Will AI Screw IP Holders, Content Getting Better or Worse, and The Future of Journalism with Ishan Sinha, Partner at Point72 Ventures

0:00What do you think is the biggest consumer trend to watch out this year? You're seeing people like scale to millions of dollars of revenue quickly, figuring out what the TikTok does. We kind of have gone through a couple of paradigm shifts in consumer technology. Like in the early 2000s, it was the internet, right? Like all of a sudden, all the stuff here that are not flying is now on your computer. And now all of a sudden, the companies like Spotify or whatever that have really disrupted their respective industries are where there's consumer demand. Consumer demand that you honestly cannot ignore.

0:29Consumers really want to just stream music for$10 a month. That is going to happen. Our guest today is Ishan Sinha, who is a partner on the investment team at Point72 Ventures, where he co-leads their consumer investment practice. Point72 Asset Management is an American hedge fund. It was founded in 2014 by Steve Cohen. Point72 Ventures is their venture capital arm. We discuss what types of consumer AI applications Ishan thinks will succeed versus ones that won't succeed. the challenges of AI media content and copyright, and we also talk a little bit about the music industry. Hello, I'm your host, Mike Gelb, and welcome to The Consumer VC, where we discuss the intersection of venture capital and consumer innovation.

1:13If you're enjoying the show, please subscribe on whichever channel you're listening on, whether that's YouTube, Spotify, Apple Podcasts, that would be amazing. And if you're loving the show and want the full experience, check out the newsletter at theconsiderobc.com. I share fundraising updates weekly, and you'll be the first to receive new episodes straight to your inbox. All content episodes are for informational and entertainment purposes only and is not investment advice. Without further ado, here's Eshaan. So let's start from the very beginning of your career with Point72. I mean, Point72, why did it make sense in your mind for Point72 to even launch a venture fund in the beginning?

1:54Yeah, yeah. So I joined Point72 in 2016. And I actually joined on the public market side, which is what Point72 is known for, right? It's a large asset manager. The bulk of what they do is publicly traded investing, which is a combination of both fundamental long-short equity, like going long and shorting stocks based off of fundamental deep research, and a systematic quantitative strategy, right? quants and algorithmic trading and all that. So I was working on the fundamental side. I was researching stocks all day. It was an awesome job. You kind of just did research and read and learned about different industries all day.

2:37And honestly, I was the first associate that they hired on the venture team. At the time, it was like three folks in a basement in our old office. And it was really launched as like an experiment of like, hey, look, we have all these smart people at the firm, right, doing research in different categories. We do have a large firm that has ties to, in particular at the time, the financial services ecosystem. I think about where 0.72 sits, like we work with all the banks, we work with all the lenders, like we're close to that ecosystem. And so Steve, Steve Cohen, who started Point Simage, you had this idea of, well, can't we leverage the intellectual capital and kind of where we sit in the ecosystem to start making some startup investments?

3:28I think naturally we were seeing startups anyways. You have to remember this was kind of a different era in 2016 in New York City. It's not like there were tons of venture funds. And that was also, I joke about this, like in 2016, that was a time where like the idea of like a hedge fund doing some startup investments was somewhat novel. It's not really anymore. But, you know, we kind of saw an opportunity. Hey, couldn't we come in here and become like a real New York City venture fund? And we started doing fintech investing and then, you know, sort of expanded from there. And yeah, you know, one thing kind of led to another.

4:02The team just grew and grew and grew and started adding more verticals. And eventually we added a growth business. And yeah, now we're investing in a bunch of different spaces. I lead our consumer team. I do both early and growth stage on the consumer side. And yeah, honestly, it was kind of just, from my perspective, I just kind of lucked into this position. I was a hedge fund analyst. I think in 2016, I got bitten a little bit by the startup bug and kind of raised my hand. If you guys want to build a venture fund, I'll help you guys. I don't even know what that means, but I'll try my best to learn on the fly.

4:35And I don't know, like almost 10 years later, I'm still here. No, I mean, congrats. What was the biggest transition going from public market investing and working at a hedge fund and then going into venture, into early stage and growth stage investing? It's a really good question. A lot of people ask me this. I would say the core of it is that the two jobs are actually very similar. At the end of the day, you're looking at businesses and evaluating, is this a good business or not? On the public equity side, you kind of have the ability. If you don't think it's a good business, there's another thing you can do.

