Sara Lacy recently wrote a post for Tech Crunch that pulled entrepreneurial lesson’s from Arcade Fire, one of the hottest indie pop-rock groups in the world. At the 2007 ACL Festival, Cold Play said “after seeing them, we almost quit” because they are so good. Sara’s post describes them as:
“A big part of what made them so phenomenal wasn’t just the music it was how they played. They were a wild, musical-chairs-cacophony, going totally ape-shit on instruments as varied as a megaphone or an accordion, and yet somehow they produced a tight, controlled sound.”
I have long thought I aspire to work in a startup that functions like Arcade Fire, but my experiences here in Austin make me think it would be less risky to join a startup that is more like Britney Spears (or Spoon, to give a shout out to local rock stars). Specifically, I think that in Austin, the Britney Spears’ type startups are much, much more likely to get funded – probably more than 4:1. This may not be the case on the West Coast, and in fact, it may be opposite.
Why? My impression of Austin investors is that the pitch of “look how awesome our team is, we don’t know what we are going to do, but when we do it, it will be amazing” doesn’t fly. The Britney Spears model is a very tightly defined product with as few moving parts as possible. There is only one face to the world so they only have to train one person on media interaction, the revenue split (i.e., equity) is clearly defined by industry rules for the writer, producer, artist, promoter, etc. – even in a 4 person rock band, there is generally clear understanding of the split between the singer, bass guitarist, drummer and lead guitarist, etc.
For startups in Austin, there is a known talent pool that can fill in clearly defined roles and focus on execution, investors want to see explicit customer validation – revenues, contracts, letters of intent, etc., and several other proof points before investing. The overall theme here is risk reduction by investors. This is very rationale and I would probably act the same way if I was running a fund. But, it can be frustrating to those entrepreneurs who are first timers or in a rapidly evolving space (i.e., small market size but with expected explosive growth) where the paths to market, competitive dynamics and customer requirements are unknown.
The other issue is that there are not many Arcade Fire-like teams around Austin – possibly a self-fulfilling prophecy. Austin Ventures sort of does this with the “high profile CEO $50M VC roll-ups”, but that is with a proven single leader. Austin Ventures and some other firms will have entrepreneurs in residence (EIRs) that explore spaces while getting a small stipend from the firm, which is a bit closer. In recent memory, the only teams that I have seen that could approach the Arcade Fire model is very early on at Calxeda (formerly Smooth-Stone), or Macheen (still in super stealth mode but is a “global cloud service provider for connected devices” – do you know what that means yet?), or perhaps the closet fit is InfoChimps. There is a potential gaming company in the works that might actually be a true Arcade Fire model, but I do not think it has yet fully come together.
Many investors, entrepreneurs, and startup supporters have mentioned that Austin has not had any massive home runs lately – meaning $1B plus. There may be a correlation with the type of startups that get funded here – there are a lot of $50M – $250M exits that generate wealth for the entrepreneurs and investors, but since risk and reward are correlated, the risk reduction mentality may be stemming the flow of potential massive home runs.
