Daniel Leff — Waverley Capital

Posted on Wednesday, July 28, 2021

From sitting on the Roku board from 2011 – 2018, Daniel Leff saw disruption in the media industry first hand.

He says that, unlike in tech, disruption in media comes from working with the incumbents rather than working against them.

View Transcript

Today I am with Daniel Leff. Daniel is the managing partner at Waverley Capital, a fund he co-founded with Edgar Bronfman Jr. Waverley is a media-centered fund and it’s the successor fund to Luminary Capital, a fund that Daniel also founded. 

Daniel has an amazing list of investments that include Roku, TheAthletic, Wondery, PlutoTV, and many other important media companies. Daniel, first off, thank you for coming on the pod. And second of all, I just want to congratulate you because I do believe you are my first guest that has recognized the fluid dynamic equations in the background and I wasn’t expecting it because you are a media focused investor and I didn’t know you would know the Del Operator behind me.

Well Minnie thank you very much, for that introduction and for also having me on the podcast, I really appreciate it. And sadly, I know what it is because I have a PhD in physical chemistry and took lots of statistical dynamics, statistical thermodynamics, fluid mechanics, but that was another lifetime. 

Right, that PhD comes in handy a lot now. 

In more ways than, you know, but not for any specific knowledge of physics or chemistry. 

Okay, great. So why don’t we start with the premise of Waverley and what you’re building here.

So Waverly really, we look at it as, Luminary Capital Fund II, and I changed the name of the firm from Luminari to Waverley in 2018, when my good friend and longtime advisor Edgar Bronfman Jr. decided to be my partner.

And so we’re doing the same thing we started doing in 2013, which is trying to find, invest in, and help build what we call category defining media companies.

Great, and even I know Edgar Bronfman Jr. I recognize his name, and I’m not very media focused, but for those who don’t know he was the CEO of Universal and Warner music?

Edgar’s had one of the most interesting careers, and life stories of, of really anyone I’ve met. Edgar started writing songs when he was a teenager, songs that were recorded and published by very famous artists, like Celine Dion, Dionne Warwick, and artists like that. It goes back, I think, I think to the seventies and eighties.

But he was also a CEO of the family business, Seagram’s, the world’s largest liquor company. And then he was CEO of Universal, and then he was, as you mentioned, um, CEO of Warner Music. So he’s had some great, very senior level operational roles at large global companies. 

Um, what people also don’t know is he’s been involved in early stage companies, probably for the better part of three, three and a half decades. Um, several in the media sector and others in, in believe it or not healthcare and healthcare tech and things like that. 

Hmm. Um, sounds like a perfect partner for what you are doing. Um, w what is it, you know, why did you start this fund and what is it that you saw that sort of Silicon valley wasn’t seeing? Because media has not traditionally been popular with the Sandhill road types.

Yeah.

I would say, you know, I’ve now been a venture capitalist for 22 years and the first, maybe 10, 11 years of that, I started in 99 in LA working for the working for Brad Jones in the LA office of red point ventures at the inception of their funding in 99. Um, and back then investment themes of the day.

Of course, We’re getting towards the tail end of.com, but you had hardware systems, sub systems, optical components, semiconductors. Those were things closely aligned with my PhD and my work experience. And so I spent maybe the first 10 years, 12 years of my investing career doing that. And then in 2010, I had the good fortune to meet an individual named Anthony Wood.

Anthony was the inventor of the DVR. And at the time he was instill his actually a CEO and chairman and founder of company called Roku. And in 2010, people didn’t understand what OTT or over the top was. People didn’t understand what streaming was and how it was going to, really change the media landscape, and how it was going to, um, really change the media landscape, but he crafted this vision for me and candidly, I became one of the few people that actually believed in him in his vision.

And I became the second, institutional investor in the company, and joined the board in 2011. And I stayed on the board all the way through when the company went public in 2017 and then in 2018, I eventually got off the board, but that position alone provided me with a couple of things that changed the arc of my investing career.

The first is by being on the board of Roku for those years, one was sitting in the most unique century position. You could sit in to watch media industry dynamics unfold, but even more importantly, peer into the future, maybe one to two decades early. And why is that? Because Roku was in every single important conversation that was happening in the media sector, uh, uh, all the way from, uh, one end of the spectrum on the content side to distribution and everything in between, including, a variety of infrastructure technologies required to deliver bits to consumers in a high integrity fashion, so they could consume media.

Right. and. Media companies, CEOs and great sort of media family science would come the Murdochs, the Roberts, others would come to Roku and spend time at the company to try to understand what is this little tiny company? How’s it going to disrupt my business? what is streaming? Let me understand that.

And I became in possession of incredible information asymmetry. And what I like to say is I’m no smarter than anybody else, but if you were on the Roku board and you had a pulse and you had a brain wave. And you were taking in this information, you could make a very simple inference that, oh my God, there’s a $2 trillion global market opportunity out there.

where traditional venture capital dollars or traditional venture capitalists, um, sorry. Um, invest, I think less than 5% of dollars deployed annually in the venture capital sector are deployed in media. And I think maybe I had the first original thought of my entire career, which was, oh my gosh, I’m going to go start a media focused venture capital firm.

