Cobbin took another crack at partnering with Jay-Z and Diddy. (“Dre was still mostly known as a seminal producer,” says Cobbin. “Frankly, we missed on that one.”) He was willing to have them launch their own lines of phones within the Boost brand, a compromise of sorts after the prior negotiation. He offered a cut of revenue for every cell phone and every mobile plan sold—and a taste of the broader Boost brand via individual joint ventures with each impresario. But Cobbin wanted Jay-Z and Diddy to actually pay for the equity they were set to receive. They’d get a discount, to be sure, but they had to put in more than “sweat equity.” They didn’t bite.9
“I’m a skin-in-the-game businessperson,” says Cobbin. “I don’t like going into business with people if I feel like they don’t have skin in the game… They were willing to bring none of that to the table.”
For Jay-Z, at least, there may have been another sticking point developing, one that hadn’t been in play so much a couple of years earlier. Cobbin remembers John Meneilly, Jay-Z’s consigliere at the time, expressing concerns about associating the rapper with a brand like Boost—whose no-contract offerings still felt like the cellular equivalent of a check-cashing joint—at a time when Jay-Z was beginning to flirt with exclusive, expensive products like Armand de Brignac.10
“Michelangelo has a quote,” says Cobbin. “I’m not going to get it right, but he said when he looks at a piece of stone, he sees the image already in the stone, and his job is to chip away the excess. I think that’s Jay… You can’t go fast when you’re chipping marble. You fuck up the whole thing. I think that’s what he’s now doing: he’s taking his time, tap by tap by tap, to build his masterpiece.”11
Jay-Z may have been playing the long game, but he missed out on a bonanza in the short term—again. In 2006, Sprint merged with Nextel in a $36 billion deal.12 Though the Nextel brand has been discontinued, Boost lives on, clocking annual revenues north of $3 billion within Sprint.13 Diddy and Jay-Z could have been sharing in those spoils.
“A cut of a monthly subscription? Are you kidding me? They didn’t fully understand that,” says Cobbin. “I think it was a loss on both sides.”14
Jay-Z, however, would find other ways to tie up with Sprint later on.
The first rapper to regularly invest in the sort of startups lionized in Aaron Sorkin’s The Social Network and HBO’s Silicon Valley was someone who otherwise lagged behind the three kings in the business department: Nas.
The Queens-born rapper’s career had gotten a boost after he signed to Jay-Z’s Def Jam, earning his first number one album of the new millennium with Hip-Hop Is Dead in 2006. But each of his ensuing albums sold fewer copies than the last. Things weren’t going well in his personal life either: Nas split with his wife, the singer Kelis—known for her 2003 hit, “Milkshake” (“Damn right, it’s better than yours”). Soon he had to cough up $25,000 per month in alimony and child support. Financial trouble followed, with the IRS slapping him with a $2.5 million lien in 2009 and another $3 million in 2010.15
Enter Anthony Saleh, a bright young electrical engineering grad who wanted to work in the music business. He convinced Nas that he could help sort out his affairs, and eventually became his manager. One of Saleh’s first moves was scoring seven-figure endorsement deals with two brands that resonated with the rapper: Hennessy (whose praises Nas sang on the first track of Illmatic) and Sprite (he had done an “Obey Your Thirst” spot in 1997). But Saleh knew there were greater rewards to be reaped outside the realm of traditional brand deals. Social media had emerged as a key cog in artists’ careers. Having a virtual presence grew particularly important as traditional media outlets floundered, their reach often outpaced by individual celebrity Twitter accounts. At the same time, new platforms were looking for ways to gain followers and mindshare. Having famous investors represented a shortcut of sorts.16
Saleh linked up with Troy Carter; when the latter launched Atom Factory in 2010, they teamed to scour the country for startups that might be interested in taking on celebrity investors. (This was already happening in other corners of the entertainment business, starting most notably with Ashton Kutcher, a hands-on investor who now runs his own venture fund with partner Guy Oseary. Less business-focused acts like Justin Bieber jumped into the fray with the help of savvy managers.)
