Archives: Events

Jimmy Chamberlin of The Smashing Pumpkins on the Monetization of Music in the Digital Age

DiffuseTap Virtual Event Series – April 7, 2021

“The costs have come down significantly. It’s allowed a lot of creatives to get involved. For a lot of artists, if they lived in the norm of the past environment, they would never have seen the light of day. Now you’re seeing people who are existing purely on their talent, and purely on the fact that they’re either really good songwriters or really good marketers.” – Jimmy Chamberlin, The Smashing Pumpkins​

Last time on DiffuseTap, Jimmy Chamberlin, CEO of Blue J Strategies, also most known as a founding member and drummer of The Smashing Pumpkins, talked about the potentially exponential gains in purchasing music catalogs in the digital age, crowdfunding platforms built on the foundation of strong artist fanbases, and where the music industry is headed in light of the new normal.

Listen to the full audio or download last week’s event transcript here.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.

Emily Chew of Morgan Stanley on the state of sustainable investing – and what lies ahead

DiffuseTap Virtual Event Series – April 14, 2021

“Financial statements are basically a backward-looking view of what just happened, and the day that they’re released, they immediately become historical. Whereas ESG factors or considerations can give us a better understanding of the fuller picture of the environmental and social resources that a company is relying on, which are not currently materialized in the balance sheet or in the income statement.” – Emily Chew, Morgan Stanley

Last time on DiffuseTap, Emily Chew, Global Head of Sustainability for Investment Management at Morgan Stanley, talked about what sustainable investment really means, how funds and companies will be affected by the imminent global enforcement of ESG, and why you might want to avoid hopping on the “sustainable fund manager” bandwagon.

Listen to the full audio or download last week’s event transcript here.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.

Shafin Diamond Tejani of Victory Square Technologies and Matt Bailey of GameOn on IPO as a preferred exit strategy

DiffuseTap Virtual Event Series – April 21, 2021

“You want to have a good base of supporters upon listing. If you’ve got a tight structure at the time of listing, the share price can be traded at a bit of a premium. That helps the business use its stock as currency to roll up assets at a premium, or raise money on the equity market at a premium.” – Shafin Diamond Tejani, Victory Square Technologies.

“We wouldn’t qualify for the traditional SPAC requirements, and we weren’t really looking for something even like that… And I still don’t know the answer as to why startups don’t understand that this is a path to access capital, to access growth and get liquidity, as opposed to the traditional VC route. It’s not a sure path to guaranteed success, but it’s a viable path.” – Matt Bailey, GameOn

Last time on DiffuseTap, Shafin Diamond Tejani, CEO at Victory Square Technologies, and Matt Bailey, Founder and CEO at GameOn talked about about going public on a global scale – in baby steps – and why some startups might forgo the traditional partnership with a SPAC or VC and decide to take the IPO route, instead.

Listen to the full audio or download last week’s event transcript here.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.

Remy Astie and Ulric Musset of VAUBAN on why SPVs outperform traditional funds

DiffuseTap Virtual Event Series – April 28, 2021

“I love the analogy that essentially, a fund is like a marriage. Investors are going to lock their money up for the next 10 years, so they need to make sure they can trust you as a general partner… But for an SPV, it’s way more flexible. It’s like casual dating.” – Ulric Musset, VAUBAN

For emerging managers looking to get to market and quickly build a reputation, and sans the admin burden of a full fund structure, SPVs are a viable option.

Last time on DiffuseTap, Remy Astie and Ulric Musset, Co-Founders of VAUBAN discussed the practical advantages that SPVs have over traditional funds (and vice versa), the coming wave of low-touch investment vehicles, and how fund managers will naturally transition from SPVs into full-fledged funds.

Listen to the full audio or download last week’s event transcript here.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.

Dimitra Rizzi and Stephanie Lind of Elohi Strategic Advisors on what’s new in food tech

DiffuseTap Virtual Event Series – May 5, 2021

“Retail is very expensive. It’s getting harder and harder to get into retail, especially with the consumer changing how they purchase. It’s very tough to get the consumer down the aisle, and there’s not a good way to have them try things. Brand can be important… But don’t look at the brand as the only way to build a scalable, profitable business in the food space. When we see founders that are adamant to get into retail, or to start in food service and that’s all they think about, that for us is a red flag. Because it tells us they’re not stepping back and thinking about the business holistically.” – Stephanie Lind, Elohi

From ‘farm to table’ to ‘lab to ladle’? Will feeding the world soon depend less on agriculture and more on food technology?