I’m going to leverage my information asymmetry. I’m going to arbitrage that to make private investments in compelling and fledgling ventures, partnering with talented entrepreneurs in the media sector. And just as important, I’m going to leverage a very senior level executive network that I had built in the media sector.

And I’m going to make a lot of those folks, my LPs, 

and I’m going to have them help us in many ways, become success. So that was the idea in 2013. 

I mean, I, I, so many questions about sitting on the Roku board, but you know, why is it that 5% number? Is it that Silicon valley? You are the, culture’s just so different. Like, I, I feel the cultural difference a lot between Silicon valley and LA. And if so, what is it? That’s different.

It’s a really good question. One we’re often asked and, uh, you know, certainly have, have a multitude of theories, but, um, but I’m afraid if I give the answer, then people will wake up and start liking our companies then will and liking the sector will be in real trouble too, because, you know, imagine if great and venerable firms either in LA or in Silicon valley with multi-billion dollar AUM platforms started to love the media sector.

We may not have such, such opportunity. Um, I think it’s a couple of things. You know, there’s, there is a cultural difference for sure. Um, LA and, and I don’t want to over-generalize, but since you asked me the question, well, there are many business sectors in LA. The, the, media sector, certainly looms, very large economically in LA and from a personnel standpoint, and it’s a different world.

Business is done differently. It’s almost never that a very young person can come into the market and Ray in the media sector, I should say and rail against the establishment and expect to be successful It goes back to Napster. And if you think about there was this refrain content wants to be free.

No, it doesn’t 

content doesn’t want to be free. And there was this approach that if you could build a technology. That could, you know, in effect unbundled the album and distribute, high quality content for free that you could build a successful business. Napster was an incredible tour de force at the time of technology innovation.

Right. Um, and, uh, to some degree really did disrupt the music industry, but, was Napster a successful company. It wasn’t obviously, ultimately disappeared and, Silicon valley and the media industry just butt heads. Also, the business is conducted a little bit differently. It still matters to some degree who, you know, 

Hm.

and can you get in a room with who, you know, and who’s a decision maker if I’m starting a cloud or a big data analytics company, or, um, you know, a gig economy company, or what have you.

It’s a different path to be disruptive. You can rail against the incumbents in the space and you can be a really smart, aggressive, young founder who may have no connections in that space, but you’re super smart. You have the right vision. You’re, you’re great at executing that vision. And you have a bunch of great supporters around you in terms of senior leadership team members and investors, et cetera, but in the media industry, you’re not going to put it. You’re not going to put Disney out of business. You’re not gonna put Comcast out of business. There are ways that you can disrupt aspects of their business, but typically you have to do it in partnership. And we talked about Roku. There were so many companies that venture capitalists did fund that were competitors to Roku, and they had a posture generally of we’re going to put cable companies out of business.

that just doesn’t happen. I think the other thing is there are so many other exciting. And large market opportunities and technology themes for traditional investors to invest their capital that are a little bit more straight forward in understanding in how you execute and what it actually takes to build, you know, a bigger category defining company.

And those each have market sizes measured in the trillions and, you know, whether it’s, again, cloud or big data or enterprise software, whatever it is. Um, and that is much more familiar in feel to Silicon valley type investors. And obviously there’s been some incredible companies, uh, created over time in those technology themes and others. 

Okay. So, so you can’t just come in and rail against the establishment. And yet your premise to some degree is that you think disruption is possible or else you wouldn’t be doing this. So maybe you can square that a little bit and sort of tell me how the disruption does 

Yeah.

Yeah.

So it happens in a couple of ways. One is that, you know, no venture capitalists, I would argue would have a job if the following archetype wasn’t true. And that is, Christensen’s, innovator’s dilemma meets Schumpeter’s creative destruction. It happens. I don’t care if you’re talking about enterprise software.

If you’re talking about cloud, you’re talking about big data SAS today, you know, AI, the gig economy, you know, uh, Evy and the whole Evie industry and the value chain there. Um, it seems to me that venture capitalists have long believed it’s possible to. Fund a very talented entrepreneur in a large market, going through tremendous disruption, with the right product market fit the right amount of capital applied to it and can possibly succeed.

It happens in every sector. Guess what? It happens in the media sector too, but it happens differently. We don’t have a single successful company, not one where large media incumbents are not partners with us in those companies. It’s rare that, you know, if you look at, if you look at some of the big successful companies and other technology themes, um, like take a multitude of the SAS companies while I, I, I know the company names, I don’t know what the whole cap table was, but I would be surprised if, You know, let let’s say in enterprise, if Hewlett, Packard and Microsoft and IBM, and I know Salesforce has been much more active on the venture front of less over years, but, but, but Oracle or others were on the cap table of Workday or Splunk or Okta or Twilio, or, any of those companies.

