Hollywood’s New Bet: Entrepreneurial Engineers

Creative Artists Agency (CAA) is arguably the most powerful talent agency in the world, representing a galaxy of stars from Steven Spielberg to Jennifer Lawrence to Peyton Manning and beyond. Michael Yanover, in addition to his role as head of business development, spearheads CAA Ventures, a formal venture fund consisting of third-party LP capital investing in tech startup companies. CAA Ventures is leading the charge to invest in the next Mark Zuckerberg and Steve Jobs.


Fast Company called you “Agent Zero” of the current startup boom in Hollywood. Any reason why they called you that?

I think the reason they went with it is because I was acting as a bridge between Silicon Valley and Hollywood probably before anybody else. I came to CAA just after the euphoria around Web 1.0. At the time there were all kinds of great visions of Hollywood and Silicon Valley merging. You remember the AOL-Time Warner deal? After that flamed out, everybody thought, Screw that, this is all premature. And I was thinking, It is a bit premature, but this thing is still going to come. There were certainly enough signs with the music industry to indicate we were at the beginning of a tsunami. And even though it would be easier to ignore the tsunami, it wouldn’t be wise.

By 2005, I was really bridging that divide between Silicon Valley and Hollywood. At the time, they didn’t really understand each other at all. Hollywood was always about the here and now: They had a “Let’s get paid up front” economic perspective. Silicon Valley was about the future: “Don’t worry about how much you’re making now, worry about how much equity you have for the future.” Silicon Valley viewed “content” as being very fungible and not as a differentiator. And Hollywood viewed “pipes” — distribution pipelines — as being fungible, and thought content was what was special. The two groups were always talking at cross-purposes. I realized you needed both.

Netflix is probably the best example you can point to and say, “Yes, that’s what I’m talking about!” When you have the ubiquity of pipes — your phone, your iPad, your kid’s computer at college, your TV in the living room — and now you’re watching great content — everything from old movies to original series — [you have] great technology married to great content.

Was there a “ground zero moment” where you realized, hey, Hollywood needs to embrace tech startups in a major way?

 YouTube was one of those indicators in 2005 — the promise that anyone could be a creator or broadcaster. For me, it started before that. Working at Macromedia from 1999 to 2002, we were sort of a precursor to YouTube. I remember one of the guys, an engineer-executive, creating his own original video series. I turned to a colleague and said, “Maybe we’re gonna start entertaining each other at some point, rather than relying totally on professional content.” Well, that’s basically the premise of YouTube — we’re going to start sharing with and entertaining each other. We now see things in Facebook and Snapchat — other indicators of us entertaining each other.

The Los Angeles Times wrote last year: “Hollywood’s embrace of start-ups has become the most powerful magnet attracting technology entrepreneurs to set up in the Southland. In fact, Southern California is now the nation’s fastest-growing hub for start-ups. The entertainment industry, with its mad rush into digital distribution and its reservoirs of cash, creative talent and glamour, is the key driver.” Can you share any stories to validate or contextualize statements like this?

I’m not sure I agree with that statement. I think there are a lot of things driving the tech ecosystem in L.A., and it’s not just Hollywood. I think there’s been a history in L.A. from e-commerce to ad tech. L.A. is very much the pop culture capital of the world. And I think what’s happening in the world of the Internet is that a lot of the technology is now off the shelf, and the thing that’s differentiating a lot of these Internet companies is the user interface, the user experience, the branding — all things that L.A. is really great at, the pop culture elements. It’s not by accident that Tinder is in L.A.

CAA represents the biggest stars in movies, TV, music and sports. Can you give any examples of how CAA Ventures has leveraged some of this star power to promote its startups? How will it be incorporated going forward?

Just to set the right context, we have a lot of really great clients in a lot of different sectors. But there’s a lot of leverage CAA can bring to bear through our network and our insight. A lot of what we do when we make investments is not simply about how we can connect a star to a startup. It’s also about how CAA, with our network, our intelligence, our insights, can lend value to that startup. How can we create the right introductions to the right business partners? How can we act as an accelerant for them? I wouldn’t focus overly on the matchmaking between stars and startups, because it’s about so much more than that.

