Pitching Your Tech Startup To Hollywood: A Silicon Valley Founder's Perspective

Los Angeles (LA)  is known for its creativity and entertainment. Silicon Valley (SV) is known for its technology and innovation. Because of the new technologies and changing consumer behavior, the fields of entertainment and technology are converging. Netflix, Amazon, Google, Facebook, Apple, etc. are changing how entertainment content is created, consumed, and monetized. The merging of entertainment and tech was the foundation of my own startup, EVER, I launched two years ago to satisfy the human curiosity that occurs when you see and like something new on TV. Pitching EVER took me from Silicon Valley to LA almost every week for over eighteen months. I navigated the entertainment industry relying on what little information was available in the marketplace on how this industry operates and my own background in technology and experience working in the Silicon Valley startup ecosystem for a few years.

In the most simplistic terms, in SV, a startup creates a product and is funded by a Venture Capital firm and sells its product to consumers/customers. If the product sells successfully, everybody involved in the process makes a lot of money. In LA, a production company (startup) creates a product (tv show/movie) and is funded by a studio (venture capital firm) and sells its product to the TV network/distributor (customer). If the product sells successfully, everybody makes money except the production company.  

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I noticed a few key differences in how business is done in Silicon Valley vs Los Angeles. They are: 

1. Introductions: For a startup to do deals, raise money, hire people, you need introductions. In LA, my focus was deal-making. I met a lot of people who were very excited about what we built and were eager to help me. But, this help came with a price tag -- sometimes up to $25k per month. Their point of view was that if they are helping me with an introduction or a deal that will make me a lot of money, they should be compensated for that in cash now; like a lobbyist.   And, in LA, most of the deals are done in back rooms and not through a formal purchase process. In SV, the point of view is different. If people like your idea, they generally introduce you to people for deals, capital, or talent without any expectations. The assumption being that I might do the same for others and when I am in a position to help, I help. If somebody engages with you to work for a few months on a deal then, generally, they get equity in the startup and no cash.    In LA the networking is cash driven and paid up front.  In SV the desire to help make introductions is based on anticipated equity should the startup be successful.

2. Communication: People in LA are very good at making anything exciting. If you want to feel good about anything you are doing then just share the idea/demo with somebody in LA. They will tell you that the demo is the best thing they have ever seen and they can see it taking over the world, etc. They promise to help you get in the door, make introductions, and so on. As a startup founder, you want to hear that so you believe it. Often you never hear from these people again. Your emails and phone calls go into a black hole. In LA, less than ten percent of my meetings turned into good leads or valuable information and in SV the ratio is probably 30-40%.  In SV, the conversations are more honest, direct, and realistic. People are just as busy in SV as they are in LA selling and networking but in SV people tell you the opportunities and challenges related to your startup. Overall, my experience in LA was that of smoke and mirrors, while in SV the culture is more accountable and, generally, people follow up on what they promise. It might have something to do with the players in the respective marketplaces.  Tech people are not known to be great salespeople, we have to hire them.  LA is full of great salespeople because they have to sell all the time to survive.

3. Openness: Every new idea is a secret in LA. People protect their ideas because they can be easily stolen. The entertainment industry is a tight, relationship-driven industry. If your idea is with an established entity, it most likely won’t get stolen because they have to maintain a reputation. The mindset in LA is not to tell anyone about your new idea until it is in production. SV is the opposite. People talk openly about their ideas with other people, get feedback and refine their ideas. It might be because the execution defines the success in SV, not just the idea.  In LA, the execution is relatively easy. You have the producers, studios, and the network. The execution machine works well. In SV, the resources are available but the founder has to create the execution machine from finding people, investors, and customers.

4. Self-promotion: In both LA and SV, people are always self-promoting.The difference is that in LA, people do that for survival. Lots of people who work in the entertainment industry to create TV shows, movies, etc. do not have salaried jobs. They get paid per project. So, if you meet somebody when they are looking to get hired for a new project, you will always be a lower priority because they’re working on getting their next paycheck. In SV, lots of people have salaried jobs so when they are doing self-promotion, it is for their next gig. And, all startup founders are always promoting the startup and themselves but it is not for their next paycheck. Hence, the thinking is more long-term compared with LA.