5:18But at the end of the day, you're doing the same thing. You're doing research on trying to evaluate if a company is good or not. I'd say the thing that I really had to adjust to, it's two things. Number one, I come from a little bit more of a quantitative background. I studied economics in college, and I was an investment banker before this. And so I was very comfortable making decisions off of data, off of like, you know, you build a model and, you know, the model spits out a number and you're like, oh, that's a good number. We should buy it. Right. And the reality is you can't really do that with startups, particularly like early stage startups.

5:49Maybe at the growth stage, you can do a little bit more of that. But I would actually like it sounds fluffier, but I would actually say when you don't have the crux of like data to invest off of, it's actually really hard. Right. It's actually really hard to be like, I think there's something special about this human being, which is ultimately like what most early stage investing boils down to. Right. Or it's really hard to think abstractly about markets. I always talk about like, you know, like you can try to quantify the TAM for Uber in like 2007 or whatever. But like, what are you doing? You know, what's the what's the actual like at the end of you kind of have to like invest off of something abstract and invest off of a person.

6:26And I would argue that's way harder than like crunching numbers and, you know, like all this data looks right. You know, this trend line is up to the right. That's the first thing. The second thing that I would say is like the biggest difference is the access piece of it. You know, when you're an edge fund analyst and you want to buy shares of a particular stock, like most cases, like if you have a view on it, like buying those shares isn't the hard part. Whereas in venture, like the hard part, I think is like, yeah, if you, if you love a deal, chances are everyone else loves the deal too. Right.

6:59And, uh, getting allocation is hard. And so like the interpersonal piece of it was an adjustment for me. I've grown to really, really, really love that. I mean, my, my favorite part of my day is spending time with founders, but, uh, but like that was a trend. I did not appreciate that going into this job, how, how important that was. It might be the most important thing. do you think yeah so i guess that that shift from being um from really from being quant from from really focused on the quant side to really not have enough data i actually have to focus on the on the qualitative side and really build that trust with people and and actually you're you're really betting on the jockey in a lot of ways especially in the early days that that and the horse because the horse is still kind of assembling it's still kind of growing uh into a horse and so So totally understand that adjustment.

7:49I have a question. Just in your view, we talked about allocation can become hard in terms of competitive when the deal is competitive. Do you find when the deal is very competitive that that actually translates into the company actually performing really well and maybe becoming quite a big company? Or do you think that it actually doesn't have a lot of – or actually being contrarian in that you actually looking at startups that maybe don't have – that maybe aren't in that – that it isn't actually as competitive to actually get in the rounds. That maybe is actually more enticing for you. So yeah, the short answer is like, I don't think there's a real pattern there.

8:43So long as you develop the conviction internally as an investor, that's what I kind of always coach my team on, right? I'll say this, like some of the best deals I've done in my career, like, you know, that I've been hit for almost a decade. And like, we have realized a couple of exits and seen these companies grow. Some of the best deals I've done were super contrarian to the point that like, there was no competing term sheet, right? Like, to the point that like, in investment committee meetings, I got asked, like, are you sure about this? Like, nobody else is looking at it, right? At the same time, for each one of those, like, certainly, we have companies where, you know, it was competitive for good reason, the founder was amazing, and they had to track record and you know, that company did well.

9:23But I would say there's sort of no correlation. I don't know if I would ever say like, you know, just because a company's competitive means it's good, or just because a company's competitive means it's bad, like, just because an allocation decision is competitive. But what I always coach my team on is, hey, if you've done the work and you believe that this market exists and this founder is awesome, I don't care what other venture funds are saying, let's do the deal. It almost is an irrelevant signal for me. What about price then? Let's say you love the company, but how do you also stay price disciplined for example really are i mean it's obviously easier in a scenario where you know you are a uh you can set the price right because you're the only term sheet there but in a competitive round it's tough i think it just comes down to like how much conviction do you have that this can be a big company and um are you okay paying up for it i think i was listening to a podcast i can't remember if it was this one but with uh with sarah topple from benchmark you said But if the only reason you don't want to do a deal is the price, pay the price.

