Farah Nanji 0:00
Welcome to the Mission Makers podcast. It's an absolute honor to have you both on the show. It is the first official day of ADE 2022. How are you both and what are your goals going into this year's conference?
Rishi Patel 1:03
Happy to start with that. After a two-year hiatus coming out of the pandemic, I think first and foremost, it's about reconnection with the community. To be frank, there are some things that just can't happen over a Zoom call that needs to be done in person, especially when you're working in an industry that is so community oriented. So it's been absolutely terrific to get back into Holland and hit the ground running, meeting so many familiar faces around. We approach ADE for the last several years with a lot of planning. We're very thoughtful about it. We organize all of our meetings by and large ahead of time. So a lot of it's going to be orientated around connection into the artist community, the tech community, the investor community and just trying to explore ideas we are planning for the duration of the year and into 2023.
John Acquaviva 2:09
Yeah, just to add a tiny bit. We do hit the ground running. And since we really believe in the ecosystem of the music business, it's important we work kind of privately and publicly. So this year, we're participating with Rishi talking about knowledge of investing. And this year, I'm judging the startups once again. So it's a nice balance here of both art and business. And I think that that's important to bring it all together, face to face. And that's what's been missing the last couple of years as well.
Farah Nanji 2:44
100%. And so what are some of the key messages that you want to share this year at ADE from some of your panels and throughout the week?
Rishi Patel 2:53
It's an unusual time, to be frank. It's an unusual time for music, it’s an unusual time for entertainment and it’s an unusual time for business generally especially as it relates to the economy and the financing markets. As John alluded to, I’m speaking tomorrow on a panel that is really sort of a panel that is dedicated to understanding the music startup ecosystem, and how capital raising happens. That's an area that we've been focused on with Plus 8 Equity over the last almost 10 years. Frankly, it's the first time we've seen in almost a decade that there’s been a significant downturn from an economic perspective. Financing windows are shutting, and the startup community is really trying to figure out how to make ends meet and thrive in this very, very unusual capital markets ecosystem. And that's against the backdrop of almost a collapsing crypto market, and a lot of hype coming from Web3 that may or may not have come to fruition on the timeline people were expecting. So it's an interesting time. I think one of the key themes is that there’s a significant reality check for a lot of startups, trying to see okay, where am I? Where am I today? What's realistic? And what are the key milestones I need to hit for me to actually build a real-thriving business?
John Acquaviva 4:18
Yeah we've always had from day one, starting with coming together with Richie Hawtin in the 90s, an eye and a foot towards the future, and one based on the present. So more than ever, I think in the greater economic scheme of global things, I think viability is really important. So when I see a startup I think everyone should dream but more than ever, it needs to be viable because there are just not endless money pits. Some companies should not be endless money pits for investors. And really a thriving ecosystem means that maybe some companies should just think small and then big. Be viable, can you pay 2, 3, and 4 salaries and be part of that cog and ecosystem? So I think we have a great future ahead of us. But we have to be a little bit more pragmatic, given these times, and figure out how to make enough of a living to be part of this wonderful thing, the music business.
Farah Nanji 5:23
And so how much of it is about viability versus the team, because of course, viability is essential, but how much of it when you're judging what to invest in is about the teams?
John Acquaviva 5:34
Well, it always starts with people. You need someone dynamic to bring an idea to life. There's different levels of investment too right, so an angel investor can buy the dream, we want a little bit more. Part of our work is also mentoring, whether we judge, or mentor. We’ve spoken at several notable events. Rishi’s over at Tektronix later this month, so we don’t want to temper that dream, but rather, unlock that dream in a more pragmatic, viable way. Let's be smart about how we use the investment and how we get to a proof of concept. And some people need that extra bit of focus. And I think the job of a good investor is also unlocking that in a good way,
Rishi Patel 6:39
As I think about startups and what's important, which leads to what we look for, I think it's a constructs perspective; people, ideas, capital, and network which goes hand in hand with people. And I say this routinely, whether it be speaking on a public forum, or in one on one meetings, I'd rather take a first-class team, with a second-rate idea, than a second-rate team with a first-class idea. The people in a team are everything. And when you're working and living and breathing the startup world, it is all about adaptability. If there's one thing I know, for a fact, nothing goes to plan. So what you plan and what your vision is for the company a day from now, a year from now, two years from now, and five years from now is going to be different. Having the understanding that this is going to be the case, and that it is a natural evolution while being able to adapt to the marketplace and changes in the workplace is absolutely critical, and that also really stems from the team.
Farah Nanji 7:47
And so talking about evolution, what are some of the investment principles that guide your portfolio?
