E2: Joey Flores on Founding Earbits & Inversion Art, Fine Art Investing | YC W11

Matt Joseph: Welcome to the Superconnector podcast. I am Matt Joseph, your host. My guest today is Joey Flores from YC's Winter 11 batch. Joey was the founder and CEO of Earbits, which was essentially Google AdWords for music, and got acquired in 2015 by You42. Now he's the founder and managing director of Inversion Art, which is YC for high profile, fine artists. Joey, welcome to the pod.

Joey Flores: Yeah. Thanks for having me, Matt. Appreciate it.

Matt Joseph: So I want to jump in with Earbits' origin story. How did you get started with it?

Joey Flores: I was at the time living with my best friend and we were in a band together we had had a band when we had the idea [00:01:00] for Earbits, we'd been in a band together for 2 years, we had recorded an album at the onset of the project. We had just decided to team up. It was a big, huge 10 piece funk, jazz, and hip hop group. And my buddy had graduated, top of his class from Berkeley college of music he's just an incredible person in general, but, fantastic musician.

And he said, you know, I'll be in charge of the music side of things and rounding up all the band members and managing the cast of crew.

But you have to be in charge of marketing because, I've recorded albums before, and I know that's the hard part. So, and I was in marketing online. It was the director of business development for an ad network and marketed just all kinds of products.

And so I was like,

yeah, no problem. marketing is what I do all day, every day. No problem.

And we just had a terrible, terrible time with marketing. Every tool that bands were expected to use was just an online version of shit that didn't work when it was an offline version.

So it's like, standing out in front of clubs with flyers. And they're like, how could we make an online version of standing in front of clubs with flyers? You're just like, this is horrible. These tools are garbage. you always had to do so much work to use them. There were all [00:02:00] these like promotional platforms that expected you to do all the promoting of their platform.

And it was just awful. And so we were driving in down to San Diego for like a, weekend kind of get away and just hang out. And we were stuck in traffic and, we just started to start talking.

He's like, dude, why are we having such a hard time marketing our band? And he's like, what is it that you do during the, like your day job? I mean, you market all these different products. What is it that you do during the day that is so different? And like, why can't we just do that for our band? And so I started explaining to him, like how affiliate programs work and, how all of the companies we were working with were marketing all these products.

And most of them were doing it through either, organic search or paid search. They were all using Google AdWords.

but we said well, obviously that's not going to work because, Like text and images just don't sell music. I mean, that's not how people like respond to music.

You have to hear a band and that's all you have to do. Like you hear a band and if they're, if they hit you the right way, you're like, who the hell is this? I want to know who this is and I want to go buy their album. At the time, Spotify had not yet come to the United States, but [00:03:00] Pandora was the big behemoth in the streaming industry in the U.S.

And it was just like this great radio platform where you would go there. And it looked just like Google. There was one field on the homepage and you would type in no woman, no cry, by Bob Marley. And you would get like this awesome channel of reggae music that was, Basically an organic string of results based on your search query.

And we were like, why is the sponsored result on Pandora, a Toyota commercial? Like I searched for a song by Bob Marley and getting TurboTax ads. that doesn't make any sense. And so we thought well, what if we created like a streaming music platform like Pandora, but the sponsored results would just be songs that like really good reggae bands would like pay and bid on a per stream basis to have their song played right behind Bob Marley's song.

And they would be getting like a super targeted customer. The person would be hearing the music. And by doing that, we thought we could eliminate ads and commercials from the streaming experience, which was also something really annoying about that [00:04:00] model.

And so we just felt like it was way better model for the streaming company itself and was going to allow any band with a really good recording to get the radio exposure that all of us were craving.

So, yeah we had this idea and then talked about it for 2 years just bouncing it off of other bands and managers and different people.

Everybody we talked to was like, are you guys building this? That sounds amazing. Like every band, every manager we talked to was just like, when is this thing going to exist? And so like after 2 years, had been taking like a year off of work was just doing some consulting and just not excited about anything else.

And my buddy was like, dude. I think we have to build this thing. And I was like, okay, let's do it. So yeah, 2010 we started the company.

Matt Joseph: I really, really liked that story. So you guys were essentially a couple of musicians who were trying to solve your own problem.

Joey Flores: I mean, I was more of a career startup guy, but my buddy was a musician at that time.

Matt Joseph: Yeah. So what caused you to apply to YC then?

Joey Flores: Well, I think we applied early on and we didn't get even an interview because, I just, was like reading Hacker News and, it just, it [00:05:00] sounded like a cool program and we needed the funding, even though it was a small amount of funding, early on, we needed it.