10:32If you have tons of conviction, and I couldn't agree with that, but if you have tons of conviction, you think this is going to be a Facebook-like outcome or whatever, one of those companies, pay the price. But I would say like in general, I think given our DNA and how much time we spend on deep fundamental research and kind of the culture of our firm, we try to be as price disciplined as possible. of all. Now, in consumer, consumers never, well, not never, but it seems like for the last few years, it's never, it hasn't been considered an attractive space to invest in, to spend time in. And, you know, I think that, you know, and, and, you know, maybe partly for good reason, in terms of everyone loves, you know, enterprise SaaS and, or, or, or B2B SaaS in, in some way, shape or fashion in terms of obviously the margin profiles and as well as the overall customer base might be a bit easier to manage.

11:31Consumers are a bit more fickle, for example, than businesses and maybe you have a lot more long-term contracts. But what do you think the pulse is right now when it comes to investing in consumer? And is it only, is your only focus in consumer AI, for example? So you're right. Like for the last couple years, it has not been the sexiest sector, I guess. And look, for good reason, right? There was a wave of consumer companies that came out in the last decade that really were able to take advantage of digital marketing. The cat game made sense. You could market on social media and Instagram, Facebook, hit the right customer.

12:24Over time, A, those markets got crowded. And B, because of Apple's IDFA rules and things that came out, suddenly that business model no longer really worked. And so I think that scared people off of consumer for a good reason, right? Like at the end of the day, unit economics end up being unsustainable. Like what are we really building here? I think that's starting to change, right? And I think investors are sort of realizing that. For one, there's new channels to go acquire customers, right? We're seeing that across our portfolio, you know, particularly our release age portfolio, which is like zero to one.

13:02And like, you're seeing like, you're seeing people like scale to millions of dollars of revenue quickly by figuring out like the TikTok algorithm, right? It's so good if you want to get your profile or even get your company in front of the right group of people. I don't know if you can scale to like$100 million business doing that. But like, you can prove product market fit pretty quickly. I think that's really interesting. I think investors are paying attention to that. And then I think the secondary thing, which you kind of touched on is AI, right? I think we kind of have gone through a couple of paradigm shifts in consumer technology.

13:36Like, you know, in the early 2000s, it was the internet, right? Like all of a sudden, all the stuff you're reading offline was now on your computer. Then in 2009, 2010, like that was when mobile powered by cloud became really ubiquitous. All of a sudden you had, you know, supercomputers in your phone and you could do a bunch of apps you could use. And now all of a sudden, a lot of people believe that we're in sort of like the next wave of this, right? where brand new experiences that consumers kind of hadn't even fathomed before are now available, right? Powered by AI. And I think a lot of people are really excited about that.

14:13I would say we've seen Wave, one of these companies, sort of come and go, right? There's some that have obviously stuck around. ChatGPT and OpenAI is obviously the big one that people think of. But I'm really excited for, you know, Wave 2 and the company sort of being built right now. And yeah, like I wouldn't say it's entirely powered by AI, but I would say there's a lot of excitement about making sure that people are investing in the next wave of sort of great AI companies. Totally. I mean, I'd love to love to talk, obviously, about this article that you put out about how AI media startups can help solve existential issues for the industry and artists.

14:47And when we think about industry and artists, we think about IP holders, right? And so what do you see as the most pressing challenges for AI startups that can actually address this space? And talk about also some of the problems that we're having right now when it comes to AI media startups and actually some of the actual publishers and the IP holders. yeah so so the genesis of like this article the reason why i decided i want to kind of start thinking about this and write something here was because um you know point 72 we we have access to a couple of different like interesting assets in the media entertainment space right so the most obvious one steve cohen who founded point 72 also happens to own the new york nets right and so uh We actually, oh, go ahead.