And I, I’m not sure you, you may know better than I, but I don’t think, um, Hilton and Hyatt, hotels, groups, et cetera, are on the cap table of Airbnb. Are they, I may be wrong, but, um, but in this particular case, 

 but in the media industry our companies have garnered significant investment from media strategics and in most cases, multiple strategic.

In one company and have material commercial partnerships with big media companies. And I think that’s something that we saw that would be different. It’s not always required, but, but gosh, is it helpful? And then candidly, having the network that Edgar and I have worked hard to build over time, and if we need to get a meeting for the CEO or founders of one of our tiny little companies with the CEO or a board member of a gazillion dollar media company, we get those meetings.

We help broker those meetings. We help frame those meetings. Sometimes we go to those meetings with CEOs and founders, if we think it’s necessary. And then we get involved in crafty, if there’s a business deal to be had or a strategic partnership or a COO or a direct investment from said strategic, we help broker those, those things as well.

So it takes a little bit of defense. Hand-holding I’d say besides the basic blocking and tackling of, um, of being a venture capitalist, which we do, of course also, and we joined the board of a good majority of our companies who were active, like of course, like other VCs. Um, and we continue to have information asymmetry in our favor because of this network because of our LP base.

And we’re interacting with these folks on a regular basis. And if you’re on the board of some of these pivotal companies, you’re in conversations.

all the time that are strategic to the industry. If you’re on the Roku board, if you’re on the fuboTV board, if you’re on the board of, of some of other of our companies, you are in some really interesting, big vision, long-term strategic conversations that give you deep insight into what trends may be real, what trends may be false or what trends may have a slope that, you know, being too late, you know, is tantamount to being wrong in the investment business, right.

Or investing at the wrong time. 

So, okay. So these companies, and it’s interesting thinking of the ones you mentioned Roku and the athletic and wonder . So they have partnerships. It’s not just the cap table, but then does that mean that the players, you think the players largely stay the same? Because you said you can’t disrupt Disney, so do the same 

Well, let, let let’s be clear. that’s what I said. Let me correct that and say you can’t put Disney out of business. You can put Kodak out of this.

Right.

You might be able to put IBM on a business we’ll we’ll see. Um, but you could put RCA out of business and many other sort of storied technology companies.

You can’t put Disney out of business. You can’t put Comcast out of business. You can’t put Viacom out of business. Now you can move some chairs around and merge companies and do this and that, but you can disrupt them if you couldn’t. None of our companies would have a value of greater than zero. So, um, you know, it’s oftentimes that these companies have obviously a huge balance sheets, large market caps, a stronghold, maybe on talent, a strong hold on distribution.

That could be physical. Can you start a cable company tomorrow? Well, Google tried. That was called Google fiber, Right.

You can’t, you simply can’t do it. Now. You could go raise a hundred billion dollars and play, um, distributor consolidation maybe. And you could go buy a few companies, but that’s what LTS. Has been doing when they bought cable and whatever, but you can disrupt them because Christianson’s innovator’s dilemma needs, Schumpeter’s creative destruction, big companies, independent of sector, focus on serving legacy customers with legacy products and services, with legacy business models.

And they, and they’re evolutionary, not revolutionary in their product offerings. And oftentimes, you know, those, those product experiences suffer over time because I mean, they’re garnering excess economic rents as long as they possibly can. And they don’t innovate until they absolutely have to. Sometimes it’s too late and they disappear. 

So, okay, so you can’t put them out of business, but let’s take Roku as an example. Most of us know, um, Roku buddies or Roku managed to compete against, I mean, I think a traditional VC, I probably would have said, I think X-Box or apple TV or something. Like, why did they win?

Um, a couple of reasons. Um, by the way, there was a great story written recently by Alec Sherman of CNBC, that sort of Chronicles some of this, um, a couple of things, Anthony Wood was an eminently credible. CEO and founder in the space and while his name wasn’t Murdoch or Roberts or Redstone, who all were phenomenal entrepreneurs, first company and empire builders, second and, and drove great shareholder value.

So, so no disparagement there, but you know, uh, So he was an engineering student at Texas a and M and like to watch star Trek and couldn’t do it when he was in class. So he went and bought a bunch of hard drives and strung them together with wire and made a DVR and hold the original patents on DVR.

But there are people that are out there where it’s possible. They may not be in these very visible seats, but they’re eminently credible. And some of the smartest operators in their space on earth, Anthony was such a person. And now the world has come to know him. He is such a person. Right? So that was one thing.

The second thing is he had a vision that was quite contrarian. But he was right. He was right then and he’s right now, but it took years and years of execution and success has never, never non-linear. Um,  third, he got the consumer experience, right? His view was, consumers want a very simple, lean back experience in watching television.

They don’t want to flick things. They don’t want to cast things. they don’t want to play video games while they’re watching TV or what have you. What he got right in addition is to partner with media companies. He needed content. 

Okay. 

And if he approached, I mean, you name it, whether it was Disney and ABC and ESPN or CBS or NBC or HBO or on and on.

