Hip-Hop’s Dealmaking Culture: The Line Between the Streets and Venture Capitalism Is...

Hip-Hop’s Dealmaking Culture: The Line Between the Streets and Venture Capitalism Is Thin

Hip Hop Dealmaking Culture Venture Capitalism | Header Image | Firmex

Maybe Shawn “Jay-Z” Carter said it best on Kanye West’s 2005 Diamonds From Sierra Leone remix, “I’m not a businessman. I’m a business, man.” Carter had already thrown his weight behind a string of ventures from the 40/40 night club in NYC, to his clothing line Rocawear (which he sold the rights to in 2007 for $204 million, all the while retaining his stake in the company). And it’s this mentality that’s defined his career.

In fact, it seems to be endemic to hip-hop in general. A lot of hip-hop artists like Carter are self-made. They’re entrepreneurial. They’re not afraid to diversify and chase more than just their rap career. And it’s led to some clever dealmaking, sometimes capitalizing on the brand these artists have built around themselves, other times taking the form of strategic investment.

This article digs in on the culture of dealmaking in hip-hop through the lens of its most prolific dealmakers.

Jay-Z: Investing in the Underdog

A record label, a clothing brand, a streaming service, and multiple nightclubs, Carter’s built his brand around being a businessman first; rapper second. The 49-year old is worth $930 million.

Curiously enough, a lot of Carter’s dealmaking focuses on underdogs. In 2004, he paid a reported $1 million for one-fifteenth of a percent of the New Jersey Nets, instead of the Knicks, eventually moving them to his hometown of Brooklyn before selling his stake in 2013 for a 135 percent gain. He backed Viddy instead of Instagram. Even endorsements, like Reebok over Nike, Bing over Google, Samsung over Apple, all speak to his underdog strategy, as Zack O’Malley Greenburg, author of Empire State of Mind: How Jay-Z Went From Street Corner to Corner Office, told Complex.

The strategy? Deal with brands that have more ground to gain from his cool factor.

“Even if he associates with a second-tier brand, it doesn’t tarnish his image so much as it gets people saying, ‘Oh, there’s Jay, he got a good deal. There he is making savvy business moves again,’” said Greenburg. “In some ways, because of that business focus that he’s always had throughout his career and that he’s done a very good job of publicizing, he’s seen more as a dealmaker than a sellout.”

Maybe that’s why startups, as perpetual underdogs, have drawn a lot of Carter’s dollars over recent years. He got into Uber early(ish) participating in the ridesharing company’s Series B funding round in 2011, when it was valued at $300 million. In 2013, Carter joined a $10.3 million Series B financing round for Julep, an early e-commerce-focused beauty company. In 2014, he paid $200 million for a stake in Armand de Brignac. In 2015, the same year he was part of a $105 million funding round for private jet startup JetSmarter, Carter paid $56 million for a Swedish streaming company and rebranded it as Tidal. When he sold a third of the service to Sprint in 2017, it was valued at $600 million. Last June, Carter launched Marcy Venture Partners entrenching himself in the tech world.

Snoop Dogg: The Pet Project Investor

You probably wouldn’t be too surprised to learn that Calvin Cordozar Broadus, a.k.a. Snoop Dogg, has built a venture capital firm around cannabis sector investments. Case Verde Capital, closed its debut fund in 2018 at $45 million, with eight investments from seed-stage to Series A-sized checks in the $1 million plus range. The VC firm’s investments include a $2 million seed round to Trellis, a cannabis inventory management platform, participating in a $17 million dollar investment with Green Bits, a cannabis retail management and point-of-sale platform, and joining a $3 million investment in Dutchie, a cannabis delivery and pick up software.

It’s a good industry for Broadus to be in. It’s on brand. Yet the hip-hop artist has a bigger appetite than just cannabis. Prior to launching the fund, he got in on San Francisco third wave coffee shop (and Mark Zuckerberg’s favorite cup of joe) Philz Coffee’s $15 million Series B funding round. And he followed that up with his role in a $13 million investment in Robinhood, a zero-fee stock trading service (Jay-Z and rapper Nas have also invested in the service).

In 2014, Broadus joined a group of investors putting $50 million into Reddit, the discussion site and so-called “front page of the Internet.” In 2016, he targeted another conversation platform, investing an undisclosed seed round sum into sports discussion app GameOn, including one round as lead investor.

The past few years have seen Broadus focus on the booming cannabis sector, especially given its legalization in Canada and several U.S. states. But he still made time to pursue investments in Hooked, a Snapchat-style storytelling app. In January of this year, he also joined Klarna, a Swedish-based global payment provider, as a partner.