Last time on DiffuseTap, Dimitra Rizzi and Stephanie Lind of Elohi Strategic Advisors talked to us about the latest groundbreaking innovations in the food industry (spoiler alert it’s not just plant-based foods) and everything investors need to know before they start placing their bets in food tech.

Listen to the full audio or download last week’s event transcript here.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.

Venu Raghavan of Wasson Enterprise on 2021’s booming market for blank check companies

DiffuseTap Virtual Event Series – May 12, 2021

“With SPACs, you’re seeing companies that require a certain level of financial health and financial profile as well. But the other thing that you are seeing with SPACs though, is that companies that traditionally wouldn’t have gone public — except in the area of biotech, where you’re looking at earnings well into the future — have been able to go public via SPAC.” – Venu Raghavan, WE

Special purpose acquisition companies raised more funds in Q1 alone than for all of 2020. So, are SPACs a fad or are they here to stay?

Last time on DiffuseTap, Venu Raghavan, VP of Strategy and Development at Wasson Enterprise, shed light on the SPAC boom, what accounts for the renewed popularity of blank check investment vehicles, and what the recent SEC clampdown means for aspiring SPAC sponsors.

Listen to the full audio or download last week’s event transcript here.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.

Everyone likes the movies. They’re fun, a good way to relieve stress, and they’re profitable. But if you think getting returns from movies is a walk in the park, think again.

With industry-disrupting streaming platforms such as Netflix, the shutdown of cinemas and film festivals, and a wobbly demand-to-supply ratio for content during the pandemic, the film industry is with its fair share of losses. Moving forward, putting money in motion pictures is going to be trickier than usual.

During our latest DiffuseTap event, we had a unique opportunity to explore what goes on behind the scenes, particularly on the finance side, with our guest speakers AJ Salmen, producer and co-founder of SolCo Entertainment, and Roger Welp, director of alternative investments at RCM Alternatives, producer, as well as former actor.

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll DiffuseTap new ideas). If you want to make new friends and connect with experienced professionals from our VC ecosystem, email us at contact@diffuse.vc.

It All Starts With a Little Bit of Equity

There is a veil of mystery surrounding the finance side of the entertainment industry, and very few of us know what actually goes on behind the scenes. But Roger Welp, who has been in the entertainment industry for over 26 years, says it’s not much different from funding a startup. Similar to other projects, it all starts with equity.

“Financing a project starts with equity. You have to put together a pitch deck and a finance model. And you want to have an exit strategy. It typically takes equity to attach talent and directors, and helps facilitate the process. The more equity you have, the more control you have over a project.”

The Need for an Exit Strategy

Another way investing in films is similar to investing in a business is that you have to have an exit strategy. Because of the nature of the industry and the lack of guarantee, AJ argues that an exit strategy must be established from the get-go.

“The exit strategy really should be built-in first. I came into the industry through the business side. I started out arranging marketing and monetization strategies for projects before their ‘street date’. Because of that experience, now that I’m producing, I typically come to a project with the exit plan in mind first. The truth is, no matter how good your director is or how much you believe in the script, in the end there really are no guarantees.”

Netflix Just Dipped: What Does it Mean for Streaming?

Netflix has had some highs and lows over the years, but recently saw major setbacks in its quarterly reports. What does this mean for the streaming boom?

Roger says that, despite what the numbers are saying, Netflix is not going away anytime soon. More than anything, it’s growing bigger by the day. The problem they’re currently facing is having to deal with that rapid growth, especially in terms of content.

“I think there’s no way that it’s finished, but I do think Netflix is definitely struggling a little bit there with content. They grew really fast, they bought an $18 million studio in New Mexico and Albuquerque. I think they’ve gone through a lot of changes, and they’re still trying to figure out what that sudden growth means. All of a sudden, they’re starving for content like all the others are.” 

AJ echoed Roger’s sentiments, saying Netflix is not going anywhere, and that advertising-based video on demand (AVOD) will become a larger player gaining larger market share.

“Some of the economics might change, but I think AVOD is an absolute win for everybody, including the consumers. Netflix’s inability to put a new splashy product out because of the pandemic may have hurt them a little bit, but streaming definitely isn’t going away. We’re going to see a lot more direct-to-consumer over the next couple of years, I believe.”

Types of Investors

Investing in movies is no easy foray. Sometimes there might not be returns at all. Therefore, investors typically support a movie because of a personal cause. Much like any other form of art, you do it as a labour of love, AJ explains.