If he approached them with this attitude of we’re going to put you out of business and we’re going to disrupt you and no one’s ever going to watch your content again, that wouldn’t have worked. Instead, he was patient, he was thoughtful and he executed really well. And he partnered with media companies and said, this is what the future is going to look like today.

It’s only this. Two quarters from now, it’s going to be this three quarters. So now it’s going to be this in terms of engagement and users, um, on the platform and your content is going to need to be there. And I remember sitting around the boardroom and there were discussions with, let’s say some big content owners that went from initially no way to we’ll think about it to, Okay.

We feel we now need to be on your platform to we’ll put it on our roadmap for XYZ date, then to actual negotiations in a structured agreement to what the economic arrangement would be between the two companies to now today. I think the most hilarious thing is apple TV quietly announced last week, there’s going to be an apple TV plus button on a Roku, right? And they’re going to pay Roku to put that button on the remote, which, which is clearly an admission of, and, and, you know, the, the stats are what they are. Roku is the number one streaming platform in OTT. So he got the product experience, right? He was very credible. He executed right. He hired wealth. He partnered with media companies. He continued to maintain the vision. There are no pivots, there was extreme conviction. Um, and then, and then slowly consumers started to realize that they had real choice in how they would view a variety of content and cord cutting and cord shaving trends, evolve to be quite significant and others didn’t get the product experience. And X-Box is not for watching TV it’s for gaming and an apple TV. It’s not for watching TV it’s for those that have a lot of apple content and you’re in the apple ecosystem and you want the most compelling and fluid experience to capture, share, and engage with all of your apple content.

That’s what apple TV is for. Um, Google Chrome cast was cheap, uh, in terms of first, uh, purchase or acquisition costs. But Anthony was where I remember having discussions in the board room. Google was coming out with Google Chromecast and it was this small little, uh, uh, finger-like thumb drive type type device or stick Roku actually had the first stick.

It didn’t sell well, when it first came out, that’s a different story. Um, and Chromecast had low CPE costs, but. Anthony said nobody wants to stream content. Nobody wants to sit there and task things. It’s a very awkward experience. And actually he was right. The other thing he got, right. Candidly was he saw a parallel between how over time with, PC.

And with, mobile phones to have arguably the most engaging communications and productivity platforms that, that humans engage with that ultimately there would be a couple of dominant operating systems. So obviously in PC, there were lots of, if you go back to the seventies and eighties, there were lots of OSS and that thin down and then down, I mean, there’s even Linux and something called BOS.

I’m old enough to know that, unfortunately. Um, but it really became, uh, windows and, um, and Linux did eventually ascend it in enterprise applications in dev situate dev environments or whatever, but, um, But iOS, um, or Macko S let’s say, and windows, and then there were a bunch of others on mobile. What happened?

You had iOS and Android. Yeah.

You have windows phones with less than 10% market share. You had Blackberry that for some period of time, but over time, there really were two dominant players. He said in televisions, that’s going to happen too. It was his idea. It was actually simple yet brilliant, where he said, in order for, Roku to increase their user base and do it faster.

Let’s innovate partner with TV, OEMs, and license, R O S because you have Samsung who always going to do something proprietary, whether it’s smart or not, you have LG, which will continue to do something proprietary, whether it’s smart or not. and then you have everybody else. And we think that we can aggregate a large fraction of everybody else and be the de facto. For television sets and that’s what he did. And so grew the user base and it was this virtuous cycle. Grow the user base, be able to attract more content, grow the user base, be able to attract more content at more attractive economics for the platform.   He also saw the trend of Avon before a lot of people did advertising video on demand. All the big companies were focused on Netflix. They sort of were operating in the past where, um, we need to have a streaming video on demand, subscription service while a vide was going to become a meaningful modality of, of engagement as viewership leaked away from traditional linear TV, and 60, 70 billion annually spent in the U S alone in ad dollars on linear TV would leak away over time to over the top or, or streaming.

And so he said, we need to build something called the Roku channel and have content inside the Roku channel. Have it free. And he was right then just multitude of the right calls because you know, it couldn’t have been I’m sorry, but you couldn’t have been an 18 year old kid coming out of high school or a 21 year old kid coming out of college to start Roku.

It’s not an accident that the entire C-level team, the average age was much older and they we’re all had provenances in, in some of the great earlier companies in the space. They came from TiVo, they came from gems, gem star TV guide. They came from a company called akimbo. Um, they came from Anthony’s, um, uh, other company replay TV, which had a major battle, obviously over time with, with TiVo.

Um, and you had to have that time over target that scar tissue to understand how to operate in that sector. So, um, 

Well, it’s such an interesting perch. Um, what w staying on this theme a little bit, like, where do you see content 

sorry. And lastly, Roku had I think, five media, strategic investors, four of which, um, four of which were known to the market. And that was, um, Fox was, um, on the cap table. Um, Hearst corporation was on a cap table. Um, sky was on the cap table. Um, um, there were a couple of others, some I think, managed to never get mentioned.

