Global venture capital investments are at a six year high and technology continues to encroach on the domain of entertainment and media. We have net radio, TV and print news increasingly available online. Even actors and movie industry veterans have moved to create both their own online distribution outlets, and their own brands of online content. Think Will Ferrel’s Funny or Die, the Coen brothers with 60 Frames Entertainment, or Jerry Zucker (of Airplane fame) with National Banana. It makes sense, given all this to see Hollywood jumping deeper into venture capital, private equity and early stage investment.
Earlier this week, PaidContent discovered the latest entry will come from Hollywood’s elite talent agencies. Creative Artists (CAA), the biggest of the bunch, is reportedly raising $150m to $200m for venture investment in digital entertainment. They are seeking funds from traditional limited partners like pension funds and being advised by experienced Silicon Valley VC’s.
Because of quiet period rules designed to keep fund managers from making public solicitations, nobody involved has been able (so far) to provide direct comment.
There is some buzz that the Palomar partners, Brian Garret and Rick Smith, will play a leading role. That hasn’t been confirmed. Both, according to the original PaidContent release, were raising their own fund before getting involved with CAA.
Elsewhere in LA, rival agency International Creative Management (ICM) is also reportedly looking to put together a fund of their own. Their CEO, Jeff Berg, has been on Oracle’s board of directors for a decade and is apparently seeking guidance from established technology executives.
Hollywood investing early in technology isn’t really that unusual. Disney’s long had an affiliated venture capital arm in Steamboat Ventures. They also recently stepped up their M&A activity. Hollywood from actors to former executives like Michael Eisner have often put their money into startups as angel investors. Through Tornante, his investment vehicle, Eisner’s backed video startup Veoh and others already.
What’s a little unusual now is that it’s talent agencies jumping in. Then again, setting aside the Entourage-like image of what they do and looking at their businesses more closely, it’s not too surprising either. Agents see lots of young talent and young opportunities but they also spend a lot of time working with corporate entities on business development, marketing and promotions; especially in recent years.
The agencies also haven’t been entirely hands-off on tech investments either. Funny or Die, a comedy video site founded by Will Ferrell had help from Creative Artists (CAA) before Sequoia Capital funded them. Rumor has it CAA also lent a hand getting the funding process sorted out. High profile IPTV company Joost went so far as to hire CAA to work with them last May. United Talent Agency (UTA) and William Morris have been investing in startups too.
100 to 200m these days is a pretty small fund. Under a typical 2/20 structure, it will take a 2 percent management fee and 20 percent of profit return. Structurally, a reasonable guess is that the contractual duration of the fund partnership will be somewhere between 7 and 12 years.
As many as 5 or 6 partners could be directly involved. More for a fund of this size is unlikely given the need for the management fee (2%) to cover much of operating expense. Depending on focus, each partner might manage anywhere from 5 to 10 investments. If 5 to 6 partners proves accurate, that in turn would suggests investments could fall in the range of $2 to $5million.
Smaller, even sub million dollar, investments could also be possible but are less likely. With lower investment sums, the fund would require more deals to place its capital. That increased deal would mean partners would have a larger slate of investments to manage. There is a point at which too many investments per partner becomes a management risk.
It will be fascinating to see how effective these agencies will be as potential investors. It will be curious to watch whether, like a corporate investor, they’ll seek investments that support their other business, content oriented companies like Funny or Die, or National Banana, for example; or if they’ll seek broader choices. It will also be interesting to see how closely involved their VC advisers will remain once money is raised. Partners? Friends with benefits? Potential competitors?
In the late 90s Internet rush, a lot of business executives rushed to venture capital sure the road was paved with gold and easy to walk. Many didn’t survive the bursting of the bubble. They found picking good investments was harder than it looked. Arguably, many in their inexperience even contributed to the downfall by getting caught up in the wave and euphorically investing in questionable companies and ideas without the kind of investor diligence and scrutiny someone more experienced might have levied (though plenty of experienced investors fell victim to the same. ).
Successful VC’s fit many profiles. Some come from investment backgrounds with strong quantitative skills. They haven’t run companies and may lack management insight from practical experience but they are very skilled at evaluated financials and holding to a financial model. Others come from engineering backgrounds and know an industry well enough to spot cutting edge solutions, up and comers, that less specialized eyes might miss. Lastly there are operating executives, VCs who first had success running companies of their own. They learned along the way some of the things necessary to go from small to large and may be particular good at shepherding a company through its growth because they’ve done it before.
VC’s come in lots of forms; it’ll be interesting to see what form a talent agent VC takes.
[Editors Note: Due to networking issues this article failed to post when originally published. It is being reprinted several hours later but has been post-dated with a timestamp corresponding to its originally scheduled Thursday evening post time. ]