Rishi Patel 7:55
Teams is definitely one of them and paramount. in addition to that is understanding the market and attacking a market opportunity that’s compelling. Not going into a crowded field is an area that is very important to us. If you look historically at our investment portfolio, whether it be Splice, Landr, Endel, VersusGame, all of these guys were doing something that no one else was doing in the market at that time. They were first to market almost in every regard, whether it be the business model or the opportunity that they were attacking, and we saw it clearly through the last nine years that we've been investing, that there are many crowded fields that sometimes pander to the times that they’re in. Whether it be something that’s crypto-related, during the pandemic, live stream companies are a dime a dozen, we don't even want to go there because these are completely saturated market offerings. So understanding where you can carve out your niche and do it in a way that's different, and be truly differentiated from the market is absolutely critical for us.
John Acquaviva 8:59
Exactly. It starts with great people. If we find first-class people, sometimes you see a first-class person get into a crowded field with a second-class idea. And that's certainly worth consideration when it comes to investment. But we need to be disciplined. Some funds are so large that they buy umpteen lottery tickets. But it's got to tick off all the boxes for us. We can work with someone, but someone who's really brilliant in a crowded field, that becomes more of a challenge, right? So it's always nice when you can tick off all the boxes, like first mover, brilliant people, and then it’s like, wow, we can all do some magic together. And that's the history of what we've done. We found some magical companies at Plus 8 and before Plus 8 like Beatport and Traktor Scratch and those are the perfect storm. But we're always looking for it and we're always speaking to that. We don't want to battle in a crowded field with other people when we're trying to find something a bit more unique and create that value with an exceptional team.
Farah Nanji 10:13
John, you are a legendary DJ, investor, entrepreneur, and as you alluded to, perhaps most famously being on the founding team of Beatport, and so much more. So what's your advice to fellow artists who are also similarly passionate about entrepreneurship, but they're also very serious about their artistry and wear many hats?
John Acquaviva 10:31
Well, it's tough. you have to exist in two states of consciousness. The artist loves to stay up all night, but you have to wake up and answer the call. So the thing is, as an artist, when you finally start to be creative, and you have that opportunity, don't let your eyes glaze over when you have to read that contract, you have to do a few of those. And eventually, when you make money, pay a lawyer and embrace the two sides that are required, as opposed to falling into a stereotype. The stereotype is a trap. When people say “Oh, the artists can't do numbers or can't read a contract.” I just refuse to accept that I as an artist should just be a flake and fall into that stereotype. Don’t accept the stereotypes that an artist should be carefree. You shouldn't be carefree. But you can also read a contract and sign it and eventually as you do more, you'll hire people. And then you can start specializing and expanding ideas. An ideas person may hate cleaning the toilets but sometimes you have to clean the toilets and do the dirty work, right? And that's the same thing for CEOs. For example “I don't do deliveries when we own the vinyl plant.” If someone was sick, I'll go and box records, because, shipping records was really important in the 90s and someone had to do it. Sometimes it was just me and Richie Hawtin boxing the records. So, don't say no, just do what you have to do.
Farah Nanji 12:13
I definitely agree. Running several businesses myself, I think it's really important to understand all areas of the business and do it yourself first, because then when you are in a beautiful position of hiring teams, you know when a supplier is taking you for a ride but you can also 10x the company’s success through the expertise of the team.
John Acquaviva 12:31
Absolutely. A CEO is an artist, someone with a vision, whether it's me making a record, or me making a business, you're an artist. Bringing something to life is amazing. Again, be it an album or a company. But sometimes creative CEOs hate being the manager. I've seen many great ideas people hate managing the company. So we tell people, as a CEO, learn your job, because you're wearing two hats. One day, you're going to manage the manager, but you need to have defined that job. So if you define that job, well, you'll be a great manager of the manager as a shareholder. So it goes hand in hand when you start to think that way. And I think that’s a pretty solid recipe for viability, if not success.
Farah Nanji 14:03
Do you have anything to add to that Rishi?
Rishi Patel 14:06
Yeah, look, I think what we're doing is really, really important. The foundation of what we laid out when we launched our fund nine years ago, was really about bringing our community of electronic dance music into the bigger world. I don't come from the music world historically, but my experience on Wall Street really gave us a leg up in creating a path forward to bring what other people would deem as a niche community into a bigger realm.
Why is it that our community uses software tools for music creation and distribution or anything else in the entertainment industry, but we don't take invested ownership in the very products that we're evangelizing? That never made sense to me. So for us, it’s really a fund by artists for artists, giving a voice and a claim to core assets within the tech space that they can hang their hat on and say, “you know what, not only do I use this product but I own a piece of the company.” And that stems from some of the stuff that John was doing at Beatport, so I think our role is very critical as we think about the next evolution of how artists get involved in the technology community.
Farah Nanji 15:28
Absolutely. And so 2500 pitches, 13 investments in your portfolio. How soon into reading a deck do you know it’s a no? And do you think there are any parallels in the speed of decision-making when you listen to promos, for example?
