VC: Not As Rock & Roll As You Think?

Predation Hurts Production

What’s wrong with this picture?

A big part of our work here at Shinka Labs is to explore alternative approaches to nascent products and services in the wide world of IT. Sometimes, it results in a hit; others, a miss. But our goal isn’t necessarily to be calling the shots on the big bucks all the time. Rather, we’re interested in understanding the framework in which all of these activities function in order to determine best practice depending upon circumstance.

This is, admittedly, something of a novel approach. It goes without saying that venture capital dominates the IT space, and they’re more or less in search of tell-tale signs of Whales amidst the minnows. From a few perspectives, this has worked its magic well enough over the years, but it also leaves something hanging. Those without a “proper” background, or an obvious product-market fit, or the “correct” network end up getting looked over for more immediate wins.

We’re also musicians, and so the above itch that we’ve yet to fully scratch is there largely because it seems incredibly similar to another model that has led to some notable gains, but stifled other innovations: record labels.

The crux of our job is to understand market conditions, consumer needs, and, perhaps most importantly, gaps between the two, and to deliver that intel to our clients in excruciatingly granular form, and to the public in more consumable tidbits. That VC has this dark side to it which hasn’t ever been meaningfully addressed is something we can’t overlook, and so we thought we’d highlight some of the similarities we see in order to, hopefully, motivate at least some of you to reconsider your approach to product development.

Let’s, briefly, get serious about this.

Lowest Common Denominator Blues

The venture capital model for IT startups and the business model for record labels are eerily similar. They both rely heavily on the concept of risk and reward, which, let it be said, isn’t a bad thing in and of itself - its kind of the core tenant of most businesses, especially early stage ones. For the sake of clarity, the investor (in this case, venture capitalist or record label executive) takes a financial risk in investing a decided upon sum into a project that is deemed worthwhile through some measurement, with the expectation of a large reward if the project is successful. It goes without saying that the risk for the investor is that the project might fail, and in that case they eat the loss.

Where Things Went South

The similarity between the two models in modernity, however, has taken a negative turn. With the promulgation of all the technologies we take for granted - search, algorithms, matching, etc. - comes the ability to aggregate metrics behind the highest successes and reiterate upon them. Again, not necessarily a bad thing, if done in moderation. But ever since the rise of the Age of “Uber of…” we see a particularly high rate of copycat-ism and less of the truly adventurous.

For both IT startups and record labels, there is often a great deal of pressure to “succeed quickly” and make a return on the investment. If the project in question is one that aligns with those parameters for quick success, then so be it. But when applied to projects that don’t readily abide by the recipe for success, this pressure can stifle creativity, as the investor demands that the project be completed within a certain timeframe and with certain specifications. This can lead to a “cookie-cutter” approach to projects, where ideas are rushed to completion without the time and resources needed to truly refine them and make them into whatever it was that was first envisioned.

The Little Guy Never Had a Chance

Said another way, the venture capital and record label business models both tend to ascribe to a “winner takes all” mentality, where only the most successful projects receive the bulk of the investment and promotion. This often enough leads to an unfair advantage for the few projects that are deemed successful, which are almost always those that “play by the rules.”

The majority of projects that lie outside of that purview receive inadequate resources and are more or less considered dead on arrival. This leads to a situation in which the winning project models are over-promoted, over-saturate the market, and lead to, for lack of a better word, a pretty boring reality, at least compared to what could have been.

Decontrol

Finally, the venture capital and record label business models can also create situations in which investors have too much control over the projects and artists they fund. The investors are able to dictate the terms of the agreement and the direction of the projects, which can lead to a lack of autonomy for the companies and artists they fund. This produces an environment in which the investors rule in a relatively dictatorial fashion over the projects and artists largely in pursuit of profit over all else.

At the end of the day, this form of control is one that easily leads all parties involved down the road towards stifled creative output and the feeling that the project, whatever it was supposed to have been, has been irredeemably compromised to fill the pockets of those in power. That’s not such a great outcome except for those who stand to benefit maximally from it, aka investors.

So What Do?

The venture capital model for information technology startups and the business model for record labels are similar in that both rely heavily on the concept of risk and reward begotten through means highly skewed towards profitability. As we’ve suggested, this can lead to negative consequences for the companies and artists who are funded, such as a lack of creativity, unfair advantages to the most successful projects, and too much control by the investors.

So just, like, figure out their game plan, and then run circles around it. Wanna learn how? Hit us up.