They tried so hard and got so far, and in the end they’re doing something that really matters.
That’s right, everyone’s favorite alternative rap-rock group that epitomized the teenage angst of the early 2000’s is once again making headlines. The members of Linkin Park have decided to make the transition from rock icons to savvy investors.
With the launch of their venture capital firm Machine Shop Ventures, they joined the increasing number of celebrities hopping on the investor train. It seems that while all of us were growing up and finding ourselves, so were the guys from Agoura Hills, CA that brought us Hybrid Theory and Meteora.
I think sometimes it’s easy to forget that these pop culture superstars don’t live in a vacuum. They age and mature just like the rest of us, and for the members of Linkin Park that means investing back into the industries that are responsible for their success.
The Venture
Machine Shop Ventures’ focus is in the tech and start-up spaces. Their initial investments have been in the ride-sharing service, Lyft, the popular stock-trading app, Robinhood, and the shipment service app, Shyp.
It’s nothing revolutionary, as we’ve seen more and more money flood into these two spaces over the past decade. Let’s face it: tech and start-ups are what’s in right now.
“If we can engage directly with really smart people that are building companies that are disrupting or innovating or have the potential to become a global category of one, this is just a way for us to support those organizations that we really care about,” said guitarist Brad Delson in an interview with CNBC.
The band seeks to give back to a community that has supported them throughout the years with investments in the industries that are popular and introducing change to the typical business structure.
While it may not be a direct investment into the music industry, the members of Linkin Park are funneling money into fields that have highly influenced the demographic that listens to their music.
“Look, to be honest, our philosophy is we go—as a band—where our fans are. They tell us where to go,” said lead singer, Mike Shinoda. “Since we are talking about tech, technology plays a very important role in every aspect of what we do.”
And he’s right. Advancements in technology have given rise to music sharing and increased accessibility to new artists. Supporting the tech and start-up spaces means fueling the community of innovation as a whole.
As questions circle about which pots these new VC’s will dip their hands into next, I have a question of my own: When is enough actually enough?
Less is More
Delson and Shinoda are merely following in the footsteps of several musical artists before them.
You’ve got Snoop Dogg, who was an initial investor in California-based Eaze, the medical marijuana delivery service start-up (shocker, I know). The multi-talented rapper and producer Nas has invested in hair and skin-care products like Bevel and the website Genius. And of course, arguably the top dog in this celebrity investor phenomenon, Mr. Shawn Carter, better known as Jay-Z. Where do you draw the line?
In a 1994 essay written by Paul Gompers of the Graduate School of Business at the University of Chicago, we see the problems that occur when a surge of investors hone in on one industry.
Gompers writes, “In mid-1983, the twelve publicly traded disk drive companies had a market value of $5.4 billion, which represented four times sales and a price-to-earnings ratio of nearly 50.” To put that in non-investor speak: that’s bonkers. So much money had been pumped into the industry that there was nowhere to go but down, which is exactly what happened.
By the end of 1984, their market value had dropped to $1.4 billion (nearly a quarter of their initial value) and most of the industry leaders went bankrupt.
The problem was they couldn’t compete with the expectations that had been placed on them. Inexperienced investors had valued these companies so unreasonably high when they first started that there was no room to improve. Companies across the industry stagnated, lost money and eventually flat-lined as a result.
Our Take
I’m not saying we’re doomed for a repeat performance of the same magnitude. What I am saying is that if the bubble burst once before, it could a second time if we don’t learn from the past.
The current market value of the app industry is right around $25 billion. Adjusted for inflation, that would have been roughly $10.4 billion in 1983—twice as much as the value of the disk drive industry at that time.
Fortunately, the app start-up market remains incredibly diverse regardless of how many players are in the field. The ever-evolving technology shields the app world from oversaturation. That is why we haven’t experienced a collapse yet, but it doesn’t mean it’s impervious to one either.
If Linkin Park and other celebs want to turn VC, I think that’s great. My only concern is that they may lack the experience of veterans in the field. Investing on that scale isn’t something you just say, “Eh, we’ll see how it goes.” But I’m hoping we continue to see smart investment that leads to growth.