John Acquaviva 15:42
Well, pretty quick. We speak a lot about this, especially publicly when we're mentoring. Everyone's like, “I got this idea.” Let me just pick on ticketing, for example. Ticketing is flush full with startups, and they tend to be regional. First of all, our eyes glaze over when someone's like, “no one's ever thought of this” and we’re are like “think again!” because more often than not, they haven’t researched their competitive space enough and so our eyes glaze over a bit because they’re in a crowded field, and they don’t even realize it, but we know their field better than they do. But we will still hear them out and see how talented they are because if they can make something better then that’s a great approach We're very discerning but we're very welcoming. I think one of our famous quotes is, “we believe in this ecosystem, so we'll give everyone a hug, but not our money.”
Farah Nanji 17:55
The music industry certainly has its own way of operating. How is it different from investing in other industries?
Rishi Patel 18:01
The music industry definitely has its own bells and whistles, its own parameters and ways of doing business whether it’s the cadence of business or the complexities around IP it’s very specific. Entertainment is a very insular community, you have to be trusted. I don't come from the music industry, but I had the opportunity to work in the industry because of the reputation of John and Richie Hawtin. Otherwise, I didn't even have a chance, so I lucked out. But at the end of the day, you have to be coming from a position where you're trusted and in a position where you understand the music industry. I'm not an expert on publishing, but man I've done a lot of reading and I know enough to be dangerous because I understand the various facets of the industry. So you really need to understand the game before you can even think about investing in the space.
Farah Nanji 19:13
Do you think there's more risk involved?
John Acquaviva 19:16
I believe so. As Rishi just mentioned, IP in the music industry is one of the most convoluted and confusing of almost any industry. Because there are two sides to the coin, and then each side has slices of it. And it's also it's not consistent with each country, they each have their own rules with regards to publishing. So it just made music, the most difficult industry to move forward through. The music industry hit the wall with the internet. In fact, music hit the wall so hard that its value went all the way down to zero. And so I look back at Beatport proudly because we created more per unit royalty than ever before. Streaming doesn't work for independent people, it was clear even before it happened. You may not want to stream to a million fans in the underground so per-unit royalties and maximizing true value from each fan for underground artists is really important.
Rishi Patel 21:49
We're at a very interesting inflection point. We're talking a lot about Web3 and about how artists can directly engage with their communities and their fan bases using the various facets of technology. The key components are content, community and modernization. We talked about what we saw in Web 1.0 and 2.0 with 10,000 fans or 1000 fans, but that applies more than ever, in this new paradigm. So it's a very interesting time for us to be in this industry, especially with understanding how technology will unfold to create new opportunities, and of course, new challenges as well. How do we manage IP rights in the metaverse right? It opens up entirely new issues to deal with. So it's a very interesting time. And then there are the inflection points of what we have as new opportunities for startups.
Farah Nanji 22:53
Definitely. And I think perhaps the most exciting part about the creator economy in the metaverse is the fact that you don't need a million fans. Whether you have 10,000 fans or 1000 fans, you can unlock so much value from each and every one of them by 10x’ing the money. What would your advice be to budding artist investors who may also want to diversify their performance fees and build a portfolio of investments?
John Acquaviva 23:22
Well we don't manage people's money, but you kind of take that approach, right? First of all, it comes down to simple steps. As you start to make money, make sure you understand where the other slices are coming out, be it your management fee or taxation. Get your house in order, your family in order, and then start to invest. One of the things Rishi and I talked about when we first met was why the whole music industry doesn’t invest in itself. I have a lot of my eggs in the music basked and I believe you should invest in what your expertise is. Music is one of the most important fabrics in our society and I’m passionate about maximizing its value proposition.
Rishi Patel 26:02
And also applying a macro understanding of where music is going is important. One of our deep understandings is convergence - we saw music convergence coming a million miles away from other industries such as gaming. DJ Marshmello and Travis Scott inserted into Fortnite was no surprise to us. It’s just a natural evolution of where music is going in this new paradigm, it will have touch points into gaming, AI, health and wellness, etc. It’s a very interesting time to understand where music has been, where it’s going, and where it’s going to unfold in the future.
Farah Nanji 26:46
Yeah, the relationship of music in the metaverse and the whole consumption experience is a fascinating discussion and a fascinating time to be a part of that evolution. As you said the newer generations will have a fundamentally different relationship with music. So, last question before we wrap up is what are some of the misconceptions behind the work that you do?
Rishi Patel 27:12
I don't think our community exactly knows what we do in detail. I run into a lot of folks who say “so what artists do you manage? Or what new records are you putting out, are you guys doing any parties soon?” And my eyes sort of gloss over that and I say “well it’s not exactly our business, but I'm happy to get a coffee with you and explain.”
John Acquaviva 27:40
Yeah, I mean, even with all due respect, I love ADE but I had to tick the “other” box. They didn't really have investors as a box and that is the core of what we do at Plus 8 Equity.
Farah Nanji 28:30
Well, so many interesting nuggets. Thank you both so much for your time. And wishing you an amazing ADE.
John Acquaviva 28:36
Thanks for having us and to you as well.