Monday, January 28, 2013

VCs and Record Labels Sing The Same Songs

For those that don't know, the man above is Trinidad James. He likes everything he owns to be gold. Trust me.

Back in December, Def Jam rewarded Mr. James and his golden hit single with $2 million. Money that Mr. James vowed not to spend all in one place as he launches into recording his first album under the Def Jam imprint.

I've come to see over the past few months that venture capital firms and record labels largely behave in similar ways. It's likely that you can do a loose mapping of roles from one organization to the next.

And the talent hunt is largely similar, given that big gambles are placed on the prospects of future success. Present success is typically lacking or imperfectly indicative of growth. Folks from both spaces are forced to look at individuals (artists and entrepreneurs) and ask themselves whether or not they have what it takes to overcome pressure, adversity and outsized expectations to make a hit.

At the other end of this equation lies the creators (artists and entrepreneurs). S/he who is most capable of understanding the consequences of large capital injections will be better positioned to move forward with suddenly inflated bank accounts. In each case, the creators have not "earned" money when they've closed a funding round or signed an advance. Instead, they've "earned" access to borrowed money which the lenders (record labels and venture capitalists) hope will generate a larger return - or, at the very least be recouped.

This dance between lenders and creators is a unique one to watch. In both spaces, those that rise to the top on the creative side have an unprecedented say in the process. In the case of Mr. James, a few million YouTube views put him on the radar of every label with an interest in investing in Southern hip hop (The Justin Bieber Phenomenon). When bidding wars arise, the wise creator will not be quick to immediately jump at the highest bidder. Instead, s/he will look at the resources that the lender brings to the table that may be useful in the path towards creating a hit.

Lenders should be wary of those creators that ask for too much. And creators should take pause when greeted by lenders that force their way into the door by dumping tons of money.

A&Rs are looking for the next Jay Z, while VCs are looking for the next Facebook. It might be Trinidad James and it might be Only time will tell.

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