So maybe I’ll I’ll stop there, but there were five large media. Oh, Viacom. Um, and there were, there was one or two others that, that, that, that probably never made it into the press, which is quite remarkable. But, um, imagine that five plus media strategics as, as investors.  

so here’s where I’m going with this and you probably know this number better than I, but hasn’t this spend on content. it’s grown some huge amount. Right? Where does that, how does that keep playing out? Like we can’t, at some point we can’t consume better content or something.

Right.

Well, look, I’m not an expert on what companies should spend on content or not, except to say if your strategy is to compete, head to head with Netflix, you better have many tens of billions of dollars, and you think about why Disney bought Fox, and why 18 T time Warner, and, and some other, and why discovery and, and, and scripts, discovery, communications, and scripts networks combined.

And now discovery is actually buying. What’s now called Warner media. And while you’ve seen a bunch of other consolidation on the content side, that’s actually really simple, all those companies. And I don’t mean it in a disparaging way. They’ve been chasing Netflix. Forever. I would argue. They’ve been chasing the past 

Hmm.

companies we invest in are chasing the future and you don’t need billions and billions and billions of dollars, uh, as a content fund.

Um, apple, I think there were some announcements in the last couple of days. Apple is finally agreed to start spending a significant amount of money on content, still nothing compared to what Netflix spends or what, what HBO and what Disney spends every year, et cetera. If you’re going to play that game, you need tens of billions of dollars of content.

Um, that will continue a pace as long as people want to play that that arms, race and, and consumers are the beneficiary and, and companies that figure out a way to kind of fit in the, um, in the interstitial spaces there with novel models. Don’t have to spend tens of billions dollars of content, but can be beneficiaries of getting that content.

We know other companies, um, some we’re looking at now, I’m not gonna mention their names that have been very smart about how they’ve gone out and licensed premium content for very low costs, aggregated and curated that content. and put a presentation or presented layer on it to consumers in a very cost-effective service.

There’ll be more of that. They’re not chasing Netflix or HBO or what have you, because that’s a fool’s errand. I would argue for almost anyone, but certainly for a startup, so that spend will continue. It will escalate at some point it will become ridiculous. It’s not ridiculous yet, even though it’s many, many, many tens of billions of dollars, um, And it’s possible to have a small content spend if you have the right creators and have, um, a show that really stands out, um, by the way, I should say, Amazon has done a phenomenal job to over time of making the decision to get into the business.

Obviously building out Amazon studios. Now they’re trying to buy GM that’s, that’s strictly a content play. When you talk about spending tens of billions dollars of content, they’re going to spend, if, if, you know, if it passes in I trust mustard, et cetera, eight and a half billion dollars in effect  buying a

content. Yeah, but this kind of goes back to where I began, which is this intersection of tech and Hollywood. Um, you know, who can spend tens of billions of dollars? Well, Amazon can quite easily. so how does this kind of play out with, tech and Hollywood? Like does text tech has tried to swoop in before, right?

Yeah.

what’s interesting is while there are some, there are some things giving it, like look at Amazon. Okay. I would argue is been it’s one of the most incredible companies. Um, still after, you know, having been founded in the mid to late nineties, right. I forget the exact year has been continuously innovative and somehow has managed to build new multi-billion dollar businesses periodically.

Right. and in media they have done a phenomenal job. I would say others, like if you look at apple, if you talk to an analyst on the street that covers apple, they’ll say Apple’s a phone company. Just look at the lines of revenue, added up, look at their fractional percentages. Yes.

they have because their sheer size and install base, they have many tens of billions of dollars a year of. Of uh, services revenue, of course. Right. But they’re a phone company with their balance sheet and their, market cap. Why haven’t they bought a studio? Why haven’t they bought, why didn’t they buy Disney?

Why didn’t, you know, why didn’t they buy Roku? So, And you look at what Facebook has done and you know, what a phenomenal, uh, acquire of certain assets like obviously Instagram was, was an incredible acquisition. Um, others, not so much watch WhatsApp. I think in my opinion, the jury’s still out, uh, obviously on the social media front building, the first major social media platform with a billion plus users, a phenomenal job there, but with all the money they have and all the smart people they have, what have they really done in the media front?

So it’s just, it’s, it’s strange. It’s really strange. I would argue that there are many of the big tech platforms don’t understand the media sector and if they want to be in the media business or not, and how to best go about that. Yeah. The fact that Roku is a $55 billion company. It’s actually reductive.

what it says is, is that big media tech, big tech platforms  who had media aspirations and big media companies who didn’t understand streaming made, poor decisions over time that they didn’t try to buy this company or that they don’t own the capability. and you can’t, rebuild it just like you can’t rebuild the athletic tomorrow, no matter what your balance sheet market cap says 

So, I mean, the athletic is a good example. I mean, it related question is sort of what is, what are the investors Nazi, right? What is big tech Nazi? What, what are the investors? 

it’s, you know, it’s funny as we’re doing this back and talking to institutional investors and sort of showing logos of our successes and that, um, And I think I mentioned this in another podcast. It is really shocking to me that some of the smartest And most successful investors at premier, venture platforms that are all smarter than me have met our companies round after round, after round and passed on them.

and then to some degree they’ve gone and made some media investments that, that didn’t work out well. And we looked at, we looked at those investments and just had a different perspective. 

