20 VC 055 David Pakman @ Venrock on The Future Of The Music Industry

In episode 54 of the 20 Minutes VC, host Harry Stebbings interviews venture capitalist David Pakman, a partner at Venrock with a rich background as an internet entrepreneur and music industry innovator. Pakman, who led eMusic and co-founded MyPlay, shares his journey from Apple's Music Group to VC, emphasizing the intellectual curiosity and sector knowledge that drive his investment strategies. He discusses the transition from CEO to VC, the importance of non-consensus investments, and the challenges facing the music industry, including his skepticism about Tidal's business model. Pakman also touches on the future of venture capital, the disruption of traditional brands, and the importance of a growth mindset for success.

• David Pakman is a partner at Venrock.
• He has a rich history as an Internet entrepreneur.
• David was the CEO of eMusic and co-founded MyPlay, which was sold to Bertelsman Ecommerce Group.
• He was also a co-creator of Apple Computers Music Group.
• David transitioned from being an entrepreneur to a venture capitalist, focusing on early-stage startups.

"He was the CEO of eMusic, the world's leading digital retailer of independent music, second only to iTunes." "David co-founded my play in 1999, which he then sold to Bertelsman Ecommerce Group." "David was also co-creator of Apple Computers Music Group."

The quotes highlight David Pakman's significant contributions to the digital music industry, his entrepreneurial success with MyPlay, and his role in establishing Apple's Music Group, showcasing his expertise and experience in the tech and music sectors.

• David Pakman has been a venture capitalist (VC) for about seven years.
• His venture capital work is motivated by a desire to engage with multiple market segments due to his intellectual curiosity.
• The transition from CEO to VC involved adapting to a supporting role, where CEOs of portfolio companies make the final decisions.

"After that, I joined Venroc and became a VC." "The hardest part though, is appreciating that you're not the one in charge anymore and that the CEOs that you're backing are the ones who are in charge."

These quotes explain David Pakman's career shift to venture capital and the mindset change required when moving from a leadership role in a startup to a supportive role as a VC.

• David aims to be the first call for CEOs when they need advice or face challenges.
• He is actively involved as a board member but respects the CEOs' decision-making authority.
• His goal is to help CEOs anticipate future challenges and opportunities, looking beyond the immediate operational horizon.

"We really try to be as helpful as we can be to CEOs." "I think the best thing we can do is share our own experiences. And really what I try to do is help CEOs see around corners."

The quotes emphasize David Pakman's proactive and supportive approach as a VC, where he leverages his experience to guide and assist CEOs in navigating their companies' futures.

• David holds five to six board seats, which allows him to be sufficiently involved without being overwhelmed.
• The balance enables him to dedicate time to each company while also evaluating new deals.

"I'm on about five or six right now." "Yes. Also, I'm looking at new dea"

The quotes indicate David Pakman's current level of board involvement and suggest his ongoing engagement in exploring new investment opportunities.

• David Pakman describes his transition from the music industry to venture capital.
• He highlights the excitement of being an innovator rather than struggling with change in a disrupted industry.
• Pakman believes small companies are better at innovation than large companies.
• He expresses no interest in working for a big company again, preferring startup land.

"And watching that up close, it became clear to me that the best way to participate in that disruption is as an entrepreneur being the disruptor as opposed to trying to survive the disruption."

The quote explains Pakman's realization that actively participating in industry disruption through entrepreneurship is more rewarding than trying to adapt to changes passively.

• Sector knowledge is considered essential for informed investing.
• Pakman acknowledges that VCs may not have as much sector-specific knowledge as entrepreneurs but emphasizes the effort to become experts in focused sectors.
• He quotes Louis Pasteur, implying that being prepared increases the likelihood of capitalizing on opportunities.

"We like to be really prepared so that if someone comes in in an emerging sector, we've got some understanding, enough to be able to recognize that this could be a really exciting company."