It was like 20 grand. We were like, well, we could use 20 grand.

And then over the course of the first year, we just couldn't get any meetings with investors. We managed to raise about a hundred thousand dollars from friends and family. Neither one of us comes from like particularly like wealthy background.

So, we weren't able to just go out and raise a ton of money from friends and family, but we raised enough to hire a few people and, pay for our hosting and serving costs and things like that. And then, came to, I think like maybe September or something when it would have been time to apply for the next YC batch, but by that time, we already had three employees and we had a product live on the internet and we had 200 bands already signed up for it.

And we were like, we thought we were beyond YC. We were like, no, I don't think we need this. Didn't know if the terms were very good. And we were just like, yeah, I don't know that we need this, but we have this like amazing advisor out of Silicon Valley. Who's just been a mentor to me now for, 14 years.

And we were just talking to him and he's we were like, I don't think we need this. Like we've already got a product live in the market. And he's like, why don't you apply? And [00:06:00] there's no harm in applying. And if you even get an interview then you can go talk to some YC founders and see what they think and make a decision after that.

So we did. And then we got an interview and we started like reaching out to YC founders to ask them if they thought it was worth it. And by the time we talked to like five people, we were like, Oh my God, we have to get into this program. Like everyone told us it's a complete game changer.

By the time we got to our interview, we were dying to get in and thank God, got the call that they accepted us.

Matt Joseph: It's funny how, even after all these years, people thinking they're too late for YC is still a thing,

like people still are like, ah, you know, I think I'm a little bit too late stage. I mean, didn't Quora go through YC just as like a billion dollar company or something?

Joey Flores: Totally. Obviously there is a point at which it's not necessary, right? Like if you've raised, $5 million, $6 million, $7 million, or something like that, then, maybe you don't need it, especially if you've gotten it from really value add investors. But honestly, I mean, the community you become a part of it's unparalleled in the world. And [00:07:00] so, I would think that for anybody who didn't go to some Ivy league school and doesn't already have a ton of connections to the venture capital world or whatever else, it's going to add value to what you do.

Matt Joseph: Yeah. Yeah. And I think even if you did, I mean, it's the way that they structure the program, the opportunities you get out of Demo Day, I found it to be an incredible experience.

So, you ended up raising $1. 7 million, do I have that right?

Joey Flores: Yes $1.4 in cash. And then there was a dev studio that, did $300,000 worth of development for our mobile apps as an equity, investment. So we didn't have to pay them, but they got equity.

Matt Joseph: Ah, okay. What was the fundraising journey like? And this is again, this is now back in 2011, right? So a very different market than today.

Joey Flores: Different market, but for us, probably just as hard as last year was for everybody else. So, for us, it was very hard because we were At that time, Napster had destroyed the music industry and, since that had happened, there had not been a single successful exit in the music space.

The only company that I'm even aware of that had had an exit was Jeff Ralston's company I [00:08:00] forget what it was, Lala, I think had met, I think exited for $80 million or something like that. And that was the only exit that had happened, I think, in the space since Napster. And so, VCs had invested in, every VC had taken a shot at investing in some kind of music startup and all of them had lost all their money.

Either all of the money went into paying for royalties or people tried to get around paying royalties and got sued. And so either way, the VCs ended up losing all their money and most of the companies had gone out of business. It was a super difficult fundraising climate for a music startup in particular.

I remember meeting with Sam Altman after I had been trying to raise money, I mean, we had raised some coming out of Demo Day we raised about $700,000 and then, it just kind of hit a wall and were like not able to raise the rest of what we needed. And I was talking to Sam one day and he said,

Look unless you are talking to the number one, most important, partner at the firm who pretty much, can do whatever they want.

Nobody is going to stick their neck out and say Oh, I think this music startup is different than the others. Like none of them are going to risk their position in the firm to recommend a music startup, knowing [00:09:00] that every other VC and probably their firm has also lost a bunch of money on the music space.

So, we pitched a Demo Day, had an, incredible experience pitching and, pretty quickly raised about 700 grand. But we also frankly got better terms than we probably deserved. The first investors we closed, we're like, we'll give you an 8 million cap on a convertible note and, back in 2011, like that was great and for us, so we were like, Amazing. Sounds good. So, we closed all of the people who had seen us pitch at YC Demo Day on this $8 million note, and then we went back to Los Angeles where we're from and tried to raise more money and people who were like, not in Silicon Valley, not in this sort of frothy Demo Day environment were like, "What are you talking about? 8 million cap. Like you guys are out of your mind." And so we couldn't raise any more money. And so we spent, like four months just trying to get more traction. And then, we still needed more money. So I would go out and I would maybe close, another $200,000.

