In today’s episode, we’re joined by Vania Schlogel– the founder and CEO of Atwater Capital, who focuses exclusively on the media and entertainment sectors.
In our chat, Vania shares with us the fine line between being able to have the formal, polished side of the business in conjunction with the creative and operational side.
Vania also chats about the areas she specializes in, and…
- Streaming services
- The emergence of technology in the media and entertainment world
- Her ideal client profile (and why it matters), and
- Building relationships with managers and founders
Mentioned in this episode:
Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Very excited today, as I’m joined by Vania Schlogel, who is the founder and CEO of Atwater Capital. Atwater capital focuses exclusively on the media and entertainment sectors, two areas that are unique throughout business in America and it’s a topic that a lot of people want to go and lean forward in. And so Vania, thank you very much for joining me today.
Vania Schlogel: Thank you, Patrick. Thanks for having me.
Patrick: Before we get in talking about Atwater Capital and the media and entertainment industries, tell us about yourself. How did you get to this point in your career?
How Vania Got to Where She is Today
Vania: Well, I started life in a vastly different format. So I grew up in Idaho, in Boise and also Nampa. And really decided, you know, to apply to a school system where I didn’t have to make too many applications, which ended up being the UC system, because you could apply once and I think cover five colleges or so through the application.
Patrick: It’s its own team now.
Vania: is that right? Okay. So, this ended up taking me to UCLA, which quite frankly, probably also facilitated in moving into media and entertainment. And I decided, well to be completely frank, I knew I liked business. My father was always a small business owner. But I didn’t grow up with a lot and to be completely frank, googled in my junior year, what are lucrative careers upon graduation?
I can’t remember exactly what the Google search was, but it really, and two things came back, engineering and finance and I mentioned this little anecdote to perhaps dispel the myth that one must grow up obsessed with M&A or knowing exactly that that’s what one wants to do in life. Because, for me, I sort of kind of fell into it, and that precipitated internship, and then full-time position at Goldman Sachs for a few years in the Los Angeles office, and then London. And then I spent six years at KKR, which is a large private equity firm, investing in media and entertainment.
So that’s really where I cut my teeth, in terms of sector specialization. And from there, you know, it’s funny how networking is so important and a lot of the opportunities that are presented in life are really just sort of who you know, not necessarily what you know, because I got a call one day while I was at KKR, and it was from the folks at Roc Nation and that precipitated in me going to be Jay Z Chief Investment Officer at Roc Nation.
And it was an interesting experience because I got to see firsthand how working in tandem with creative folks and creative communities could create a lot of equity value. And I also saw that this wasn’t a natural, it’s a relationship set that was happening between investors in Wall Street and a lot of creative communities. And so that’s why I founded Atwater Capital in 2017. We have offices in Los Angeles and Seoul, South Korea. We manage about 160 million dollars of assets under management. And as you mentioned, we focus on the media and entertainment sectors.
Patrick: Well, I’d like to ask you a little bit about more is that that balance between the financial discipline and the investment, operational discipline and the creative side of a project or a venture. And the only parallel I have or analogy is the story I heard about the folks at Pixar. We’ve got little kids back at the time, but they would have their creative meeting where they’d sit down and talk about their next few movies that they wanted to do. And you’d have one about talking cars and I just would sit there as a, they want how much money for that kind of thing? And, you know, being able to evaluate what creative idea is actually gonna have value or not, and how do you keep them from going off the rails? Discuss how that works of what you’ve seen.
Vania: I would say that for that balance between sort of the financial or commercial side of things with the creative and then the operational execution, the way to keep that fine balance in check, and quite frankly, moving to the best outcomes is a mutual respect and understanding amongst those different parties. What I, when I’ve seen it go badly, it’s typically because, you know, for example, the investors and the finance guys just give zero credence or respect to the creative aspect of things because it’s not the same language, quite frankly, or vice versa.
And that’s when things go badly because things must be creative, but they also must be commercially rooted with the return on investment. And when there’s a fine balance between all of those different elements, it works out really well. And the way that we deal with it at Atwater Capital is we seek to be very respectful partners who respect the opinion and domain expertise of our partners.