Take us inside your decision-making process. What are the most important things you look for in a startup?

We set up CAA Ventures as a formal, well-constructed VC fund. It has third-party capital, which makes up the majority of our investors. It’s quite differentiated from other funds at other companies, particularly our competitors (e.g., United Talent Agency and William Morris Endeavor), who are investing from their balance sheets.

We set up an autonomous fund, and so we go through quite a due diligence process of looking at management, understanding each business. We ask questions like, Will they succeed with or without CAA? Can we help this company? Are there things within our network that we can add to create value to this company? If those boxes are checked, that’s when we say, “Yes, let’s do this.”

Medium office/Darren Hull
Medium office/Darren Hull

There are several examples of companies to which we have brought our network. For example, Ev Williams’ company, Medium, in which we invested alongside Greylock, Andreesen Horowitz and others, is one that clearly benefits from great content. We have brought them people from the worlds of sports, news, and entertainment to create articles for them.

You know, through the years, CAA has always bet on people. Now we’re just investing in a different kind of person. We’ve historically bet on great actors or great athletes or great musicians or great directors, and now we’re also betting on great entrepreneurs. It’s always been an investment in people.

What are you reading these days? Indispensable books? Most visited websites?

I’m mostly reading stuff online these days. I go to TechCrunch, Re/code, Pando Daily, Product Hunt. I love reading Fast Company.

With actual books, I think The Social Animal is a pretty cool book. It’s all about human characteristics — what makes people tick. I like Malcolm Gladwell’s Outliers — I think people fool themselves a little bit, thinking they have more genius or control, as opposed to being born in the right place or catching the wave at the right time in history. It’s always a combination of many factors.

L.A. produces the most tech talent of any region in the United States. If you could have a billboard to express why this talent should remain in Silicon Beach, what would it?

It’s an interesting question talking about tech talent in L.A. There is a lot, certainly coming out of places like USC and Caltech. But what’s been lacking here historically is entrepreneurial tech talent. What also has been lacking here historically is mentorship and early-stage capital. Those three things are now changing, and it’s been phenomenal, quite frankly, over the last 24 months to see those changes. There’s enough activity here now that tech talent could and should stay and be supported by an ecosystem. I used to say that L.A. lacks a center of gravity. We’ve got startups downtown, in Pasadena, Venice, Santa Monica and even Century City, whereas Silicon Valley has more of a center of gravity — there’s community, there’s mentorship, there’s capital that’s very supportive of long-term thinking. L.A. didn’t have a lot of that until recently. Now that you can see the infrastructure being built up here, there’s a lot more reason for entrepreneurial technologists to stay.

Look at a company like thatgamecompany here in L.A., in which we invested, together with Benchmark and others. It is run by a brilliant guy named Jenova Chen, who is really the next Walt Disney. He, like Walt, is combining the greatest of technology with storytelling to bring a whole new world to life.

It’s been said that the Great Recession may have played a role in the rise of Silicon Beach, whether it’s lower rents in L.A. versus the Bay Area, or just the coinciding explosion of startup incubators and accelerators. What’s your take?

I don’t know if I would define it as the Great Recession, specifically, but there certainly has been a backlash against Silicon Valley in the last few years that has benefited L.A. You know, the rents are lower, the salaries are lower. But in an odd way — and I say this laughingly — L.A. has become more of a “real” place than Silicon Valley. People here are testing out ideas with more realistic scenarios. In Silicon Valley, there are so many odd startups that are not grounded in reality — if someone can start a company, they will — whereas L.A. has always been more of a place of survival. There’s less venture capital available, and people are striving to create companies that will be profitable faster. They’re doing it in a much more scrappy way. I think the valuation of companies is much more reasonable in L.A. It’s become a more attractive place for investors. The valuations in Silicon Valley have gotten a bit crazy. Also, the lifestyle is a bit more attractive and affordable in L.A. Snapchat’s Evan (Spiegel) chose to be here, rather than up north.