And what are you seeing that they’re not seeing? Or what are they not seeing or something. 

I think it goes back to a couple of things. Number one, roughly for the last 10 years. This is all I’ve done is traffic and spend my time in the media sector. I often joke, our LPs and say that they pay me to be media smart and everything else. Um, when I re you know, when I read things, although I, I invest in the public markets for myself and my family, and I pay attention to the public markets and, and new IPOs, you know, Robin hood is going to come to market, came to market, you know, a week or two ago point-based came, you know, four to eight weeks ago, whatever it is while I pay attention to those trends.

When I’m reading, when I spend time reading for my job, my day job, I’m reading things about the media industry. I’m not reading things about big data analytics. That’s a massive market, great companies are being found, founded, funded, uh, uh, exited, et cetera. Um, but that’s, that’s just not what I do. So it’s the time over target.

It’s spending time with thought leaders in the space. It’s having a very senior network, extensive. Our LPs also that’s another strategic advantage. We don’t have institutional capital. Our LPs are mostly current and former C-level executives and board members of the world’s largest and most successful media companies.

and we on a periodic basis are sitting with the CEO of company, gazillion dollar company, XYZ, or gazillion dollar company, ABC talking about their challenges, their trends. Imagine if I was an investor in enterprise software and I was spending time, um, if I was spending time with, um, Uh, the CEO of, of Microsoft Satya Nadella.

Imagine if I was spending time with mark Benioff, imagine if I was spending time with, you know, the CEO of Splunk or Okta or IBM, first of all, those would be great relationships. Second of all, it would give me incredible insight and access to what’s going on in that sector. And there are some great, I have some friends that are, that, that are at top tier firms that invest in those sectors and they have those relationships and, oh, by the way, they’ve been incredible Midas list investors.

I would argue maybe with an analogy to what, to what I’ve been able to humbly accomplish in media. We are always talking to these executives.  Secondly, What do you think? I spend time meeting with entrepreneurs who are building the next TV company. No, that’s an extremely important space with a lot of great companies, great investors.

It’s going to change the world. I’m spending my time meeting with the smartest media investors and you take this, it sort of, you take it and you put it all together. And I would argue that our firm has incredible information asymmetry in the media sector. And it’s our job to take in that data to parse that data and to try to separate signal from noise and make judicious investment decisions.

And I mean, we, our timing was right. Our thesis was right. We worked really hard. Our investment or asset selection was Right. And we certainly had good fortune and good luck in any success, but we continue to do it. And in this current fund, we have some other companies. You know, we were disparaged almost for investing in and, they’re turning out to be really big winners.

And I think we’re going to have, if we’re having this conversation in two to three years in our current fund, and we, we just, we already sold a couple of companies to Amazon just this year and fuboTV went public. We have some other things like Headspace that are in the fund. We have a company called endo, which is personalized soundscapes, sort of a non-music audio company, which I think people don’t understand.

Well. that’s one where, the from true ventures, which is a phenomenal firm, understood it. And they were early investors, uh, as well. Um, with us, we were in the seed round. They led the, a round. We loved it so much. We led the series B round, which we’ll do from, from time to time. So Matterport goes public on Friday.

Well, D SPACs formerly on Friday I mean, it’s incredible that company, it doesn’t have any traditional sand hill road investors on the cap table now. MetaPort doesn’t but Lux cap, Lux capital is the largest investor. And when I say that and what a phenomenal firm they are, and they’re good friends, and they saw that first, um, DCM is also an investor.

Now they’ve been around Silicon valley a long time, but the partners, Jason Kerkorian, who also happens to be a good friend and he was on the board of fuboTV for awhile. And he and his brother, Blake God rest his soul, um, founded sling many, many years ago. So they understand media deeply love. Jason knows for Sure.

Um, so, but, but there aren’t, I mean, there aren’t sequoias and benchmarks and Andreessen Horowitz is, and Xcel’s, and those are phenomenal firms there’s know, bigger, smarter, been around longer than, than we have, but in the media sector,  we’re always looking for more, for more partners and we wish people liked our deals more than they do. 

Yeah. What about just cause I’m curious. What about you and Edgar? Do you guys see, where do you guys differ? But given his experience like running universal studios, does he see the world differently than you ever?

differently than Do you have any areas where you, you know, you just know he likes something more than you do.

Well, so it’s a very good question. And there are specific reasons why, um, you know, I chose Edgar to be the first partner of mind as we continue to build out this, this platform. Um, you know, uh, first of all, um, he, for those that don’t know him, he’s, he’s been a great partner and an even better friend, but he’s smart.