5. Risk Averseness: Entertainment is a high-risk business.Most tv programs and movies do not make money. The ones that do make money don’t make the producers or the people who have the original ideas rich.  Outside of production cost risks, the producers, studios, the networks are not willing to take any risks. Anything new is considered risk. They don’t do revenue share deals. There is this concept called MG (Minimum Guarantee), and everybody wants that. For example, if you go to a TV network with a business deal that has the potential of generating $10M in a year and you propose to share the revenue 50-50, the networks would want $5M guaranteed, regardless of actual revenue the deal generates.  If the deal ends up generating $20, they still get the upside i.e. additional $5M. And if the deal generates $0, they get $5M. There is no downside for the network. Deals in LA are generally complex. There are a lot of players involved - networks, advertising agencies, and brands (in the case of TV shows), agents, talent, etc. Furthermore, the LA dealmakers are used to extracting value out of every iota. It is not uncommon to have MAG (Minimum Annual Guarantee) for a big deal in the tech world. Generally, MAG is not expected from a pre-revenue startup.In LA, there is an emotional attachment to the content, which often inhibits them from doing a rational mutually beneficial deal.  In SV, revenue share deals are common where both parties take the risk.

6. Tech Awareness: I have met many senior network executives who do not know how to set up a WiFi network. This might be an age thing. Some still think that OTT (Over The Top) content delivery (companies like Netflix and Amazon use OTT) represents no threat to their traditional business models. There is this fear of technology in LA and nobody wants to talk about it.  If you don’t talk about it, it will go away. The video game industry is much bigger than Hollywood today and LA lost on this huge opportunity because executives were not comfortable with technology. Having said that, they only like technology when it is used in content production. SV is about technology and everybody is comfortable with technology.

7. Content: The mindset in LA is that my content is better than your content. In SV, people think that all content is bits, it is all the same. The value of the content is based on the ad revenue it generates. There is no underlying value assigned to content. Netflix and Amazon might have a different view.  In LA, if you are making money off of my content, I want most of that money.  In SV, if I have an asset and you are doing all the work in monetizing that asset, I am happy to get a smaller percentage.

8. Cost of doing business: LA is a glamorous place. You dress extremely well and meet at fancy places, like Chateau Marmont, for drinks or dinner with your potential clients. There is a time factor as well. The LA traffic is so bad that sometimes it can take you an hour to go five miles. In SV, you wear jeans and your company t-shirt and the meetings are at places like Coupa Cafe. The average meeting cost in LA is probably 10x higher than in SV.

9. Sales Process: In LA, you sell things in sequence i.e. you sell it to one party and until they say yes or no, you don’t sell it to others. I think this goes back to the history of Hollywood and is the current business practice i.e when you have a script you send it to one studio and until you hear back from them, you don’t share it with anybody else. If you share it with two studios at once, you are blacklisted and nobody does business with you. To an SV person, this sounds insane. If you don’t have a commitment or any type of paper signed with the party why wouldn’t you approach as many potential clients as possible to you sell your product?

10. Creativity: LA definitely wins in creativity. It is amazing how creative people are. The whole industry is built on fantasy. If we see somebody getting killed in a movie, we feel the pain. People think of a story and make it real for all of us to enjoy. During my visits to LA, I met a few costume designers who are masters of their craft. For example, I was in a meeting with a costume designer and he could name the designer for my blue jacket and my white shirt just by looking at it. SV creativity is more about applications of technology.

Photo credit: Wikipedia 

Despite the challenges of doing business in LA, I met some high-quality people who have been very helpful. In my discussions with Mike Wann, CEO of Mobcrush, a mobile live streaming gaming platform, he pointed out that, “Silicon Valley deals and their relative hotness expands and contracts often with prevailing winds.  LA deal pipeline seems to be fairly consistent. Slow but consistent in extracting value out of media and related technology”. I agree because SV goes through cycles of what new tech is hot and LA is always about the content.

Unless LA learns to embrace technology, it will have a tough time dominating the future of entertainment.  My observations, hopefully, show that in order for LA to maintain its dominance in the entertainment industry it will have to adapt and welcome technology into their industry.  Of course, there are other factors like China has become a bigger market than Hollywood for movies and there is a lot of short-form content available on Snapchat, YouTube, Facebook, etc. The dynamics in the entertainment industry are shifting to a new paradigm and LA has no sense of urgency to change because the change might cannibalize existing revenue. Are we seeing Hollywood’s Kodak moment?

Recently we’ve seen tech companies like Netflix, Amazon, and Apple hire executives from the entertainment industries. For example, Apple hired Jamie Erlicht and Zack Van Amburg from Sony Pictures Television, Amazon executives Roy Price (he resigned recently) and Albert Cheng come from Disney and ABC respectively, and Scott Stuber at Netflix comes from Universal Studios. How many executives have the entertainment industry hired from the tech world?   

The article was originally published on Forbes.com on October 27th, 2017.