And then, we would run out of good leads and nobody would invest. And then we would go back to work for four months and get more traction. And then I would go out and now, [00:10:00] because we had more traction, I would get another $200,000. And I literally did that for 3 years, raising literally on the same convertible notes, the same $8 million cap for 3 years. It was the most painful process of my life.

Matt Joseph: That takes such an extraordinary amount of resilience to continually fundraise over that period of time. That's impressive.

Joey Flores: There's other words I would use to describe it, but painful is one of them. know, demoralizing.

Matt Joseph: Well, you can take that with your therapist later on. We'll save that.

Joey Flores: I, and have, I definitely have.

Matt Joseph: The LA venture market, while it has grown a bit, still is not close to where Silicon Valley is.

And that's true for most markets, pretty much every market, I would say that Silicon Valley just is leaps and bounds ahead. And, when you come down here, you end up dealing with the fact that the expectations of investors are so very different

and a lot of founders in LA end up just going up to Silicon Valley and raising the money and then coming back [00:11:00] down. That ends up being kind of a default strategy for so many LA startups.

Matt Joseph: So you were continually fundraising over the life cycle of the business and then you guys got acquired by You42. What was that process like?

Joey Flores: Well, for starters, we were still trying to raise capital. Some of the reasons we couldn't raise capital were just like, issues with the business. I'm not going to say that it was only market related. To be honest, I was the one in charge of the product.

I had never been a product manager or product developer or anything like that before. I didn't really understand the value of customer development interviews and really getting to know the users.

We really, really understood the band problem. Like we didn't need to talk to a bunch of bands to understand what bands wanted out of this platform. Like we knew that. We developed something that the bands loved, so like we had totally nailed that side of it, but it was a streaming service too. And it only really played independent music because we had a strategy to sort of build up an indie catalog that we would not have to pay expensive royalties for and we didn't, want to license like popular music so it was a very indie experience.

And long story short, we were streaming millions of songs a month, we [00:12:00] had hundreds of thousands of registered users. But you know, it wasn't the kind of explosive growth that venture capitalists want to see.

And so I think it was at the end of 2013 that I got connected with Marc Randolph, who was the founding CEO of Netflix and Mark, I was like, interested in actually getting into invest. He said, I don't know if this is like a fit for me to invest in, but if you're happy to come up to Santa Cruz and stop by my house, I'll walk through your business with you and see if I can help you.

And. I cannot explain the impact that Marc Randolph's mentorship had on me. I mean, like he's an amazing person and completely changed the way that I understood KPIs and how to measure the performance of the listening audience. And so. I went back and we were like, we fixed a bunch of things and it seemed like we were making way better traction on that.

And then the holidays came and, web traffic just changes and things happen during the holidays that are not normal. And when we came out of the holidays, like our numbers had gone down and, there was just some issues didn't tell a good story. And so we knew we were not going to be able to raise money.

So we went out and tried to get acquired. We got about three meetings in with Pandora's chief strategy officer. They passed for reasons that are also just sort of [00:13:00] heartbreaking. We, you know, we were pretty much down to, the end of our runway and we actually announced that the company was going to be shutting down the apps.

And we did shut down the apps. And the next day I got this email from this group saying Hey, we heard you guys are shutting down. We actually think you've built something pretty remarkable here. Let's chat. And I was like, there's nothing to chat about. We'd just turned everything off and we owe like $7,000 to Amazon Web Services like, unless you're going to pay that check, like there's nothing.

And they're like, yeah, we're happy to pay that check. Let's get on the phone. So we got on the phone with You42. At the time, the president of their music division was Speech, the rapper from Arrested Development which is really weird because they were one of the first Grammy winners to join our platform, and also my band had opened for Arrested Development at the Colorado Music Summit, so we were like, I had actually met Speech and been in the green room hanging out with him at our concert.

You know, it was like just kind of crazy, like really, really weird coincidence that he was in charge of their music division. And so, yeah, we got on the phone and they said, Hey, look, we think you guys have made tremendous progress. We're trying to build a multi channel entertainment app. Music's just one of the verticals we want to build in and buying all of your [00:14:00] technology and all of your licensing agreements and all of these things would be a massive boost to our efforts. So, we're happy to acquire you and we'll, gladly pay the $8 million valuation that you've been raising your capital at so that it's just like an even transition for your investors.