Do you like the term “Silicon Beach?” I know there’s some that like it and some that don’t.

I hate it. I think it demeans the huge efforts and the huge ambitions of entrepreneurs in L.A. I think your mind goes to this very casual place, this very laidback place, this place of relaxation at the beach. It also only defines one section of L.A. There’s a lot of hardworking people in downtown L.A., Pasadena and elsewhere that probably haven’t seen the beach in 10 years! I probably haven’t been to the beach in 10 years. And so when you say Silicon Beach, you’re channeling this very narrow part of what is L.A. that is not reflective of the hard work and ambitions of many other people.

In the movie business, it used to be that if you had a slate of a 10 films, one megahit and a couple of solid hits could cover a lot of missteps. Do you have a similar philosophy with your portfolio of startups?

Yes, it’s a portfolio approach. I’ve met with people that invest in one or two startups, and I say to them, “That’s not really a good idea. You need a diversified portfolio to expect a decent return.” Especially in venture investing, you’re going to have a lot of failures, and you’ll need hits to make up for the failures.

You know, the movie business has changed from that philosophy, quite frankly. I think the movie business now is all about creating megahits. I’m not sure if it’s a fair comparison anymore.

We see tech companies like Amazon and Apple making original content. We see traditional Hollywood players like CAA backing startups. What are some possible futures you see here that maybe most people are missing?

I guess the world’s more connected than it’s ever been, right? There are different motivations for why Apple is creating original content versus Amazon versus others. And obviously there are different motivations among people investing. I think the lines are getting much more blurry. Look no further than Amazon to see how broadly they’re thinking about everything. They’re in the hardware business now — they weren’t in that business 10 years ago. They’re in the content business now — they weren’t in that business 10 years ago. Now they’re looking at every startup in the consumer space — home delivery, home repair, groceries, perishable deliveries. You see them looking at Instacart, Thumbtack, every other business out there, saying, “What’s the Amazon version of that?”

With CAA investing in startups, it’s a window into the future. How should we be thinking about ourselves? How should our clients be thinking about their businesses too?

We invested in a company called Patreon in San Francisco, which is also backed by Index Ventures and others, and brings emerging artists to the forefront more quickly and with better economics than they are seeing elsewhere on the Web. Of course, we need to be part of that!

I think the words “Hollywood” and “Silicon Valley” will remain placeholders for styles of thinking and subcultures. Silicon Valley exists in Tel Aviv and Silicon Valley exists in L.A. and Chicago. Hollywood exists in Mumbai — it exists in other parts of the world where people create content. Now, will the center of Hollywood always be L.A.? Will the center of Silicon Valley always be the Bay Area? I don’t know.

Does CAA Ventures focus only on startups in the entertainment/social/lifestyle sector, or would you back a biomed company that looked promising?

Our formula is really broad — we are experts in branding and marketing, we have relationships with consumer retail, with different venues, in music, sports, QSR, media, etc. We think of CAA as a company that really understands pop culture and consumerism. We’re not just looking for entertainment-related companies. We’re looking for companies that are going to define pop culture. It’s much broader than entertainment.

Now, to answer your question. Biomedical? A little bit harder. Enterprise? A little bit harder. We invested in a company called Shyp, which is on-demand shipping services. We think of that as the next FedEx. That might be a more unexpected version of a company we would invest in.

Second Spectrum, out of the USC Viterbi School, is listed as part of your investment portfolio. How did that relationship begin?

It began through one of our partners in the sports division. We obviously were very impressed by the management team, which includes some of your [USC Viterbi] professors [Rajiv Maheswaran and Yu-Han Chang]. It was, again, a bet on people. It was a bet on the insight they had on the sports world and statistics and analytics. It’s more of an enterprise bet than a consumer bet, but we felt that we had a lot of insight we could bring to bear for them and obviously a lot of leverage with relationships in the sports world. We’re taking a very long-term perspective on where that company can get to. We believe it’s going to be a great investment for us.