How the Venture Studio model, borrowed from Hollywood, may finance the Blockchain Economy, replacing the current Fund centric model that drives Silicon Valley.

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TLDR Hollywood & Silicon Valley both have proven models for harnessing ideas & talent to big profits. As we move from rock stars to film stars to code stars, the model from down south in LA is moving north to Silicon Valley and all places where tech ventures are created. This paradigm shift reduces the primacy of Finance in the Silicon Valley model, a trend accentuated by tokenized early stage equity. Two leaders in this paradigm shift are Consensys and Andreessen Horowitz. The emerging name is Venture Studio, replacing the names Incubator, Accelerator and Skunkworks from earlier waves of innovation

This update to The Blockchain Economy digital book covers:

  • How the Hollywood Film Producer model could apply to Venture Production
  • Venture creation is both a creative and a repeatable process
  • How Venture Studios reduce the primacy of passive capital
  • The role of talent in both models
  • From Incubator to Accelerator and Skunkworks to Studio
  • How Consensys created an early version of the Venture Studio
  • How Andreessen Horowitz is creating their version of the Venture Studio
  • Other Famous Venture Producers
  • Tokenised early stage equity is the game-changer that enable the Venture Studio
  • Why The Blockchain Economy requires creative non-conformists
  • Context & References

How the Hollywood Film Producer model could apply to Venture Production

The Hollywood Producer works from start to finish (aka full lifecycle in tech speak):

  • develops an idea (aka script). The Producer often own the rights to a book or story idea. Translation to Venture = develops a concept for a new venture. This period is often lengthy, with many ideas/concepts dormant for a long time until conditions are right – timing is everything. The idea that there is a tradeoff between concept/idea and execution is silly. You must have both and a Producer oversees both. 

 

  • Once a script is completed, the producer will lead a pitch to secure the financial backing usually about 25% of the budget; this is the “green light”that allows production to begin. Translation to Venture = find lead investor.

 

  • secures the necessary rights (for script, music etc). Translation to Venture = patents, trademarks or existing code (being careful that the open source is not restrictive).

 

  • hires the director. Producers rarely have creative or technical involvement. Translation to Venture = hires the CEO. The closest parallel to Producer in Tech Ventures is Chairman, in the sense that Chairman can hire/fire CEOs, but independent Chairman is unusual in early stage tech ventures. 

 

  • supervises casting. Translation to Venture = involved in talent hunting.

 

  • assembles a crew. Translation to Venture = involved in talent hunting.

 

  • oversees the budget. Translation to Venture = formal Board role.

 

  • coordinates the post production work (e.g editing, commissioning music, encouraging the film’s stars to plug the movie on talk shows). Translation to Venture = informal Board role (leveraging board director’s network).

 

  • The Producer often multi-tasks across several projects at once. Translation to Venture = those people listed as Co-Founder on multiple ventures.

In Hollywood, Producer is such a critical role that the credits often show many variants such as:

co-executive producers: executives or distributors who have a limited financial stake in the project.

  co-producer: works under the executive producer on casting, financing, or postproduction

line producer:  on the set at all times to supervise the budget but has little or no creative input.

Venture creation is both a creative and a repeatable process

That statement defies conventional wisdom in two ways:

– building a business is a creative act. We think of building a business as something requiring hard work, grit and lots of boring tasks – totally unlike the creative arts. I am indebted for the insight that this conventional wisdom is wrong to a post from the great VC, Fred Wilson of Union Square Ventures. As he recorded on his wonderful blog (AVC), he was on holiday in Paris, standing in front of an iconic painting and realized that venture founders are like painters, standing in front of a blank canvas and envisioning what should be there.

– the creative process is repeatable. Creative work require hard work, grit and lots of boring tasks  – and is a repeatable process. Let one of the most consistently creative (and funny) people on the planet tells us how in this video. John Cleese is unusual – a scientist  turned comedian and educational content entrepreneur who is obsessed with figuring out where creativity comes from. Watch the video to learn the difference between open mode and closed mode creativity. Open mode creativity is that flash of inspiration. Closed mode creativity is the hard work we call execution. Entrepreneurs and artists  know that creativity is also needed in closed mode. The plot or character idea may come in a flash of open mode creativity, but realising that idea requires further creativity and hard work in closed mode. It is the same in venture creation, where an execution step, such as improving funnel metrics, requires creativity as well.  The Hollywood Producer ensures that both open and closed mode creativity are done right.