So we set up very deep partnerships with operators and creative folks and companies and essentially say to them, Look, we’re going to be supportive partners. We’re going to have a different kind of discussion with you than we think has been historically presented in your interactions with Wall Street. And that means that what you do does need to be commercially viable, but we’re not going to mess with your creatives. And typically, that works out really well.
And the other thing that we do is you mentioned discipline, which is exactly the right word because at the end of the day, we have a strong fiduciary duty towards our LPs who give us capital. And so we make sure that we do or I should say, we contribute what we’re good at in terms of evaluating the financing of creative companies or projects. And that’s things like financial judgment, portfolio, curation and diversification, legal structuring, collateral perspective, things like that.
And where we stay out of is the creative. We’re actually, this is going to perhaps disappoint lots of people, but we also have policies in place like none of us are allowed to attend red carpet premieres, for example, if we invest in a movie. We just need to make sure that as investors, we let the creatives and the operating folks do what they’re really good at. We stick to what we’re good at and make sure that our views are not somehow wrongly influenced by the things that we shouldn’t be focusing on as investors and financiers.
Patrick: So you keep that arm’s length to avoid conflict.
Vania: That’s right. Yep.
Patrick: With entertainment in media is like software. There are many different elements of that. Are there particular areas of media and entertainment that you specialize in? Or is it pretty much everything in that channel?
Vania: What we try and do is be investors who see where trends are going and get ahead of those trends. So the short answer is we’ll be quite generalist in the sector, but we will drill down into our view of sub-sectors and where things are going and try and place capital ahead of those trends.
Patrick: Which leads me to this question because this was an opportunity we had and, you know, as with a lot of things in entertainment just kind of died on the cutting room floor. But give me your idea with the new streaming services that are out there as we go from bundle entertainment packages two is rapidly unbundling, but it looks like that unbundling is going to result in, a different type of re-bundling is people have to buy more things all a cart. What are you seeing out there in that field?
The Evolution of Entertainment Delivery
Vania: It’s interesting because I think specifically, you’re speaking to filmed entertainment. And if you look at what’s happened in the music industry, this process really unfolded in a much earlier fashion than it has been filmed entertainment. So we used to buy a bundled hard good in the form of, you know, vinyl or CD. Things, essentially that bundled good disaggregated and digitized into a digital download that was an owned digital goods. And now, things are re-bundled into a streaming which is access, not ownership subscription bundle.
So I think we’re just finally seeing filmed entertainment come around to that. So it’s quite funny because initially, so many folks were excited, or at least I did a lot of equity. Research analysts were super excited about the golden age of streaming when it came to filmed entertainment because the bundle was breaking. And that’s right. The bundle was breaking on the traditional media side, but it’s absolutely re-bundling.
And we’re in a period where it’s great for the consumer because competition creates innovation. It creates choice. And so right now we’re in a golden age for the consumer because we’ve got tons of different platforms, whether they are relatively, I’d say technology-centered players or tied to a traditional media player, who are all investing GADS as money to compete for our competition. Sorry to compete for our attention.
And at the back end of this, we will see various players emerge. I think we are going to, what’s happening is probably not long-term sustainable in order to actually get a proper return on investment for all the capital that’s going into tier one content. We are going to see have to see some big winners emerge at the back end of this. And there will be a re-bundling and a massive wave of content.
Patrick: So there’s going to be a consolidation and so forth. Can you talk to me, I know we didn’t cover this when you and I spoke, but tell me your impressions on the emergence of technology, within media and entertainment.
Vania: Overall been, just as from a consumer standpoint, fantastic. Think about the experience, the consumer experience of let’s go back to music, paying $26 for a CD. By the way, inflation, if we adjusted for inflation would be much more expensive in today’s terms, but paying that much for a CD, potentially losing it or scratching it and even.
You know, trying to play a playlist and verses now where I can walk into my home, voice command any song for $9.99 a month and get that song played over the speakers. From a consumer perspective, technology, or let’s say tech entrance to various sub-sectors within the space has done wonders for the overall consumer experience when it comes to consumption of content.
Patrick: I just think also just the impact on the economy, the impact on business, not only in America but worldwide, is profound. And how we’re big Nativists here up in Silicon Valley, and we’re the hub of all things tech, if anybody were to venture down to Southern California, you’ve got a mini, I guess they call Silicon Beach. But technology has really transitioned down there very nicely and it’s everywhere.