Initially, Saleh and Nas aimed to get stakes in businesses in exchange for the benefit of association and promotion. By 2011, though, the sweat equity model was starting to shift, and startups were beginning to require that celebrity investors have skin in the game.17 Saleh didn’t mind: “The quality of people we were meeting were much higher from folks that were like, ‘We want money, and fuck the sweat equity.’”18
Their first big hit was with a company created by a trio of Yale graduates. Initially called Rap Exegesis, then Rap Genius, and now simply Genius, the Brooklyn-based outfit got its start as a site for crowd-sourced hip-hop lyrics and explanations of what rappers meant by their rhymes. In 2011, after a turn in startup incubator Y-Combinator, the Genius cofounders—Ilan Zechory, Tom Lehman, and Mahbod Moghadam—met Carter, who immediately appreciated the company’s potential as a tool for artists to tell their stories.
Carter quickly invested and made an introduction to Saleh, who brought in Nas for a demonstration. The rapper clicked around the site, looking at annotations of his lyrics, and turned to the cofounders. “‘This could be bigger than Twitter,’” Zechory recalls him saying. Nas and Saleh made “a substantial angel investment” shortly thereafter; they didn’t receive a special discount, but they knew they had a chance to get in early on a company that the average investor couldn’t.19 “It wasn’t about the amount that I put in,” Nas told me in early 2012. “It was about me caring about this thing, the asset.”20
Nas became the first of thousands of Genius’s “verified” acts, which entailed getting a badge on his profile, annotating his own songs, and uploading video explanations. The pages he interacted with tended to get much more traffic than other offerings; the day his verified profile went live, the buzz around Nas’s appearance on the site caused it to crash.21
The technical difficulties didn’t end up hurting: in 2012, venture capital firm Andreessen Horowitz plowed $15 million into the company. When I interviewed the firm’s cofounder Ben Horowitz at the time and asked why he’d taken the plunge, he explained that he and his partners were hoping to turn the site into more than a place to explore rap lyrics. “We think they have a real shot at building the Internet Talmud,” he told me; indeed, the site now hosts explanations of literature, law, and news in addition to music.22
Encouraged by their early success, Nas and Saleh continued to expand their portfolio. Nas liked the Fancy, a site dedicated to sharing images of unique—and expensive—products (“I can order some real cool shit on there,” Nas explained).23 Saleh, working with Carter, took a more sophisticated approach and scored stakes in Lyft and Dropbox, helping the rapper diversify along the way.24
Saleh and Nas eventually formed an entity to encapsulate their investments, naming it after the infamous New York housing project where Nas grew up. QueensBridge Venture Partners employs several people to help scout deals, often investing in tandem with bigger funds like Silicon Valley legend Ron Conway’s SV Angel (to buy into mattress industry disruptor Casper) and early Facebook investor Accel Partners (to nab a piece of ticket search engine Seat-Geek). This approach gives Nas and Saleh a bit more assurance that they’re moving in the right direction even when plowing money into companies outside their comfort zone. The method contrasts with that of artists like Bieber who mostly invest in apps they use.
“Nas is fortysomething years old,” says Saleh. “He is going to look at the world differently. If he only invested in apps he played with, he’d have no investments… The point is to push forward innovation, and that necessarily has nothing to do with you sometimes.”25
QueensBridge has now invested in over one hundred startups in total. Saleh wouldn’t reveal the return on inv
estment that he and Nas have achieved, saying only, “We made money.” But they certainly seem to be doing well on their earliest big bet. In 2014, Genius raised another $40 million in a round led by billionaire Dan Gilbert, the owner of the Cleveland Cavaliers. At the same time, Pharrell Williams invested through a fund that he’s a part of; Eminem also poured some of his own money into Genius the following year.26
Genius is worth considerably more than when Nas and Saleh first invested—“Only God and capitalism can tell us how much,” explains Zechory, who nevertheless confirms that his company’s value is “definitely many times more” than it was in 2011. But it’s still early.
“As an angel investor, you expect a decade of waiting,” adds Zechory. “The companies that Nas and Anthony have invested in… are doing very well now, but haven’t sold or had IPOs. Give it a few years. Nas invested in Genius five and a half years ago. That’s still a relatively short period of time in the life of a company.”
