Rap Music and the State of Venture Capital

For those of you who yearn to understand – or to help other folks understand – the hidden meaning of rap lyrics, there is a website made just for you: www.rapgenius.com.  Not, myself, having any interest in rap music, as regards lyrics or otherwise, I can still say, after a brief perusal of the Rapgenius site, that it seems like a pretty good place to go to understand, or help others understand, what rap artists really mean when they say (sing?) whatever it is they say/sing.

Now, whether or not you are interested in the mysteries surrounding rap lyrics, if you are interested in the state of the venture capital industry Rapgenius has, I think, something to tell you.  Because, as it turns out, Rapgenius is a venture backed company.  And in a big way.  Most recently, it is reported that Andreessen Horowitz pumped $14 million into Rapgenious.  That followed a $9 million first round.  For the mathematically challenged, that means that some pretty well regarded venture capitalists have anted up $23 million to build a web site around the concept (excuse me, market opportunity) represented by the presumably millions of folks who lie awake at night wondering what the lyrics in their favorite rap … song … really mean.  And that, I think, is, if not remarkable, at least instructive.

The Rapgenius story, from a venture capital perspective, is instructive in a couple of ways.  First, it puts the lie to the conventional wisdom that the capital needed to build a business around a website these days is trivial compared to what it was say a dozen years back.  Really?  While $23 million may not, these days, seem like a huge pot of money, as venture investments go, it is not, if recollection serves, a trivial sum in terms of circa 2000 internet deals, either.  The notion that it is vastly less expensive to build a Rapgenius-like website today than it was a dozen years back is true enough; the notion that it is vastly less expensive to build a Rapgenius-like business today than it was in 2000 is just not true.  And that’s because a first-class – design/function-wise – website is only worth as much as the brand that drives folks to it, and keeps them coming back.  And building a brand around a website is, arguably, more expensive today than it was a dozen years back (more noise in the system to over come).  Even, apparently, in the case where, as in the Rapgenious example, the target consumer would seem well defined, easy to reach, and well-suited to the (conventional wisdom-wise) low-cost viral marketing strategy.

If the first thing Rapgenius tells us about venture capital investing is that building a venture-backed business around a website is still expensive even if building a website has become much less expensive, the second thing it tells us is that entrepreneurs in flyover country – i.e. web-centric entrepreneurs outside of the established venture capital centers – remain at a severe competitive disadvantage relative to their counterparts in the venture capital centers.  To return to the Rapgenius example, while it is possible to conceive of a venture-backed Rapgenius competitor coming on the scene and knocking Rapgenious off its perch,  it is hard to take the next step and imagine such a competitor doing the deed from, say, Iowa, with $1.5 million of local capital.

Not wanting to sign off on a down note, the ability to do bigger and better web development with less capital is surely a good thing for entrepreneurs everywhere.  It just doesn’t change the big picture much in terms of how much capital is ultimately needed to turn a bigger and better web site into a bigger and better business – and thus in terms of where most such rags to riches stories are taking place.

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About Paul A. Jones

Serial venture capital backed entrepreneur, angel investor and venture capital investor; Co-chair of the VentureBest team at Michael Best & Friedrich, LLP.
This entry was posted in Angel Investing, Entrepreneurship, Venture Capital, Venture Captal and Angel Investing and tagged , , , . Bookmark the permalink.

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