And so, yeah, we had a soft landing with You42 at a, a reasonable valuation and went there and worked there for another year.

Matt Joseph: Wow. That is an excellent case of pulling victory from the jaws of defeat. had already shut down and then you get acquired. I mean, that's great. What was working at You42?

Joey Flores: Oh Lord. I mean, that's just a whole other conversation. I mean, look, I'm like grateful that they jumped in and sort of saved us and that, we were able to get an acquisition. They told us on the call that it would take 2 weeks to finalize the deal, it took 8 months.

During which we were like total zombie mode. We had already laid a bunch of people off. So there was like really no team. We weren't going to like do a bunch of marketing and like sign up a bunch of bands when we were just very not understanding if this was even going to happen. So it took 8 months for them to finally pull the trigger.

We signed the deal. They gave us like a million dollar a year budget to run the business. And the [00:15:00] mandate was let's build some better and new mobile apps. In that 8 months I had taken on a project for a friend of mine which was basically to do customer development interviews for another company.

And that taught me the process of sort of interviewing customers and trying to figure out like what to build and how to build things without having to build it first and then test it, you know? And so. I learned all of that skill set in the eight months that we were waiting. And so as soon as we got acquired I did just tons of customer development interviews with potential listeners for our platform, redesigned our mobile apps.

And when we launched them, they had like a 4. 8 star rating in the app store and just far, far better apps than we had had before. We opened our first office because before that we had been fully remote. Got to paint a big Earbits logo on the wall and we rehired like 12 employees and got up to a total staff of 15 and basically we were like the West Coast office of You42.

And I stayed there for about a year. I was just burned out at that point. It was like time to go.

Matt Joseph: Yeah, well, I mean, a good soft landing and given what happened to most other music startups, of that era and in general, I think that's a great outcome in the scheme of things, isn't [00:16:00] it?

Joey Flores: Totally. And it looks good on paper.

Matt Joseph: Yes. Well, I mean, I, want zoom out a little bit and talk about the music industry as a whole.

I read a Goldman Sachs report that said

Matt Joseph: in 2010 when you started Earbits, the music streaming industry was doing $450 million in revenue. In 2024, it's at $22 billion in revenue and by 2030 it's supposed to be at $41 billion in revenue.

So this is a segment of music which is exploding in size. When you first came into it, did you think that it was gonna be this big of an industry and just in general, what do you think of the growth of music streaming in that timeframe?

Joey Flores: We thought it was like a massive opportunity. We felt like there was just severe problems with the business model I think there are still severe problems with the business model, like the industry might be making billions of dollars, but artists are still making garbage, so I don't think that's like an equitable or fair business model.

So I personally think it's still a business, fraught with problems. And that was like the thing that, our model really would have addressed. We thought this could be a billion dollar company. I'm still convinced. If you had asked me [00:17:00] like maybe four years ago, five years ago Hey, if I give you 5 million, would you try Earbits again?

I would have said yes, actually. I still think it's an incredible, model. It worked way better than Pandora's model worked. And the bands got results that that they hadn't gotten from any other tool. So, I think there's still really big opportunities in that space.

I think we did think it was going to be massive. Did I think it was going to be like, as big as, the numbers you're citing? I don't know, but it's it's music. I mean, every time I meet somebody who says I don't really care about music. I'm like, you are the weirdest person I've ever met.

Matt Joseph: Well, I actually have a stat to back up what you're saying, and I'm glad that you took it there.

Audio consumption has increased two and a half X since 2017,

but revenue per stream is down 20 percent in that same timeframe.

So that speaks exactly what you're saying that artists are not making more money by streaming more.

People are listening more and artists are getting less out of this model. And so think you're right that there's still incredible opportunities in the space but with the way that the labels operate and now that the way that the large [00:18:00] streaming companies operate it's very, very difficult to get a foothold.

One more question on the music industry. How do you think TikTok is changing the approach that artists are taking to launching their music careers?

Joey Flores: I've never used TikTok, and I don't know. Sorry. But yeah, I, first off at this point don't really keep tabs on the music industry as much anymore, just because I would never build there again. And yeah, I've never used TikTok, so sorry. Can't tell

Matt Joseph: great. I, my favorite answer so far.

Joey Flores: It probably makes sound like some old Luddite, but I just, I don't need any more social media content. I already wish I didn't consume as much of it as I do. So, I definitely don't need to download any more apps. It's just not

Matt Joseph: Yes. Yes. Well we will switch gears then. And I want to talk about what you're working on now because I think this is just such a fascinating project. And a really interesting business in Inversion Art. So you essentially are taking the model that YC used with tech [00:19:00] startups and you're applying that to fine artists. How did you get the idea to do that?