Vania: That’s right. And I’d be remiss to not talk about the flip side of it, though, which I think we always have to be aware of which is, there’s already rumblings where, is a consolidation amongst the tech powers that now distribute the content that we are consuming on a daily basis, is that consolidated power going to be good for the consumer in the long run. And so for a period there, I think you saw, for example, platforms like Netflix or Amazon Studios, quite frankly, creating content that was not seen and would not ever get greenlit by some of these major studios and players.
And so there was really a creative Renaissance that came up from that. And I think one of the things that from a societal standpoint that we just have to keep an eye on, is that as we talked about, just now, on the back end, there will be a bundling, there will be an emergence I think of various large failed And who wins this war. And I think we just need to make sure that in that whole equation, that when it comes to what consumers, their experience and the diversity of their choice and whatnot, that there’s always going to be that natural tension between consolidation of power on one side, and what’s good for consumers on the other.
Patrick: With Atwater Capital, give me a profile of your ideal client, because there’s the nostalgic idea of a producer or somebody running around trying to raise money for a project and so forth. But tell us what the profile of your ideal client.
Atwater Capital’s Ideal Client Profile
Vania: Sure, so I’ll contextualize client in our case as a company or project, for example, that we would invest in. And so the investments that we have made that have been successful, and I would say the common thread between those is a great management team, rather than for example, a very special strong CEO. We don’t like cult of personality. Quite frankly, we like to see great leaders. And great leaders have strong people and a very strong supporting cast around them.
And so the best companies that we’ve ever invested in have strong management teams that, you know, go down into second, third layers and there’s still a strong core competency there. You have folks who can have healthy debates and discussions around strategy around operation and can be, you know, because as a shareholder, we don’t want to go in and run that company. That’s actually a disastrous outcome for a shareholder. The mantra is we invest in people, not assets. And so you want those folks running the company.
And you really, as a shareholder want to be the supporting cast where you can just kind of optimize around the edges, whether it’s making introductions, kind of helping to think about strategy. And so management teams are very important to us and core to the thesis. The other thing about it is does this company solve an issue or meet a need?
A very discernible need? And do they meet it in a particularly efficient or effective way? And I know this all sounds very basic, but quite frankly, investing is down to the fundamentals and basics most of the time. Yes, there’s a level of domain expertise that one must built up of one’s career, but it really comes down to the basics. And so I would say those are the common threads that we’ve experienced in our successful investments.
Patrick: And you’re looking at investments all over the place.
Vania: All over the place, yes. We have portfolio companies currently in the US and Europe. We’re looking at, we’re actively evaluating investments right now in Asia, in East Asia specifically. The only reason why right now I’d say we have not focused on certain geographies like South America or Africa is in my belief investing is a local activity and a very human-intensive activity.
It’s one where you should have a local team who understands local trends who can build relationships with local founders and management teams. And so we have not grown to the size to focus on those geographies. So we focus sort of where we do have incumbent relationships and expertise.
Patrick: That’s what I was told not too long ago was the reason why so many venture capitalists only investing in the bay area up here in Northern California. They only invested quite a few of them in just the Silicon Valley, the Bay Area companies and ventures, because they wanted to be within a couple hour car ride of their investment in case they had to make quick changes. And if you’re investing in something, you know, two or three time zones away, that gets a little problematic. So that’s not a surprise.
Vania: Just in general, obviously complexity and communication grows the more timezones you have in between you and your portfolio company. But I, and that’s once you’ve already made the investment. So just from a portfolio monitoring and sort of operational involvement perspective, but I also think, so for Atwater Capital, 100% of our capital is invested in proprietary deal flow.
And we really pride ourselves on that. And that is also another reason why I think investing locally is important and having local teams is important is the deal sourcing aspect of it. Do you have folks on the ground who are plugged in and who can build those human relationships with management teams and founders?
Patrick: Vania, how can our audience find you?
Vania: Probably your website is the best way. So we’re at www.atwater-capital.com and we have a submission tool there where they could write a message, give us their contact details. And we’re reachable that way.
Patrick: Excellent. Well, Vania, thank you very much for joining us today and we look forward to speaking again.
Vania: My pleasure. Thank you for having me.