Well, I would say,     Um, I would just say he’s a great compliment to me.  He’s thoughtful. He’s very creative. He’s patient. He’s intellectually curious. He’s a very good listener. He’s empathetic. he’s a kind human being and very balanced and had so many experiences in life and, and that compliments me very well. And in business, And in life, I’d say he’s really a polymath.

I mean, from writing hit songs as a teenager to Purdue, he also was a movie producer actually long before he ran universal studios. He produced movies. He’s run big companies, as I mentioned, and he’s been involved with other early stage startups. A lot of people don’t know that he, um, he co-founded Fandango and helped build that company.

And then that was sold to Comcast over time. 

But given his experience like running universal studios, does he see the world differently than

Well, I would say, I would say, and oh, by the way, he presided over Warner music. When Napster was occurring in the first grade unbundling was happening with the album and the music industry. And this is all well-documented the music industry chose Edgar to lead, um, the industry’s positions. Uh, with music streaming negotiations around what was happening with Napster at the time, I don’t want to speak out of school.

There’s a bunch of stuff in the public domain. Um, I would just say he’s a great compliment to me. We trust each other and each other’s respective skill sets and experiences. I’ve never run a multi-billion dollar company. I couldn’t run a multi-billion dollar company. I don’t think I have a creative bone in my body.

And sometimes if we’re looking at direct to consumer startups that have, a content portfolio, his insight, his insight is better than mine. I would say also his general. Insight in business, having done all of those things is really incredibly, he’s got great judgment, I think he in turn really trusts my investment judgment. That’s what I’ve done for 22 years. I’ve really done almost, almost nothing else. Um, 

let’s stay on your investing then, you’ve been doing it a long time, as you say. how have you, how have you changed or how have you seen things change?

Oh, wow. that’s a great question. Um, I think there’s, first of all, in one respect, all the changes that big media companies are making still provide a great opportunity for startups 

And what do you mean by what sort of big changes?

So for example, Disney made a decision a few years back that they needed to build a direct to consumer business.

And they had to go through, maybe 80 to $90 billion of gymnastics to be able to be in position to do that. The largest fraction of that was buying Fox and the studio and access to more content and getting further control over Hulu. Um, that transaction alone didn’t give them a hundred percent control over Hoover, but, but it increased, um, their, their ownership stake in Hulu.

And eventually they got to a hundred percent. Um, and then they bought this company called BAMTech for roughly $5 billion, which, um, a lot of people don’t even know what it is, but, um, it was the technology stack and technology platform that major league baseball built. Um, in a very robust fashion to be able to deliver, um, major league baseball games directly to consumers in something called mlb.tv, which was one of the first direct to consumer, uh, offerings.

You could subscribe to that. Um, so that’s what I mean by, and then of course they had to rejigger the entire, senior leadership teams and put people in the right seats and the, you know, they spend all this money take all this time. Well, when that happens, that creates further opportunity for startups because it’s distracting, it’s a multi-year distraction for that particular company.

It also results in, fortunately or unfortunately head count, redundancies of very talented media executives that are looking to do their next thing. And so a lot of our portfolio companies have been a great beneficiary of. Those dynamics of big media companies trying to evolve and sort of they’re these massive ships you’re trying to turn in the night and they take years to do it.

Now. Disney has done a phenomenal job thus far. They’ve got a lot more to go, but they’ve really done a phenomenal job, other companies, less. So, but as a result, it does leave a gap and an opportunity for startups who are highly focused and capital-efficient with the right product market fit at the right time to execute into that.

So that’s not changing. That’s, that’s going to continue a pace. I think. Some of the investment themes in our opinion have changed. For example, just like you can’t start a Spotify tomorrow, you can’t start a Roku tomorrow. So we’ve actually had people come and pitch us. Let’s say the last 12 months saying we want to be the next Roku and we’re going to build an OTT platform.

We’re going to do this and we’re going to do that. Or we think we can build a global music streaming service. And here’s what it is. And our viewpoint candidly is no you can’t. Right. And so some of those, some of those opportunities are they’re just played out. That doesn’t mean there aren’t some other interesting opportunities.

Um, like for example, you look at what the athletic has done in sports media. We strongly believe that there’s that opportunity to build a sizeable direct to consumer subscription business, with a unique product offering and unique content base in other niches or other content verticals. We strongly believe that’s possible. 

How about news? Where are we going to get our news from?

well, I think what’s interesting. There is business models have changed and some of the, uh, you’re going to continue to get news. Um, it depends on what, it’s a great question. It depends on what kind of news consumer you are. Like, you know, not you personally, but people may continue to get fake news, and other quackery from Facebook and other places like that, right? 

well, and all the good news is behind paywalls right now. And so actually I’m more inclined to read the quackery.

Well, that’s a personal decision that, that you seem to have made. It’s not one I’ve made the reality is I go back to this, like people who say content wants to be free. No, it doesn’t content does want great content requires a lot of investment and, Uh, you know, the caliber of that content to large degree is a function of the level of investment at really every level, obviously hard dollars distribution modalities, talent, you hire to create that content, how you package, um, um, and curate and offer that content.