How Venture Studios reduce the primacy of passive capital

Look at the credits at the end of the next film/movie you watch. You will see credits to all kinds of people, some with mysterious titles such as key grip, but you will be hard pressed to see or remember who financed the film/movie.

Now look at the tech venture success stories; they will often start with something along the lines of “XYZ BrilliantUnicorn, the HotABC Funded venture….” In the tech venture role, the VC Funds (“HotABC Fund”) have the starring role.

The role of Talent in both models

Talent is a word that made the leap from Hollywood to Silicon Valley, but the roles of talent are different:

  • in Hollywood, talent includes actors but also behind the camera folks such as director, writers, camera crew, set designers etc. Talent are free agents who contract for a specific film/movie. Talent employ agents to help them with this.
  • In Silicon Valley, talent  includes engineers but also marketing, sales, design, HR, finance, etc. The difference is that talent in the Silicon Valley model have to sign on for long periods as employees to get their equity upside. While increasingly free agent in reality, talent in tech ventures have to pretend that it is a 1950s  jobs for life world.

The other big difference for talent is that upside participation in Silicon Valley means equity which means exit via either trade sale or IPO. This makes talent vulnerable to financial engineering by Funds that are harmful to the interests of talent. In Hollywood, upside participation is primarily revenue share. That revenue share is variable and tied to the success of the venture/movie, which makes the upside a bit like equity, but it is not dependent on exit – only on value creation.

Big powerful interests in both models can give a raw deal to talent, but Hollywood has a longer tradition of talent being able to negotiate good deals.

From Incubator to Accelerator and Skunkworks to Studio

Incubator was the venture creation model popular during the Dot Com era.

Accelerator is the current model, as investors of all types ran away from the early stage risk of incubators, with hundreds of accelerators attempting to copy the Y Combinator success.

Skunkworks is a proven model of innovation within big companies aka intrapreneurship. This model pre-dates incubators and accelerators. Skunkworks usually operate with a small elite team removed from the normal working environment and given freedom from management constraints. The term originated during World War II by Lockheed Martin, but the most famous skunkworks was how Steve Jobs developed the Macintosh computer; other examples include Google X Lab and Microsoft Research.

The model for both incubators and accelerators have a graduation event, when the incubator and accelerator role is finished.

Hollywood Studios operate more like the skunkworks, taking responsibility until the product has delivered its value.

How Consensys created an early version of the Venture Studio

When Joseph Lubin made a fortune from Ethereum, he could have done anything. He chose to put a lot of his capital and energy into Consensys. I had the great pleasure of meeting him and his early team very early in the history of Consensys.  My impressions at the time (recorded here on Daily Fintech) were that I was seeing something radically new that I did not really understand:

“Last week I left the smart Manhattan offices to head to northern Brooklyn to visit Consensys. This was not a colorful developer pampering office. Yes, we sat around a conference table that doubled as a ping-pong table; but this was clearly a bootstrapped operation full of bright people fired up by changing the world not by the trappings of success. I had trouble finding the office because there was no logo on the door; I went through a coffee shop to get to their offices. This neighborhood was still in the early stages of gentrification.

Around the ping-pong table (ahem, conference table), developers were as comfortable talking about the finer points of derivatives clearing and compliance as they were discussing developer tools. Big Wall Street firms could feel comfortable here despite the decor.

Yet they were also developing consumer-facing applications.

It is hard to put a label on Consensys. All of these fit:

Consumer app developers

Enterprise IT developers

Core Ethereum developers.

Venture production studio.

Custom solution vendor.

Consultants.”

That same “how do we label you” issue hit the early Hollywood Production Studios, as they moved from a few creative people to a big business with lots of employees. It is easy to write off Consensys; after the fall in ETH price that meant some reassessing of the business model many headlines talk about the rise and fall of Consensys. Pioneers get arrows in their back.  I suspect that future headlines will talk about the rise and fall and rise again of Consensys. Even if not, Joe Lubin will have changed the course of history by creating a new model and a new type of company at the heart of a new protocol based ecosystem.

