Tuesday, January 1, 2019

Round 2: Andreesen Horowitz & Talent, further thoughts (for 2019 going forward)

I’ve continued to think about the Andreesen Horowitz Cowen conversation:

I decided that, in making my earlier remarks, perhaps I’d been distracted by the reference to black musicians, you know that “very small group of people that created every new musical art form in the last century.” So I listened to it again and, yes, I was pulled a bit off track be that reference. Yes, it’s the musicians who created the music, but they didn’t create the music business. That’s something else. That takes other talent sets working in conjunction with the musicians. Getting those things to work together, that’s the trick.

Early on one of them talked of how “talent is a network” of individuals working toward a common goal. While, yes, they ARE interested in identifying individuals with talent, they’re just as interested in the problem of assembling networks of them: How do we identify compatible individuals and help them toward the common goal? That’s a more sophisticated problem, one that recognizes that talent must have a context in which it can blossom.

What I’m thinking is that the entertainment business as such dates from the early 20th century, with roots in music publishing, vaudeville, and the theater (with book publishing somewhere off to the side). Then we get sound recording, movies, and radio and the entertainment business as such arises to provide “content”, as they call it these days, for those media. Venture capital dates after WWII and really got going with high tech. Thus when these guys talk of Hollywood vs. Silicon Valley, they’re using those a figures for the entertainment business and the tech business.

But venture capital is one step further removed from the end product. Record companies actually produce the records – well, these days they’re mostly not records, but that’s a different story, one that leaks into the tech story. Movie companies produce movies (sorta’, because it’s not like the old days with the studios). Venture capital firms produces the companies that produce the goods or services.

But still, there are similarities. About three quarters of the way along Cowen asks Andreesen, “What’s the last thing software will eat?” (“Software is eating the world” seems to be the company motto). His reply, at about 32:35:
Basically it’s this question of how do you organize a small number of people to do something new. And by the way that can be a start-up company, that can be many other kinds of efforts where you need a small number of people to do something new. It can be a new political campaign, a new activist movement, whatever. But a small number of people to do something new. Right. And how do you pick, if you’re going to finance or donate or fund those things, how do you pick ones you want to donate to and then how are those things actually gonna’ run. Right.

And the new part that’s really important, like, the little known fact, for example, about venture capital, there is term in venture capital and hedge funds called “carry”, called “carried interest” with is the sort of profit participation that the VCs or hedge fund managers make. The term “carry” actually comes from whaling, in the sixteen hundreds, in the Atlantic Ocean. The term “carry” was the people who would finance captain and the crew of the boat, like the boat actually would run as a startup. There was equity participation for all the people in the boat and then they would pick the captain, you’d raise money in town, you’d raise capital. And then the boat would go off and take down a whale, right, and about three quarters of the time it would come back. [...] Carry was the portion of the whale that the investors got.

If you think about it, the process if you’re like in, I don’t know, Boston or wherever in like 1675 and you’re trying to say, OK, this ship, this captain, this crew, this mission, in these waters, with these weather patterns, how are they going to behave under pressure, what’s gonna’ happen when things go wrong, and is the crew gonna’ mutiny, and like many any money doing this, and like the whole is just such an intricate kinda’ puzzle. And it revolves around people. Setting up a whaling expedition [...]

Tech startups are the same way. By the way you know greenlighting a movie a TV show in Hollywood, it’s the exact same kind of process. And it’s just it’s so intangible and so much based on the interaction of a small number of people who are going to be under extreme pressure. If we could figure out how to automate that, we’d fund that company and then retire. But at least we don’t know how to do that.
Yes, that IS a problem, isn’t it?

What are the limits of our capacity for institutionalization? What happened, what did we learn, that allowed us to make a business out of entertainment? What happened a bit later on that allowed us to make a business out of creating new companies? I’m thinking that it’s the movie business that is the bridge between these two phenomena.

Perhaps more on that later, but see my earlier remarks on anti-trust in movies in my review of Hollywood Economics for some cues.

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