15:42No, that's great. We happen to collaborate pretty frequently with that team. And, you know, like that's kind of an interesting, like we just kind of get to learn about like the traditional sort of sports ecosystem that way. The other interesting asset that we have is we were the first institutional check into this company called Range Media Partners, which is a talent management company in L.A. they manage artists musicians actors athletes uh writers digital creators um you know obviously through that and they've started producing movies uh as well they produced them on legs earlier this year if you saw that um they they also produced um the new timothy shallon movie with about bob jalen forget the name of it um oh uh that's right that's right uh forget the name of it uh i probably should have watched it uh but anyways uh but uh so so through those two relationships like we've just been close to what i'll call like the traditional media ecosystem right like traditional sports and traditional hollywood and through that i've kind of gotten a pretty like front review of how they've reacted to ai right um and on the one hand i think i don't know optimists about technology probably like you and me look at all this AI stuff in the market and we're like, wait, this is so cool.

16:58This is enabling new customer experiences. On the other hand, in some of these meetings I'm sitting in, I'm hearing musicians say things like, well, this AI song I heard on X sounds a lot like my voice, right? And so like trying to straddle, like, I think I am a believer that this technology she's here to stay. There are amazing things that it's enabling. I mean, it's, you know, these AI music generators, like you're democratizing something that has been really hard to learn for a long time. I think there's only good in that, right? But there's also, I think, a responsibility that these companies have that has perhaps gone maybe underappreciated by Silicon Valley and by some of these founders.

17:39And that's not to say it's wrong or, you know, it's unfixable, but it's just something to be aware of, right? And what's interesting is like, if you look at history like this is not the first time we've kind of gone through some of these paradigm changes i mean you know music streaming was has a lot of parallels to this and they were able to figure out a way to compensate the rights holders um is it perfect no and i'm sure we'll get into that uh but you know like there's frameworks to work within and so all this to say like when you know the lawsuit came out uh earlier this year about or rather in 2024 about um you know some of the record labels being a little bit upset with, uh, with some of the AI music generators, it wasn't exactly a surprise to me.

18:22Um, I think it will get figured out in due time, but you know, I just think that's something that, that we as a firm are monitoring very closely. Yeah. I mean, I feel like, you know, cause I know that you wrote about this in your article about giving, about saying, of course there was, you know, music piracy happening in the late nineties, with of course the launch of Napster and of course, you know, I remember Kazaa and, you know, and, and, uh, and LimeWire and, uh, uh, yeah, a whole, a whole host of others, uh, where you can just, you know, uh, download music, uh, uh, music illegally. And then, and then obviously, you know, Apple, Apple launches iTunes and kind of gets all the record labels on board for that.

19:06and it's because i think that the record labels thought we hit we can't live our lives just in lawsuits this is what the this is what consumers want and it also just made the the record labels look you know terrible you know i remember i remember metallica just all as well i remember metallica doing some of the lawsuits against her fans and you know it just it just made it just was a really you know crappy era i would say for kind of all all kind of parties involved um and at the same time and but the record labels i think needed to accept we need to participate in digital right we need to participate in this world in um in in digital music not just you know physical music with cds and you know records and tapes but predominantly cds but we need to we need to actually participate in a new digital era um what is how are we actually going to do it where we obviously protect our ip um i'd imagine you know and then of course you know spotify comes along and you know really really almost has like an alternative to this existential threat which is you know piracy but i don't i don't know for example if spotify was the first thing the first thing that kind of gets pitched to the record labels, they might, you know, go, I don't know if they go, Oh yeah, no, we're not going to do that.

20:31Why would we do that? Cause our business model is so good. I mean, if you think about the record labels business model, it was unbelievable. I mean, you know, you, you promote one song, you hope that that song is a hit, and then you have a bundle of 10 to 15 songs or, or however many songs are on a CD. And then the only way the, the consumer can actually list that song apart from the radio is to actually purchase that music. to purchase a full-length album and pay$20. And even with iTunes, with paying$1 for a single, that still is a huge disruption to the kind of bundled album previous business model that the record labels had.

21:12And now you're introducing$10 a month,$15 a month to actually then have the entire catalog of everything being able, having the ability to stream the stream songs. So it was almost like a compromise in some ways, right? In that we have this existential threat and piracy. Here's the compromise in the Spotify's and the Rhapsody's and the iTunes and stuff like that in order to participate in this digital world because we have this consumer pull and there's no escaping this consumer pull for it. And I do wonder what that looks like when it comes to other sectors. Because I think it's really, really hard.