As Nas racked up myriad startup stakes, Diddy took a more methodical approach, quietly amassing pieces of a select few companies. In 2011, he became acquainted with alkaline water Aquahydrate—not the sort of startup staffed by engineers in jeans and hoodies, but a company that met the definition more broadly27—while living up to his role as Cîroc’s celebrator in chief.
Diddy ran into Mark Wahlberg at a boxing match one evening in Las Vegas. The actor was clutching a clear blue bottle, and Diddy asked what it was. Wahlberg introduced him to Aquahydrate, the bottled water he’d stumbled upon while training for his 2010 movie The Fighter.28 (“I started to really feel the difference in my recovery time,” Wahlberg said. “I thought, Well, the only thing it could be is the water.”)29 So the actor had a couple of bottles sent to Diddy’s hotel room, and the two parted ways.
“I went out that night, had a Vegas night,” Diddy explained. “I woke up, had a Vegas morning. I drank two of the bottles, and it was the best-tasting water that I’ve tasted. It really, honestly, helped me recover. I saw [Mark] again. I’m just like, ‘Hey, if you’re doing something with that water, I want to be involved in it.’”30
According to Diddy, it wasn’t just a fortuitous coincidence, but a chance for him to get into a line of business that he’d been dreaming about for many years. He especially gravitated toward the idea that, unlike 50 Cent’s Vitaminwater, Aquahydrate was not a sugary product. And unlike his own Cîroc, it wasn’t an alcoholic beverage. It was a simple, healthy drink, theoretically good for consumers if not for their wallets (at $2.19 per 33.8-ounce bottle, Aquahydrate is several times the price of milk or gasoline on a drop-by-drop basis).
It’s worth noting the science behind alkaline water is a bit murky. The Mayo Clinic says that, despite studies suggesting its health benefits, “further investigation is needed” to determine if it’s truly better than regular water.31 Diddy seems to have already made up his mind on the matter. “If I test your body and your pH balance, and you’re full of acid, it’s a great chance that you need to… get your body leveled out.”32 This is the same sort of logic he applied to vodka. Just as grapes are sexier than potatoes, bottled water with an alkaline pH—the opposite of acidic—sounds like something you’d rather put in your body than the alternative, regardless of the science behind it.
Diddy soon organized a meeting with his billionaire pal (and Sean John investor) Ron Burkle and Wahlberg. The latter had gotten to know Aquahydrate’s management team and felt that the business was in “rough shape.” So Diddy, Burkle, and Wahlberg invested $10 million in the company and received a controlling stake. According to Wahlberg, they put “sweat and cash” into the business, meaning they likely got a discount from the original owners, who kept a smaller stake, thinking its value would rise significantly with an infusion of fame.33
Perhaps most important was the retail expertise brought to the table by Burkle, who’d made his fortune in the supermarket business. Aquahydrate soon appeared on shelves at stores including grocery giants Kroger and Walmart, two companies with which Burkle had done business. Along with Diddy and Wahlberg, he helped hire a new chief executive: Hal Kravitz, a veteran of Coca-Cola’s Glacéau division. But Diddy bristled at comparisons to Formula 50.