“The type of investor that you get basically depends on the project and its premise, and the motivation of the investors. There’s investors that love to promote films that celebrate humanity and inclusivity while also having a commercial chance, but they want to get behind a film that they can identify with first. 

“There’s also investors who come into film for pure profit. For those business focused individuals, it is important to understand their risk tolerance and craft a plan that aligns with their alternative investment strategy identifying content as an asset class worth the allocation. But if you want to have your hand in films, you obviously have to have a passion for it. Like many alternative investments, there are ups and downs, if you do know love what you are doing, you probably shouldn’t be in the game.”

Obviously however, passion doesn’t put food on the table. So what AJ aims for when discussing with investors is that model that balances the cause with the necessary commercialization, similar to how you would build a business plan for most of your businesses. It all has to start with the story, the story must be good. And then, you can craft the correct strategy to market and monetize with some risk mitigation built in.

“In a VC sense, you want to build a floor. You’re swinging for the fences, so you want to build a floor that you know you can at least preserve capital, and not swing wildly for a grand slam without any type of break-even plan set in place. That’s the type of plan I put in front of a more monetary, motivated investor, rather than one that might look at cause first.”

There are a lot of parallels between investing in a movie and investing in a business. One is that you want to fund an idea you stand for. Another is you have to manage the risk that comes along with it.

There are a number of great films that weren’t box office hits right out of the gate but eventually became cult classics (e.g. Blade Runner, The Big Lebowski, etc.), and a lot of passion went into them. At the end of the day, you really have to do it for love.

 

Meet the Speakers

AJ Salmen is a film producer. In 2009, he co-founded SolCo Entertainment, a motion picture company that runs the whole gamut of film distribution services including management and projections, cash flow, and film valuation.

Roger Welp started his career as an actor and later ventured into the alternative investment space with futures and derivatives trading. He is now the director of alternative investments at RCM Alternatives, an investment management firm that helps investors, asset managers, and brokers succeed in the alternative investment space.

About the Host

Diffuse is a fund ecosystem that incubates and runs select funds. From investment thesis to fundraising and deal flow management, we cover our GPs end to end. If you want to spin up your own fund, get in touch with us at contact@diffuse.vc. We would love to see how we can help.

If you thought you had explored it all, from entertainment projects with guaranteed returns to revenue-based financing with a 3x return multiple, it’s time to meet the new kid on the block: Litigation Finance. While it may be a fresh alternative investment niche, it’s worth taking a look at its stunning return on capital potential and the light 3 year investment timeline. 

During our latest DiffuseTap session, we had the opportunity to dig into the details of this new asset class with two lawyers who are leading the charge in bringing legal claims in impact cases made by Public Sector Entities to the forefront of litigation finance: Michael P. Kelley, corporate partner at Parker Poe Adams & Bernstein, and W. Grant Farrar, founder and managing director of Arran Capital. 

What is litigation financing?

Litigation financing turns a legal claim into an asset. Cases come in all shapes and sizes, from commercial, to consumer and public sector entities financings. Which case type a legal funder chooses to fund depends entirely on whether the prosecuting law firm and client are able to demonstrate merits and damages for the claim and probabilistically predict the odds of a favorable outcome. 

The mechanics of a case are a bit more complex than a standard financing deal. According to Michael, there are generally three parties to a litigation finance transaction: the funder, which is a third party that funds the litigation in hopes of a return; the law firm, which benefits from the funding directly or indirectly by having its fees and costs paid; and the claimant, or the aggrieved party.  

Traditionally, financing litigation comes from scenarios wherein an aggrieved party is not able to finance certain claims so they reach out to a third party for financial help. However, over the years financing litigation has proven to become an effective investment model. Michael explains: 

“The nature of litigation funding relates to parties who have had a history of not being able to finance their claims, so they’re seeking out third party funding to help them. Increasingly, however, we’re seeing more strategic use by large corporate entities, and even by law firms who are financially very solvent.” 

Litigation funding can have a meaningful impact on the funded entity’s bottom line by providing the working capital that helps companies and law firms manage their balance sheets, optimize cash flow, and re-invest in growth. 

Legal funding in the public sector

As niche as litigation finance may be, according to Grant, there is already an estimated $8 to 10 billion AUM worldwide deployed in the space. Leveraging his deep domain expertise in public sector litigation, Grant’s firm, Arran Capital, focuses its practice to only service litigation cases in public sector entities. 