21:58I think it's really hard. Something that I've been thinking about, and certainly your article was what triggered it, was you mentioned how ChatGPT right now is facing a lawsuit with New York Times, right? And they're using not just New York Times articles, but other publishers as well, articles that they're using for, and you search it and you don't know that it's from New York Times. You don't actually ever need to click to the website to New York Times or what have you, or to other publishers. And I remember going to a marketing conference back in, I think, 2017, 2018, and Rand Fishkin, who is like a CEO, I'm sorry, CEO, SEO and SEM legend, really understands Google really well.

22:58And he's talking about how his biggest worry with SEO and SEM is that click-through rates are down. And that Google actually is emphasizing you wanting to stay on the platform than getting off the platform. Which in some ways, yes, you maybe know who the article is from. But if you're not clicking to the article itself, right, then that does diminish what you actually created. it no different to um what you know chat gpt is going to so kind of this is a problem that was happening before even ai ai was introduced right and i don't know there has to be some type of compromise that happens but i'm not even too sure what that compromise you know quite looks like in a lot of ways um uh you know because ai or not ai this these types of things were happening um um previously i think that's right um wow so much there that that i think is is very critical sorry that was a long rant no no i i love that i i'm really with this so so so you're right that like if i can distill it down to one thing i would say it's like the inevitability of consumer demand like if you read that article i i talk a lot about like the supply side the demand side of the consumer yeah it's consumer companies right like i feel like a lot of these ai companies right now and I keep on bringing up the music companies, but that's just sort of the easiest example.

24:24I call them supply side companies, right? Where like you can go in there and you can create supply of more music. I think if you kind of look at history, like the companies that have, the companies like Spotify or whatever that have really disrupted their respective industries are where there's consumer demand. Consumer demand that you honestly cannot ignore, which is why I call it like the inevitability of consumer demand. Because if consumers really want to just stray music for$10 a month, that is going to happen, right? Like regardless of what the record labels want to do, regardless of all your interests and your incentives.

24:56Well, it may not happen, right? It may not happen, but what's the alternative? The alternative is piracy, right? So that's the alternative. So we're going to introduce$10 a month. That's kind of like the compromise per se with giving the consumers what they want, but at the same time still protecting IP. A hundred percent. 100 % IP 100 % no that's right and like I'll give you a tactical example sort of in our portfolio um it has a lot of parallels to Spotify and a lot of the ideas that you're talking about um we had this company in our portfolio called Global Comics right with an x um they are put very simply Spotify but for comics it sounds like a very small market but if you actually look at it like the uh you know there are 500 million comic book readers worldwide uh right now it's largely physical but like you and i both know that's not really you know how like you and i both know like this is going to get kindle-fied at some point right um if if you want to read this stuff digitally uh you have to download uh dc comics app and marvel comics app and a and a japanese manga app and on the japanese side the translations are all pirated right i'm a i'm a huge uh manga fan and so like you know if you want to read stuff in real time like when it comes out you You can either wait a couple of weeks for the official translation or there's like an ecosystem of people online that pirate stuff or pirate stuff and translate it for you.

26:20Like there's a lot of like shaky stuff happening in this industry, right? There's a lot of parallels to – I know you can imagine when people are downloading PDFs and sharing them and if you really want to find it, you can find it online, right? You can imagine the publishers are really upset about this, right? For every PDF that gets shared of a Spider-Man comic, that's revenue that's lost, right? in Japan or in Korea for everything that gets illegally translated to the US and read on some user-hosted website, that's eyeballs that aren't coming to your website that you're not monetizing via ads, right?