This quote highlights the importance Pakman places on preparation and sector knowledge to identify potential investment opportunities in emerging sectors.

• Pakman defines a great entrepreneur as a "force of nature CEO."
• He emphasizes their relentless focus, passion, and strong belief in their vision.
• Great entrepreneurs are distinguished by their refusal to let obstacles deter them from achieving success.

"The ability to bend the world to their will."

This quote encapsulates the essence of what Pakman believes makes an entrepreneur stand out: the determination and drive to shape the world according to their vision.

• The potential of entrepreneurs is often apparent in the first few meetings.
• Pakman suggests that while immediate impressions are telling, understanding someone's full capabilities may take time.

"I think mostly it reveals itself in the early first and second meeting."

This quote indicates that Pakman typically perceives the qualities of a strong entrepreneur early in the evaluation process.

• Venroc's investment timeline is balanced between quick investments and extended relationships.
• The ideal scenario involves a few months of interaction before investment, offering support and advice to potential portfolio companies.

"The ideal scenario is to have a few months of working relationship..."

This quote describes Venroc's preferred investment approach, which includes building a relationship with potential investees before committing capital.

• Pakman discusses his personal value addition to portfolio companies based on his experience as a founder and CEO.
• He offers empathy and practical advice, drawing from his own successes and mistakes.

"So having gone through that, I feel like I'm well equipped to empathize with these same challenges..."

The quote reflects Pakman's belief that his firsthand entrepreneurial experience enables him to provide valuable support and guidance to other entrepreneurs.

• Venture capitalists (VCs) often act as advisors or mentors in addition to providing funding.
• A strong, trust-based relationship between VC and CEO is crucial.
• The boundaries between investor and CEO roles can become blurred in a productive partnership.

I try to be a real strong friend, a partner, somebody where the boundaries of investor and ceos start to melt away a little bit and we can have a strong and productive relationship that is based on trust and mutual respect.

This quote highlights the importance of a VC's role extending beyond financial investment to include personal support and guidance, fostering a relationship that goes beyond typical professional boundaries.

• Deal sourcing is essential for VC success.
• Speaker B prefers not to share their strategies for sourcing deals to maintain a competitive edge.
• The venture capital market is highly competitive, especially for deals that are currently trending.
• Speaker B focuses on non-consensus investments, which are not yet popular or widely believed in by most VCs.
• Examples of successful non-consensus investments include Dollar Shave Club and live streaming platform YouNow.

But I'll offer a strong point of view I have is that right now venture capital is super competitive and it's a very efficient market at funding things that are working right now.

This quote suggests that the current VC market is saturated with investors looking for immediate, proven successes, making it difficult to find value in trending investments.

So my goal is to find things that aren't happening yet, really. I would call them non consensus investments.

Speaker B's strategy is to invest in future trends that are not yet recognized by the majority of VCs, indicating a focus on foresight and innovation.

• Speaker B has a track record of accurately predicting technology trends.
• This skill is attributed to long-term observation and experience in the technology sector.
• Speaker B believes that certain future developments are predictable before they become widely accepted.

One thing I've been consistently good at is predicting things that I think are likely to happen based on technology trends.

The quote reflects Speaker B's confidence in their ability to foresee technological advancements and their potential impact, which is a key skill for a successful VC.

• Venture capital, like all industries, is subject to disruption.
• The practice of venture capital is evolving due to new platforms like AngelList and crowdfunding.
• VCs must adapt to changes in data sources and startup tracking methods.

I think like all industries, venture will be disrupted.

Speaker B anticipates that the venture capital industry will continue to change and adapt, mirroring the expectation of adaptability they have for the companies they invest in.

• Traditional brands are being disrupted as they shift from indirect sales channels to direct customer relationships.
• The media industry is undergoing a fundamental shift from scarcity to abundance, requiring a focus on platforms for content creation and sharing.
• Speaker B believes direct-to-consumer models and platform-based media will dominate future landscapes.