“I didn’t get into this to do what anybody else did,” he said. “I’m definitely a fan of what 50 Cent and Vitaminwater and Smartwater and a lot of the other brands have been able to do, but I didn’t get into this to follow in the footsteps and just do what somebody else has done. I want to go in whatever path we have for ourselves.”34
Wahlberg was impressed with Diddy’s level of involvement with the product: as he does with Cîroc and DeLeón, he poured himself into the details, down to the design of the bottle. “He’s relentless, he’s brilliant when it comes to marketing,” Wahlberg explained. “He also has a very competitive edge, too. When he sees me creating deals with GNC because of my relationship with them, he’s automatically trying to outdo me [and] bring as much to the table as possible.”35
Though Aquahydrate does not release sales figures, company executives claim that it’s the country’s fastest-growing water brand; today, it’s available at all Rite Aid outlets, 900 Target stores, and all 2,700-plus Speedway supermarket locations. For Diddy, it all goes back to Cîroc and that Vegas night. “It’s the perfect combination to my spirit empire,” he told me of Aquahydrate. “Because anybody that celebrates knows that water is key… I’m doing my best to start this boutique consumer products empire. I have a lot of work ahead of me.”36
It frequently takes a decade or more to see if a company will prove to be a success, but losers often reveal themselves much more quickly—and hip-hop acts have had their fair share of those in the venture capital world. Jay-Z alone has quietly had plenty of failures: Viddy, an Instagram-for-videos service that counted the rapper among its shareholders, closed down in 2014.37 (It’s worth noting the startup seems to have been giving away stakes to celebrities rather than selling them.)38 He also invested in cosmetics company Carol’s Daughter, which was bought out of bankruptcy by L’Oréal in 2014.39
After successfully plowing cash into Uber, Jay-Z has shown a particular penchant for investing in companies aiming to be a sort of Uber for private jets, with varying results thus far. He reportedly picked up a piece of a company called BlackJet; it went under in May 2016. Months later, he joined members of the Saudi royal family in backing JetSmarter, a Fort Lauderdale–based company that has raised a reported $157 million. Its 6,500-plus customers pay $15,000 for their first year of membership, and $11,500 per year after that, to book seats on private jets’ “empty legs” (in other words, flights in which a plane heads back to its home base after dropping off passengers without picking up any new ones).40
Then there are his nightlife brands. In addition to investing in a range of bars and restaurants (the Spotted Pig and the Rusty Knot in Manhattan’s West Village), Jay-Z famously purchased a chunk of the NBA’s Nets once estimated at 1.5 percent.41 The New York Daily News reported he paid $1 million for his stake42—quite a bargain considering the team’s value sat somewhere in the neighborhood of $300 million at the time. (Others have since asserted that he received face value: one-third of 1 percent.)43 This may have been an example of a purchase price paid with a combination of cash and sweat, or simply a case of a celebrity using his name to get in on a good deal closed to the outside world. Regardless, he did put in his share of sweat, becoming the face of the franchise when the Nets were still languishing in New Jersey. When Russian billionaire Mikhail Prokhorov bought 80 percent of the team for $300 million in 2009, Jay-Z’s stake shrank to one-fifteenth of 1 percent, though he picked up one-fifth of 1 percent of the Barclays Center itself along the way; it is unclear if he took cash off the table at the same time.44
Jay-Z also helped spearhead the team’s 2012 move to Brooklyn, appearing at events like the arena’s ceremonial ground-breaking, despite some protests over the ambitious construction project and the gentrification it might bring. As the Barclays Center
rose on the same Atlantic Yards site that Walter O’Malley had once eyed for the Dodgers, Jay-Z reaffirmed his support for the basketball team in verse. “I jack, I rob, I sin—aw man, I’m Jackie Robinson / ’cept when I run base, I dodge the pen / Lucky me, luckily, they didn’t get me / Now when I bring the Nets, I’m the black Branch Rickey,”45 he rapped on the Kanye West–produced “Brooklyn (Go Hard).” (The song, which also featured indie darling Santigold, debuted on the soundtrack for the Diddy-produced Biggie biopic Notorious.)
Once the Barclays Center was completed, Jay-Z christened the Nets’ billion-dollar home with a string of eight sold-out shows, drawing more than 120,000 fans and grossing $7.4 million.46 He negotiated the placement of a satellite location of his 40/40 Club and a Rocawear store in the building. Jay-Z’s initial investment soared: once ensconced in Brooklyn, the Nets’ value vaulted to $530 million.47 But within a year of the arena’s opening, Jay-Z made a startling move: he dumped his equity in both the team and the arena, selling the former to Nets coach Jason Kidd for $500,000 and collecting $1.5 million for his stadium stake.48 Jay-Z did this to remove any conflicts of interest that might have prevented him from becoming a sports agent at the head of a new venture: Roc Nation Sports (more on this later).
Jay-Z’s growing experience as an investor seems to have spurred him to look for new ways to plow money into promising young companies. Shortly before this book went to press, he announced a startup incubator, Arrive, along with plans to launch a venture fund. Structured as a partnership between Roc Nation, seed-stage investment firm Primary Venture Partners, and publicly traded holding company GlassBridge, Arrive should give Jay-Z access to the sort of war chest needed to take the next step in the startup world.
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