26:56And so they're very upset about this. Their reaction has been for each of them to launch their own app, which is like a bad customer experience. So the founder of Global Comics, Chris Carter, he is actually a reformed pirate. it he is one of the guys that like used to uh used to um like translate stuff and put it on his own website he had 100 million viewers on his website at one point uh 100 million maus and uh you can imagine uh the publishers weren't thrilled about that asked them to stop doing it so we decided to found the business legally now this is a really good example of like the customer demand is unbelievable like like it just brought the for ten dollars a month can you just get access to everything in a legal way 100 right uh customers love that the company is doing really well but you can imagine like it's taking a lot of convincing to get the publishers on board they're like you know well why would i do that i can just why can't i charge ten dollars for my own app or you know why can't i just do this my own lot i don't want you guys i don't want there to be an intermediary between me and my consumers and it's making me really appreciate like you know 10 15 years ago when daniel x from spotify went to the record levels that must have been really hard like arguably harder than just building the technology it must have been really hard to just get these like legacy institutions to agree to give you their ip that's their whole business right you're transforming the whole business and so the only reason that happened was because of your point around um piracy was such a big deal it was it was yeah what's the alternative right what's the alternative what's the alternative and and and you know the inevitability of consumer consumers really want this stuff and they wanted a price that makes sense to them and so it's I'm getting such an appreciation for how working with the IP ecosystem is hard, right?

28:44But on the flip side of that, once you are Spotify and you get access to all the record labels content, and once you are a global comics and you become the only place where people can read certain things they really want to read legally, that's a real moat, right? That's not something that can be disruptive. I think a lot, and maybe this is a separate tangent, I think a lot about over the holidays, I was playing around with Cursor and I was able to build my own little app in Cursor. And I was like, damn, anyone can kind of build anything now, right? But you know what? IP can actually serve as a moat, right?

29:23Not everyone can go get Warner Music Group to give you access to their assets. And so I've been thinking a lot about those ideas. But yeah, it's hard. It's hard to navigate this ecosystem. It takes a special kind of founder. AI does play in this a lot, and I'm happy to go into that a little bit. But yeah, it's a hard endeavor, and I've gotten a great appreciation for what these entrepreneurs went through, Netflix and Spotify and whatever, like 10, 15 years ago. Well, so do you think IP is a moat, or do you think that distribution is a moat? Because, you know, when you're able to distribute about it, like thinking about, you know, ChatGPT and, you know, they have, you know, however many, you know, 100 million or however many, I know that they're the quickest company to move past 100 million.

30:07I don't know what their user base is now. But you have all these users and everything like that. And, you know, Spotify as well could, I'm sure, make that pitch to record labels that we've kind of, that we have a really great grasp on demand or that we have a lot of demand ourselves. how do you think about that that tension between between who has the actual power here when it comes to the distributors or the actual ip holders so it's really interesting right um i think this is all changing in real time like i'm a very like classically trained like hedge fund investor right it's like you think a lot about moats and things like that uh the reality is again i was playing around with cursor over the holidays like i can kind of build whatever i wanted i'm slightly exaggerating that point but like i can see a future where anyone can kind of build whatever they want.

30:53Right. And so like, I don't even know what the concept of a moat is anymore. Right. The only real moats I think are going to exist in the future are really like customer love. It sounds so fluffy, but customer love, the community around your product, and probably some degree of proprietary IP that people can only access through you. Right. I think historically distribution has been such a moat. And I think it's so incredibly important, but I don't know this distribution look like in five years when there's 3 million copycats of every app out there, right? I don't know. And Matt, maybe that's not the world, the way the world is moving in, but I can kind of see a reality where that's the case.

31:30And so I don't know, there's a short history to your question. If you look at history, right? Like you look at Spotify, you know, I attended their investor day in, in, in 20, I think it was 2018 when they, when they did their direct listing, like at the time right like this was such a big debate in that stock where spotify uh gets all their content from from now it's changing but at the time largely three record levels right um three they had three main suppliers um and there was such a big debate on okay well who really controls this dynamic is if the label is it the distributor which is spotify um obviously the people that were very long spotify or were arguing that spot i was gonna do that i was gonna control uh control these negotiations do you know for every 10 dollars you spend on spotify labels get a portion of it spotify gets a portion of it um i think what history has shown is actually the ip holders sold a little bit more power in this their gross margin hasn't materially changed the last couple years they're still paying seven to eight dollars of of that 10 out to the labels and you know like that hasn't really changed.