“I learned a lot about business over the years. I gotta take it slow and make sure I do my research,” Broadus recently told Forbes. “It’s important that I really like the founders and that I have confidence they can lead these companies.”

Nas: Venture Capitalist First, Rapper Second

If Jay-Z represents the hip-hop artist as a businessman, Nasir Jones, a.k.a. Nas, the Queens-bred hip-hop legend, flexes his reputation as a venture capitalist with an eye for tech talent. Despite still putting out records, it’s his tech wins that have pulled in the most press for Jones recently.

In interviews, the hip-hop artist who dropped out of school in 8th grade, has pointed to a love of learning for driving him into emerging sectors.

“I want to meet the people who are innovating in all different fields, and investing lets me do that,” he told CNBC. “I meet the people that are changing the game across all different industries, and I get to be there first at the ground level. It’s helped me to progress tremendously in my business.”

By 2013, Jones had invested in more than 40 startups ranging from digital currency exchange Coinbase and sock company Stance to lyrics site Rap Genius (now Genius) and Prism Skylabs, a cloud-based video intelligence platform. But it was when he established Queensbridge Venture Partners alongside Rashaun Williams in 2013, that he graduated to full-time VC.

Since launching, the firm has gotten behind some key companies coming out of the cradle of the technology sector, including some big-name exits with Lyft, General Assembly, Casper, and Dropbox. He’s also picked some off the radar winners like Exo (cricket protein bars) and DoseDr (he made a personal investment to this mobile app for diabetics and Y-Combinator grown startup).

More recently, Viacom signed an agreement to acquire Pluto TV streaming service from QBVP for $340 million. And Amazon bought QBVP-backed pharma-tech Pillpack and doorbell company Ring last year.

In an interview with The Source, Jones’ QBVP co-founder laid out the fund’s strategy. “We recognized that out of all the companies that were making money in Silicon Valley, it was the same 20 investors that (were) investing in them. Most people don’t notice that.”

He likened it to college basketball players going pro. “They keep coming from Duke. They keep coming from North Carolina. It’s the same 20 college programs that all the key people that get drafted come from,” he says. “Well in Silicon Valley it is even worst: The same 20 VCs that keep making all these unicorns. So our strategy with Queens Bridge was to invest with the winners.”

Sean “Diddy” Combs: Hip-Hop Mogul

Sean Combs has employed the same ethos of constant reinvention in rap names (Diddy, Puff Daddy, Puffy, Brother Love, and so on) as he has to his business empire and subsequent dealmaking. But there’s a common theme: hip-hop culture. The majority of Combs success has been from investing and building companies on the peripheral of hip-hop.

And, for the most part, it’s paid off. Combs is currently worth an estimated $855 million, making him one of the wealthiest hip-hop artists.

Combs got his start in 1993, founding Bad Boy Records and seeing platinum success from his stable of artists that included Notorious B.I.G., Mary J. Blige, Ma$E, and Usher, among others. He launched his clothing line Sean John in 1998 and in less than a decade was acquiring his competitors. In 2016, he sold a stake in Sean John to Global Brand Groups for a reported $70 million.

Next, he tackled the hip-hop bottle-service lifestyle, flipping an endorsement deal with Diageo’s Ciroc vodka, into a profit-sharing setup where he earned 50 percent from whatever was sold. He followed that by buying 50 percent of DeLeon, Diageo’s high-end tequila brand. And later, he invested in athlete performance-focused water brand and (un)intentional hangover cure AquaHydrate alongside Mark Wahlberg and billionaire Ron Burkle.

In 2013, Combs launched Revolt, a music-oriented television network. Combs tabled a $200 million bid for Fuze TV but lost out to Jennifer Lopez’s company. He was part of a $600 million seed round for picture messaging app Pleek in 2015 and invested in high school esports league and platform PlayVS’ $30.5 million Series B round. Like his fellow hip-hop artists, Combs points to establishing expertise before diving in as the linchpin of his success.

“Make sure the odds are in your favor. And to do that, make sure that you are a master of that category that you are investing in, or you are trying to start a business in,” Combs told Entrepreneur in 2013. “Any business I get into, I go and I do the proper studying and I do the research to make sure I thoroughly understand that business.”

A Culture of Deals

Call it a mogul mindset or a penchant for hustling, hip-hop is as much about smart investments as it is about street cred. Nas’ QBVP co-founder explained the parallels between venture capitalism and the streets where a lot of hip-hop artists got their start:

“From a practical standpoint there is no difference in being a venture capitalist, [from] the dudes that would come around the block and drop off a whole stack of drugs to 20 different kids,” he told the Source. “Whichever is the one that brings the most money back is going to be ‘that guy’ that continues to be invested in.”

Hip-hop culture’s best dealmakers have just put in the time to find the right ones to back.