistics of Spotify. To generate $1K on Show4me, you need one thousand fans. E.g., an artist with 100 fans would prefer Show4me because it is more profitable than any streaming model that pays for the number of views.

On the other hand, we provide musicians with accurate market research data based on money calculations. The performers have a problem — nobody knows the exact numbers of fans in different countries. Because anyone can follow and like you on Facebook, it is not your natural fan base. If a person paid one dollar on our platform, they would likely attend your concert. They are real fans, not just numbers. Based on our experience, the artists with 50-60K followers on Facebook sometimes cannot sell a single ticket for their virtual concerts. But there are also cases when people with 500 followers can sell 200 tickets without any problems. It is a very significant moment for the music business. With only one dollar, we distinguish real fans from bold numbers.

One dollar is a low entry level for users. But you may listen to only one musician. What is if I want to use Show4me as a streaming service? Will I need to pay more for subscribing to all whom I love?

Of course, not. According to our statistics, people follow 30-40 bands. Yes, they do not subscribe to billions of different bands or performers. Although you may like listening to the radio without paying attention to the tracks you hear there.

On Spotify, you should pay $10 a month and can listen to anything — billions of songs. But first, you will never be able to handle a billion songs. Your entire life won’t be enough to pass through all those tracks on Spotify. And second, Spotify provides only music; there is no exclusive content from musicians.

Let’s make a calculation: $10 per month results in $120 per year. For this money, you can subscribe to 120 artists on Show4me and get music and other content for fans. I doubt if 99% of people can make a list of 120 favorite bands or performers if I ask them to do this. Not to speak of the ability to listen to so many musicians.

That’s why we have such an exciting niche. We are not like Patreon, where people pay $20-$30 a month for the content. We are not like Spotify and Deezer, where a subscription costs like your monthly Internet bill. We are an artist-centric model that is poised for success.

And that was not my words. That was what the top actors in the music industry said. So we first implemented the unique one-dollar artist-centric model.

Could you evaluate the volume of this market?

In the past year, the total volume of the world market, including the music, tickets, merchandise, and other related stuff, was over $80 billion. Our main markets: the US — $10-15 billion, Europe — another $15 billion, and Asia — $20 billion. The numbers above include only the music and concert tickets. You can also add merchandise and preorders.

We cannot estimate the artist-centric market at the moment because we are the only player there.