Um, and some other really interesting elements. So, um, some New York times will continue to grow by the way. managed to do a very good job of transitioning to digital slowly, but to digital. Um, right. I think they’re either number one or two globally as measured by paid subscribers.

You have the wall street journal. You have New York times Washington post under bayzos is reign is really, I mean, he owns it. He doesn’t run it theoretically. Um, but you know, you’ll continue. That will continue to be very high quality news that costs money from those entities. You’ll have some other aggregators like clearly big tech platforms that will give you.

quantum bits of news you know, apple news is obviously tried to build a subscription product with very mixed results where you’re getting quantum bits of high quality news vanity fair from your times, from here, from there, but going behind the paywall was Yeah.

was the only move, for high quality premium journalism.

Now there are other platforms, um, some of them in the news lately that have aggregated a number of vertical news, sites that, had an ad based business model. They can’t scale independently. You can’t scale against a Facebook or a Google and see where ad dollars flow. If you’re a brand advertiser, you put the majority of your dollars there, but you see what some of them are doing is they’re going out and they’re doing roll-ups basically.

And I mean, it’s no secret that. You know, entities like Buzzfeed over time have done, you know, roll-ups right. And they’re doing a fairly good job of it. 

And their model is, has a lot of e-commerce to it,

it does. And, and more so over time because they need it, actually, if it’s becomes harder and harder, if you have solely an ad based business model to really scale, I would argue over time when they finish doing the roll up and go, you know, it’s back in these back and longer term, I would argue that they would probably have to have different tiers of service or offerings, some of which are premium offerings.

but there are opportunities to build, you know, coming to Like the athletic this company end-all, which creates personalized soundscapes in real time from the cloud. Does it computationally or algorithmically? So content costs are near zero for every modality of a person’s life, sleep, chill, workout, meditate, What have you? it’s

still an early stage company, but it’s actually done a tremendous job with a direct to consumer subscription business and also a B2B business of almost like Dolby inside. End-all inside. In a year from now, you’ll see end-all in, high ASP car brands. I don’t want to say the names of, but you can imagine what they were.

You get in the car and say, play endo or turn on endo. They’ll be in high-end speakers. There’ll be in, Bluetooth earphones. And it’ll be a whole experience. Non-music audio or derivatized content. a while you can’t, in our opinion, build another Spotify. You can build an endo into, we believe over time, a multi-billion dollar enterprise value company. We think the Peloton is of the, you know, obviously Peloton is a very interesting company. We think there are others out there like that, some that are kind of well-known in mid and late stage, but others are not.

And we think over time, consumer electronic hardware, which we’re certainly not afraid of plus software plus services, we think there’s more enduring models or companies there to build. 

so Danielle we’re, um, we’re about a time you didn’t have a severe T whatever. Don’t let me like, keep you talking. Is there anything else? I mean, I probably would wrap it up here and say a couple of things. Is there anything else you want to make sure we cover in our like one minute left that we have here?

Otherwise I’ll kind of, 

I think your questions have been, been very astute and

I could ask a hundred more. Um,

Oh, I would say one other thing that people, you know, when we talk, we say we keep a low profile and we let the caliber of our investments really speak. Um,

for the, um, for the reputation of the firm. Um, most of our investments are in Los Angeles and New York.

While we have an office in Palo Alto and we have an office in New York. We only invest in media companies and more and more over time, those are in LA and New York. We do have a couple of companies in Silicon valley. So I spend, uh, you know, almost half of my time in LA. And so we’re very active in the LA market from that perspective.

Um, but, uh, we stay under the radar. 

Yeah. And that actually, I was going to ask that you don’t seem, you seem to sort of try to stay out of the Silicon valley hype. And I think you told me I think he said something like you’d like to hang out with deer.

Yes. Well, that’s good. So, um, you know, I decided, uh, so our office is in downtown Palo Alto and I was living in, in close to downtown Palo Alto for many years. And when COVID hit, I realized I don’t really need to go to the office much. And, you know, I find over time that I learned this lesson from a bunch of friends that run hedge funds, that if you are away from the noise.

You are able at times to, think more clearly about big vision, long-term strategic things in the spaces in which you invest, you are able to have maybe some novel and or contrarian ideas. And so I decided to move to Los Altos Hills, um, and really just, I guess, turn down the noise, so to speak and in doing so, I interact with Deere a lot.

It wasn’t a joke. There are deer on my property quite frequently, and deer, I take long walks in the Hills, every day and they’re a deer. and they’re very interesting majestic creatures. but so it was kind of  📍 tongue in cheek, but I spend time with deer.

I love it. Well, Daniel, I am so glad that you were helping to build up the tech, community and the ecosystem here in Los Angeles. And at the same time, also able to spend time with the deer in your yard. 

Well, thank you. Thank you very much. I appreciate. 

Thanks for coming on the show.