How Andreessen Horowitz (A16V) is creating their version of the Venture Studio

Andreessen Horowitz (A16Z) is massive force in the global Silicon Valley ecosystem. They are one of the few new Funds to break into the Top Tier in the last decade. Yet they still act like outsiders, making big bold moves that disrupt the game that they are already masters of. “Disrupt your own game before somebody else does” is easy to say, but very hard to do and A16Z is actually doing it.  A16Z has made two prescient moves that position them well for this new model that is emerging:

  • Full execution team means they are active not passive investors. They have the resources, not just cash, to help ensure that the ventures they invest in are a success. This is like the Hollywood Studio.
  • A16Z recently became an SEC registered RIA, giving them the ability to invest in cryptocurrency assets. This means A16V can win in the Blockchain Economy. A later section of this chapter describes why tokenised early stage equity is the game-changer that enables the Venture Studio. A16Z has signalled their determination to ride the next wave of innovation even if if disrupts the Fund model that makes them money today. 

Other Famous Venture Producers

  • Peter Thiel – co-founder of multiple huge ventures from PayPal to Palentir.
  • Richard Branson – using his insight, personality and brand to take on massive broken markets, with external financiers along for the ride. Branson is the closest to the Hollywood model.
  • Steve Jobs – most famous for Apple but also NeXT and Pixar.
  • Jack Dorsey – both Twitter and Square. 
  • Elon Musk – most famous for PayPal, Tesla & SpaceX, but also Neuralink, The Boring Company & OpenAI.

Some are CEOs of the ventures they help to create, others are content with a big % of equity and a corresponding Board role. What they all have in common is a brilliant entrepreneur who attracts capital like bears to a honey jar. Some may put in their own capital, but their signalling/brand value is far more important than their cash. Many have Hollywood connections, most notably Peter Thiel moving to LA and Steve Jobs with Pixar and now Elon Musk aiming to bring Silicon Valley and LA physically closer with The Boring Company.

The institutional stage is coming. This is like the early Hollywood history, when a few big swashbuckling  personalities created institutional studios.

The Silicon Valley model is already institutional with a few Top Tier VC Funds, most notably Sequoia Capital, managing the leadership succession across multiple generations. The Sequoia Capital WhatsApp deal, where they financed all the rounds themselves from an $8m investment in 2011 to a $19,000m exit in 2014, is like a Hollywood Studio that takes all the risk & reward. 

Tokenised early stage equity is the game-changer that enables the Venture Studio

Imagine a movie that took 10 years to get to the box office. Yes there are some outliers like this (Avatar took 10 years), but they are exceptions that prove the rule. This does not count what can be decades, when an idea lies dormant (ie not spending any money) because the timing is wrong or some key piece is missing. Yet, early stage venture investors typically have to wait over 10 years before getting a return. Tokenised early stage equity, whether IEO or STO, is the game-changer that enables the Venture Studio model to flourish. The time to liquidity is now much closer to the time to create a movie/film.

Why The Blockchain Economy requires creative non-conformists

The book called Originals: How Non-Conformists Move the World describes  how leaders champion new ideas and fight groupthink. The Blockchain Economy will be a bigger shift than even the disruptions that drove Hollywood and Silicon Valley. Every market is up for grabs in the Blockchain Economy. Entrepreneurs are restricted only by their imagination. Capital is far less of a constraint. There is plenty of capital in the world and Blockchain ventures require less capital for 3 reasons:

  • the crashing cost of building technology thanks to open source, APIs. offshoring etc. This well documented mega shift pre-dated Blockchain.
  • there is no need to invest in massive centralised data centers, because the users provide the servers in a decentralised network.
  • marketing costs are reduced because early users are motivated to evangelise because they bought Tokens (either Utility or Security or both).

Context & References

Why the Blockchain Economy won’t be financed by ye olde artisanal VC funds.

The 4 wrenching leadership pivot gates that entrepreneurs face.

 

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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