I’ve always had a lot of time for “venture capitalists” or “VCs”. These are usually at least somewhat experienced business people who understand how to recognize a good idea when they see it. There are a handful who have actually change they way the world works and they work closely with entrepreneurs to help them build companies that all too often don’t actually work out. The good ones are there in the good times and there in the bad.
When I first got to Silicon Valley, I was trying to learn that venture business and how it all worked. About midnight one night I walked into a friends office and exclaimed, “Eureka–I get it. Instead of the lawyers shopping the band with a demo to a record company, you have the lawyers shopping the entrepreneur with a business plan to the VC. I know how to do this, this is easy!”
I have rarely been more correct about an insight, but it was not well received. Yet it was true and I proceeded to raise several hundred million on that theory. But I kept it to myself. These guys do not like being compared to “Hollywood” on any level. As one VC told me with a sniff, if Hollywood doesn’t stop charging such high royalties, we’ll stop investing. To which I replied–you mean you’ll stop investing in artists? Oh, no. You don’t do that. You mean you’ll stop investing in companies that profit from piracy? Oh, no, you don’t admit that you do that (particularly after Universal sued VCs over Napster).
The truth is, that there is a simmering condescension that the VC community has for “Hollywood”–actually symptomatic of the tech community as a whole. (Speaking in generalities, of course, but clichés are repetitive.) I’ve sat in meetings with high level executives from companies as far apart as big hardware manufacturers (not Apple) and Internet startups who know little about the entertainment industries, but who rattle off a reality based from reading not from experience. And who have they been reading?
Lessig, Wired, Ars Technica, yadda yadda yadda, sources that always set up the same straw men and then knock them down in ways that are ever more void of facts and more frequently a hysterical villianization of artists and the creative community that sounds more and more like the propaganda machines of some nasty people.
And of course, you can’t very well blame the poor entrepreneurs who are asked to go along with them on these public statements. Are you doing to be known as the guy who stood up to Kleiner? Don’t forget–these are 1% guys who are used to getting their way.
Even so, the VC community is generally a pretty soft spoken, below the radar bunch. Why are they so incensed about the rogue sites legislation, particularly the House bill, the Stop Online Piracy Act.
When the Stop Online Piracy Act was introduced, I noticed one provision way down in the bill that began to explain why the venture capital community was so up in arms. Not a lot of attention has been paid to this section–I haven’t seen any of the VC/entrepreneur types mention it specifically–but given the way legislation works, the VCs’ lobbyists no doubt knew it was coming from negotiations with House staff.
“SEC. 107. DENYING U.S. CAPITAL TO NOTORIOUS FOREIGN INFRINGERS.
(a) IDENTIFICATION AND RECOMMENDATIONS REGARDING NOTORIOUS FOREIGN INFRINGERS.—
(1) IN GENERAL.—Using existing resources, the Intellectual Property Enforcement Coordinator, in consultation with the Secretaries of Treasury and Commerce, the United States Trade Representative, the Chairman of the Securities and Exchange Commission, and the heads of other departments and appropriate agencies, shall identify and conduct an analysis of notorious foreign infringers whose activities cause significant harm to holders of intellectual property rights in the United States.”
Interesting…but here is the punchline that has no doubt got the VCs all up in arms:
“(b) REPORT TO CONGRESS.—The Intellectual Property Enforcement Coordinator shall, not later than 6 months after the date of the enactment of this Act, submit to the Committees on the Judiciary of the House of Representatives and the Senate a report that includes the following:
(1) An analysis of notorious foreign infringers 11 and a discussion of how these infringers violate industry norms regarding the protection of intellectual property…
(5) A discussion of specific policy recommendations to deter the activities of notorious foreign infringers and encourage foreign businesses to adopt industry norms that promote the protection of intellectual property globally, including addressing—
(A) whether notorious foreign infringers that engage in significant infringing activity should be prohibited by the laws of the United States from seeking to raise capital in the United States, including offering stock for sale to the public; and
(B) whether the United States Government should initiate a process to identify and designate foreign entities from a list of notorious foreign infringers that would be prohibited from raising capital in the United States.”
And, dear readers, I would suggest to you that it is that last sentence that has got the venture capital community motivated. That sentence means that they can’t keep getting richer from the human misery of their fellow citizens.
And that sentence also, of course, begs the question: If notorious foreign infringers are prohibited from raising capital in the United States, then surely notorious American infringers should also be prohibited.
Yes, laws like that can ruin your whole day if you want to “get into” the latest hot infringer from China (see Xunlei IPO).
Take this piece by Flatiron Ventures’ Fred Wilson about how hard done by the VC community is by not being able to invest in rogue sites:
“The content industry’s lobbyists have forged two new bills, one in the Senate called Protect IP and one in the House called E-Parasites [huh?]. These bills were written by the content industry without any input from the technology industry. And they are trying to fast track them through congress and into law without any negotiation with the technology industry.”
I guess Wilson didn’t watch the two separate Senate hearings and two separate House hearings on rogue sites legislation–with Godaddy, Verizon, Rosetta Stone and…Google all testifying. Wilson should ask Google general counsel Kent Walker about that hearing, I’m sure he remembers it well given that the IP subcommittee handed him his head several different ways.
And maybe he isn’t involved in the extensive negotiations over this legislation with stakeholders that has been going on for months.
I realize that VCs are used to getting their way, but just because the Google talking points didn’t address these hearings and negotiations…sorry…just because Wilson isn’t aware of these hearings and negotiations, doesn’t mean they didn’t happen.
Another point of potential interest to Wilson–there are these things called “unions” and they do this thing called “collective bargaining”? May have heard of it? (And no, “collective bargaining” is not VCs setting a valuation.) Even though practically all VC investements are in nonunion companies, one would expect Wilson to at least address the fact that there is no union opposition to the rogue sites legislation, and the Directors Guild of America, American Federation of Musicians, American Federation of Television and Radio Artists, Screen Actors Guild, and the International Alliance of Theatrical and Stage Employees, the International Brotherhood of Electrical Workers as well as the Songwriters Guild of America and the AFL-CIO all support the legislation. In Wilson’s view, only tech companies create jobs it would seem. That’s just not true.
And Wilson also doesn’t seem to be aware of the public health issues involved that are designed to protect people who are taken advantage of by counterfeit drug sellers. Wilson’s piece is a prime example of the kind of unsupported and wild accusations and spinning of the facts that frankly seems to demonstrate an extravagant and irrational devotion to the grandiosity of “innovation” attributing near magical powers to these talismanic objects of consumption that permit a leap of reason.
I was actually looking forward to reading a well-thought out explanation of why it was important to permit US companies to invest in foreign rogue sites rasing money in the U.S. capital markets. Oh, well, maybe next time.
There is a difference between innovation and theft–but while this seems obvious, that distinction seems to be lost in a grandiose belief in the positive effects of crime. When you’ve got them by the bucks, their hearts and minds will follow.
Music Technology Policy 