Q&A: Elevation Partners' Roger McNamee
It's no secret McNamee likes his music. So, how does a hobby shape his work?
By Avram Davis July 14, 2008
Elevation Partners managing director and co-founder Roger McNamee doesn't exactly fit the mold of the typical buyout shop MD. Then again he began his business life as a venture capitalist, which might be where he gets it from--"it," of course, can be either his unique approach to investing or even his penchant for rock music, which may or may not be related.
Elevation was launched in 2004 by McNamee, Marc Bodnick, U2 lead singer Bono, Bret Pearlman and John Riccitiello. McNamee was a co-founder and general partner at Integral Capital Partners. His venture investments for Integral included Intuit, Flextronics, Rambus and Cerent. Prior to that, he was a co-founder and general partner of Silver Lake Partners.
McNamee got his start at T. Rowe Price Associates, where he managed its science and technology fund and initiated venture investments in Electronic Arts and Sybase.
Roger McNamee
These days McNamee is a director at Palm, Move.com and Forbes Media.
IDD caught up with McNamee in Montreal, where his new band Moonalice played in front of a packed house. In a follow-up conversation, McNamee discussed his music, his investment strategy and how the two are intertwined.
IDD: You've mentioned that there are a lot of similarities between launching a band and building a company.
McNamee: That's how we look at it. The reason is that the music industry has been disrupted by technology and its own [changing] business model. It became dependent on the model of selling a very large quantity of recorded music on records and CDs at a very small profit. When new technologies pushed the industry to change its business model, their reaction instead was to resist.
We now have a situation where the unit value of recorded music is extremely low because there's so much free music moving around. So the old model of selling recorded music doesn't work anymore. Now the challenge is to build a brand without a record label. Even if you have a record label, it isn't enough to become successful.
We looked at this and asked: 'What are the things that make a startup company successful?' You bring together a committed team, you give them some capital and some time, and you allow them the freedom to create.
In addition, in terms of building the brand, it's important to respect the audiences' time. In a world in which there are seven million bands on MySpace, the issue is not that there isn't enough music out there. The issue is that people need filters.
[With Moonalice] we're not necessarily trying to be a mass-market success. We're just trying to make this a good experience for our audience. And since all of our music can be found for free on our Web site, there's not any risk for people when they come to see us. I feel that that's really important. We want to exceed our audience's expectations.
The key thing to recognize is that we aren't starting out by trusting a system. We are building a new system based on what we have found to be successful for other bands and businesses. I spent three years advising the Grateful Dead on their business, and I advised U2 and Pearl Jam and others on an ad hoc basis.
IDD: Can you describe how music relates to your approach to private equity?
McNamee: I am a believer that good ideas will work in almost any context. I am not a classic investor, and I am certainly not a prototypical PE investor. I have always had an orientation toward trying to invest in new models.
IDD: Looking at your portfolio, Elevation has investments in media (Forbes), Web sites (Move.com), entertainment (SDI Media), and hardware (Palm Inc.), and last year the firm scored a huge win with the sale of video game maker BioWare/Pandemic Studios. What are the overarching themes that link each of these investments?
McNamee: They were all former market leaders, or are current market leaders. The other component is that they are all dealing with technological challenges and believe that they need help to take advantage of the opportunities that that presents. We are all about helping people leverage these opportunities.
IDD: There have been many changes in the technology space in recent years. How do you see the tech market evolving from here?
McNamee: It's about consumer now. From 1977 to 2000, it was about the needs of corporations and other businesses. I think you will see a huge set of changes in the relationship of technology to the consumers.
In the past, consumers were forced to adapt to products that really weren't made for them. But you are starting to see products that are designed directly for consumers. You've seen the first generation of these. The products that will work from now on will be the ones that have an instant learning curve.
I really believe that people are struggling to keep track of all of the things in their lives, and I believe that technology can make a really big difference.
Your work time and your play time get blurred a bit. But you get more play time if you handle it right because you aren't sitting around waiting for the phone to ring.
IDD: How are we seeing this play out in the market? For instance, there's been a lot of consolidation, which has perhaps been underscored by the on-again, off-again flirtations between Yahoo! and Microsoft. Is that part of it?
McNamee: We are in a phase change. Whatever the next phase is going to be--it's too early to know.
The first generation was aggregation, which was Microsoft. Then, the second generation was index--basically, Google search. It has solved most, if not all of the problems, that it can solve. The third generation will be about finding the information that we need through editors, friend-to-friend networks like Facebook or Wikipedia.
But they are really smart at Google, so they'll take the aggregation phase about as far as it can go.
IDD: What are your thoughts on some of the consolidation we're seeing? Microsoft, for instance--what do their actions tell you about the market?
McNamee: Microsoft realizes that what has made them successful isn't necessarily where the future is. It's a really smart company, and they could, in effect, do what Oracle is doing; they could buy SAP and just make it a part of their business platform. But this wouldn't be a challenge at all, and would be an easy solution. So they've opted to shoot for Yahoo!. I think they're really smart, and have been going about it the right way all along.
Yahoo! is in a much better situation than it looks like. The benchmark that everyone holds them to is ad revenue, but a quarter of a million people go to their page, and that's still a big deal.
Everybody wants to be like Apple, and that's going to drive a lot of M&A activity. The point is that the current situation is not stable at all. And because of this, you're going to see people making moves. Strategics are going to be the primary buyers.
IDD:What other trends do you see on the horizon?
McNamee: I am a huge growth investor, so I invest in good businesses that used to be great businesses, and we examine how to make them great again. We only own a majority stake in one of our portfolio companies. We are trying to do transformations.
IDD: Why do you prefer these types of deals opposed to transactions that give you full ownership?
McNamee: I am a value investor. As a value investor, if you can avoid the control premium, that's a good thing. In general, I like to avoid the disruption of going private.
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