“If you think of cities, states, counties, or villages in the United States, they’re very active in litigation, usually as plaintiffs. They may be suing, for example, an opioid manufacturer in court, and they may need funding. But there is no litigation fund dedicated specifically to public sector entities. So that’s where we’re coming in.”

Grant calls Arran Capital’s model a “niche within a niche,” with an impact investing component. It allows citizens to get behind and fund their local government or any cause they care deeply for.

The profitability of these cases can be impressive. Citing ‘Dark Waters,’ a recent blockbuster film about a famous case against a big chemical manufacturing corporation, Grant says public sector litigation funding has proven to produce very attractive returns.

“On our end, usually it’s a public sector entity suing somebody to stop their conduct and recover money. Therefore, you’re talking about potentially billions of dollars nationwide that states, cities, and counties are going after. Factor in the civil penalties, the triple damages (under some statutes), and you can bet the risk-return profile on that is pretty attractive.”

The positive social impact of litigation funding

While funders are generally for-profit, litigation funding tends to scratch a ‘moral and social itch’, addressing an underlying imbalance in the system. Grant says that in cases particularly related to patent claims, he’s seen litigation financing help smaller companies prevail against big corporations:

“Particularly in the patent realm, in the private sector litigation finance world, the way the discussion has been evolving is about these ‘David versus Goliath’ cases, wherein a small company gets big-footed by a big company on a patent issue. From what I’ve seen, litigation financing has really helped those smaller companies survive, and eventually prevail in court.”  

Michael echoed Grant’s statements, saying more often than not, he’s heard great stories of how litigation funding has turned small companies around, and how financing market capital is becoming a trend:

“I think there is an increasing tendency for funders to finance working capital for a lot of these companies. In some of these David and Goliath stories, the claimants are coming to the funder on their last legs. They’re having to lay people off, and their business has been destroyed because of the events.

“In such cases, the funder provides working capital for the company to keep people in place and keep the company operating, to see it through the litigation. I’ve heard these remarkable turnaround stories where not only do these companies survive, but they’ve actually thrived because of the legal finance that was provided.”

Litigation financing in the public sector also seems to generally yield positive outcomes because of the very nature of the claims. Grant explains that the cases that funders want to get behind for profit also tend to be for ‘the greater good’ by their intrinsic merit. 

“We only want to fund meritorious claims that have the prospect of an attractive return. Therefore, for funders who have an impact investing focus, this is an excellent way to get involved. Public sector entities, they sue to make water clean, to keep air good, to have access to financial instruments that help citizens. And we’re all part of that process, so it’s very rewarding.”

Litigation financing is an attractive alternative investment model not only because of the great potential for returns, but also because at the end of the day, it’s a win-win situation for communities at large. 

If you want to learn more about spinning up and investing in alternative asset classes, ping us at contact@diffuse.vc to have a chat.

Meet the Speakers

Grant Farrar is the founder and managing director of Arran Capital Incorporated, a Chicago-based law firm that provides capital legal financing for public sector entities. Arran Capital‘s unique value proposition recognizes that public sector entities benefit from investment capital to ensure citizen access to the courts, and a level playing field in the litigation environment. 

Michael Kelley is a corporate partner at Parker Poe Adams & Bernstein LLP, a Charlotte-based law firm that has represented many of Southeast’s largest companies and local governments for over a century. With over 25 years of experience in finance and law, Michael represents both inbound and outbound investors on the structuring, documentation, issuance, and management of investment funds, including providing counsel on regulatory compliance and best practices. He has been recognized by Lawdragon as a top 10 global adviser and service provider to the litigation finance industry.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.

If you’re a new VC fund seeking investments for the first time, you are bound to make mistakes. While experience is a great teacher, there are a handful of common errors that are easily preventable with the right knowledge and resources. 

In our last DiffuseTap session, we had the chance to talk with Investor Relations expert Luba Lesiva, former head of investor relations at Palantir Technologies currently raising funds for ex-Palantir employee lead startups on Angelist, about first-time funds, what they’re missing, and how they can avoid novice mistakes. She shared five great tips that no GP should miss.

1. Know your LP’s portfolio 

GPs know what it means to have a portfolio of startups. However, they often seem to miss the fact that LPs also have a portfolio of their own. Which means that as a VC you are fighting for capital allocation with each of these other investments. 

“If your LP is a high net worth individual or a family office, you’re actually competing against public market investments, bonds, real estate investments in developments, and whatever is in their 401k that they got from their job when they were 23.” 