I'm confident that the only model that will really work in the future, or the model that will work best in the future are brands that have direct relationship with customers.

This quote emphasizes the growing importance of direct consumer engagement for brand success, suggesting a significant shift in traditional business models.

You have to build platforms on which other people create and share content.

The quote indicates a belief in the necessity for media companies to create platforms that empower users to generate and disseminate content, rather than relying solely on exclusive content.

• Speaker B criticizes Tidal's launch and overall product concept.
• The streaming music service is seen as undifferentiated in a crowded market.
• Tidal's strategy to differentiate itself was not compelling or effective.

Well, I think the concept was flawed from the beginning and I think the launch was a disaster.

Speaker B expresses a strong negative opinion on Tidal's market entry and product strategy, suggesting that it lacked the necessary innovation and differentiation to be successful in the competitive music streaming industry.

• Tidal's ownership by aging superstars is not appealing to consumers.
• Exclusive content strategy is flawed as artists prefer larger audiences.
• Tidal has had a negative social receptivity and is predicted to fail.
• The platform's future is uncertain, with a complete failure as a possibility.

"The owners are 13 or 15 aging superstars is just not a consumer value proposition that anyone cares about now." This quote indicates that the ownership structure of Tidal, which consists of older, well-known artists, is not attractive to the platform's target audience.

"The social receptivity was really negative and I think it will ultimately completely fail." This quote suggests that the public's reception of Tidal has been largely negative, which contributes to the prediction that the platform will not survive in the market.

• The past five years have been great for consumers with various music platforms available.
• Independent digital music providers face commoditization and profitability challenges.
• Big tech companies like Apple, Google, and Amazon are likely to succeed due to their indifference to profits from music alone.
• iTunes is predicted to be a sustainable service but might not reach its goal of 100 million paid users.

"Almost no one can make money in them. None of them are profitable." This quote emphasizes the financial difficulties faced by digital music services, highlighting that profitability is a significant issue for these platforms.

"The only companies that are likely to succeed are the ones who really don't care whether they make any money from music, like Apple and Google and Amazon." This quote suggests that companies with diversified business models not solely dependent on music revenues have a better chance of succeeding in the digital music space.

• Favorite book: "Mindset" by Carol Dweck, which discusses the psychology of success and the growth mindset.
• Career highlight: Pitching artists for Apple's streaming music network and interacting with personal idols.
• Favorite newsletter/blog: Ben Thompson's Stratechery for its business model insights.

"Currently, it's mindset, which is a book by Carol Dweck about the psychology of success." This quote shares a personal favorite book that has influenced the speaker's thoughts on success and overcoming challenges.

"Know, the favorite moment of my career was when I was at Apple and I was pitching artists to work with us on our new streaming music network." This quote recounts a memorable career experience that involved engaging with influential musicians, highlighting the speaker's passion for music and business.

• Advice for the past self: Be different, have an angle, and think independently from popular opinions.
• Recent investment in YouNow, driven by strong leadership, focus on a key demographic (teens), and rapid growth.

"Find ways to be different from others, really have angle, think differently than others, don't depend on or be influenced by what the popular thoughts at the moment are." This quote offers advice on the importance of individuality and critical thinking in achieving success, rather than following the crowd.

"That was you now, and I've talked a little bit about it. I said yes because it's led by an extraordinary leader." This quote explains the rationale behind a recent investment decision, highlighting the significance of leadership quality and target demographic in the success of a social platform.

• Special thanks to Hiring Screen for streamlining the hiring process.
• Gratitude expressed for the opportunity to participate in the podcast and for the engagement of listeners.

"It's super an honor to be a part of it. And thank you, Harry, for having me." This quote reflects the speaker's appreciation for being featured on the podcast and the opportunity to share insights with the audience.

"I'm so grateful hiring screen and thank you so much for listening and we look forward to seeing you all in the next episode." This quote conveys gratitude towards a service that has been helpful in the hiring process and to the listeners for their engagement with the podcast.