Keeping this in mind, think about what exactly your LP wants out of your relationship. Are they investing for purely financial reasons? Do they want to get operationally involved? Or is this investment a thrill? If you don’t know, don’t be shy to ask what else they have invested in and where they see your fund’s strategic fit. 

2. Understand your LP’s deepest fears

High maintenance LPs have long been a problem amongst GPs. Sometimes it’s a high net worth individual that made a quick investment decision and was great throughout the fundraising process, but now he or she is calling you every six weeks for an hour-and-a-half conversation, asking about the most minute details on your portfolio’s performance. 

The reason such high maintenance LPs exist, Luba shares, is that they are in need of reaffirmation. The key to helping high maintenance LPs is tackling the underlying concerns of their clingy behaviour. 

“What you really have to figure out is the real question they’re asking. The real question is not ‘I want to talk to you for an hour and a half every six weeks.’ The real question is not ‘I want a site visit to every one of your portfolio companies every six months.’ The real question is ‘I don’t feel secure with this investment. I’m nervous about something.’”  

Perhaps their concern is related to a fund that just blew up in their portfolio due to interpersonal issues. Or maybe they have a direct investment that went under because of fraud or mismanagement. You have to address these concerns directly. Once you do, this will improve your relationship with the LP and they will need a lot less of your time to feel at peace.

3. Know the right time to bring an expert on board 

Engaging a skilled investor relations manager with significant experience in the field will definitely help your fund. But not every fund needs one right off the bat. Bringing an expert in too early, when you’re still solidifying your investment thesis, can create more problems than outcomes. 

“You can’t bring someone on board super, super early. Because in the first few years, you don’t know what your fund is going to look like. You have a thesis, but you still have to prove that. And you will find yourself tweaking it a little bit. So you’re going to find yourself micro correcting every step of the way.”

Similarly, you also don’t want to bring in an expert investor relations manager too late. This can create rifts in your early investor relationships, Luba says.

“If the LP has had a direct relationship with you for seven years and committed to two funds and you turn around like, ‘oh, by the way, going forward, you’ll only be talking to Luba over here,’ they will feel a little cheated. So you have to bring someone on board who handles investor relations early enough so that it doesn’t feel like a bait and switch to the LP.”

4. Set up an air-tight tax structure 

Not having a well thought-out tax structure can cause more no’s than you think. Your tax structure is one of the biggest decision factors for LPs, especially institutional investors that are not headquartered in your geography. It is also a crucial step most new funds miss. 

“When I was at the Abu Dhabi Investment Authority as a VC, there were funds that had great theses. In fact, one of them was a fund that I used to be an investor at. Regardless, we walked away from it because the post-tax returns didn’t make sense. The fund manager was just not able to allocate a tax structure that made sense. And so, we walked away after the second meeting because it wasn’t worth proceeding with the discussion.”

5. Start the sales cycle as early as possible

The LP sales cycle is long. Realistically, Luba says, the whole cycle takes a year, so you want to start as early as possible. Not only for a sooner close, but also to get as much feedback as possible to improve your thesis. Luba says that one thing you can do to start the sales cycle early is to start even before having a deck. 

“I actually recommend going to potential investors without a deck. Going as early as possible and saying ‘I’m thinking about this. This is what I think the thesis will be. Does that sound plausible to you?’ and getting as much feedback from that is a good strategy. So when you fully launch with a deck, the LP is not surprised.” 

At the same time, doing this lets you build rapport with your potential investors.

“They’ve been along for the ride as you’ve been building this out, and they’re like, ‘Oh, that’s right, I told you to do this. I gave you some feedback, you incorporated my feedback. And now you’re doing it. You’re someone who learns from reality on the ground. And you’re someone who does what they promised to do. Those are great things in a fund manager, I feel reassured.’”

While becoming an established VC fund is no easy task, your ride can be so much smoother if you understand your LP’s motivators deeply. From thesis to funding is a long road, we hope these five tips will let you build stronger and more in-sync relationships.

Meet The Speaker 

Luba Lesiva is an equity specialist with a strong background in investor relations. In 2016, she founded L4C, a startup consulting firm that helps early stage tech companies with fundraising and cap table management. Prior to that, she served top roles in several financial services and tech companies, including head of investor relations at Palantir Technologies and VC at Abu Dhabi Investment Authority. Today Luba is raising funds for ex-Palantir employee lead startups on Angelist. 

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.