Joey Flores: So, the idea was proposed to me by somebody else. I was on a call with a investor back in 2020 looking for a job actually and was like hoping to explore working with that investor at their fund.

And they saw one of my paintings behind me on the wall. Didn't realize it was one of my paintings, but I, was an artist as a kid, lost my passion for visual art when I came out of high school.

But in 2018 I went to one of those paint and sip nights and just had an amazing time and kind of re kindled my love for making art. And I went and bought some canvases, started painting. And so anyways, I had this painting on the wall behind me and the investor said he knew I had been through YC and he himself was an art collector and a painter and said I always thought there should be a YC for artists and like my, just my head lit on fire.

I was like, wow. That sounds awesome. So yeah, I mean, weird because I think I had been job searching for like 7 months, just trying to find like the perfect thing and, it was just like, I find so few things in the tech startup world to be inspirational to me [00:20:00] I, I don't want to work at the next data management API connecting blah, blah, blah company.

It's just so boring to me. So yeah, when that idea was proposed, I was like, that sounds absolutely incredible. I wonder if that's like something that could actually be done.

Matt Joseph: That's so great. So why is it that artists need a program like YC to get their careers going?

Joey Flores: Well, first off, I don't think our program is oriented towards people who need to get their careers going. Think of it more like uh, YC. Yes, they will invest in like people at the idea stage, but, in general, like the more traction you have, the better. And so our program is actually focused on what we call late emerging or mid career artists.

So artists that already have a proven track record. It's impossible, even at the stage we're at necessarily to do a perfect job predicting art stars. But it certainly is much harder if they're just coming out of school and you really have no background as to how are they going to do?

How's the market going to receive their work? And more importantly, are they going to stick with this for a long time? So, we look for artists that have been at it for years and just showing themselves like great resilience and a dedication to their practice. But, so I [00:21:00] didn't know if it was something that people would need when I started, I was a painter, I knew that artists hated dealing with their own business affairs.

Look at me, I'll go to a boardroom and pitch a million dollar business opportunity, no problem. But then somebody will ask me how much do I want for one of my paintings? And I just like, Oh God, please don't ask me that. I don't know. What do you think is fair?

You just become this like blubbering idiot. Cause it's just you don't like to talk about like the value, the monetary value of it creativity. And so it's just it's something artists are mostly terrible at, and even the ones who are good at running the business side of their affairs, they it, it takes them away from the creative process to be like dealing with all that.

I went into this process, again, having learned, more about customer development, when this idea was proposed, I said Oh, like I went and talked to about 120 people over the course of a few months a ton of artists, gallery owners, collectors, different people, and just got a really solid understanding of how the art market operates.

And, it was crazy. I mean, we're talking about, there's artists who might spend 20 hours making a painting that sells for $20,000 which is a, hourly pay rate that I can't get after 24 [00:22:00] years in the startup industry. So they are highly compensated people.

Literally they're applying for $2,000 grants that they have a one and a half percent chance of getting, it's the most broken situation. The fact that they create these like tremendously valuable assets, which can go on to become worth millions of dollars and no one is giving them any money to expand their studios

Joey Flores: and it's just it was mind blowing to find out that there was just like, the only sources of funding are these nonprofit organizations, these low dollar grants, terrible, and they, and these organizations ask for these really long, like, terrible application processes, people will spend weeks developing their application or months just to get like a $3,000 grant.

And so anyways the funding problem was very clear. But then, also having talked to all these artists, it was clear that they also needed a lot of help with managing their own business affairs. That it's, they're not tech founders. And so, they were running into all kinds of logistical problems.

They were, signing contracts without having lawyers look at them. They didn't have LLCs set up. There was just all kinds of things that [00:23:00] were bad business. And so we said like it would be totally ridiculous to invest in these artists and then watch them flounder their own business operations.

So we came around to the idea that we would invest in these artists, but we would also provide full studio management services for them. Take all of that stuff off of their plate, run it in an extremely professional way with a team of people who are, very experienced at running these types of operations. It ended up creating this really equitable model where on one side, we have what we consider like we have two divisions, basically one division that manages fine art studios for any artist that's earning over $70,000 a year, because at that point, the business side of what you do is starting to take over a lot of your time.

When you're early on, you don't have a lot of business needs. You just need to make art and hope that people buy it. And maybe, your biggest problems are marketing and sales. But once you start to get successful, there's like all this other stuff that you have to do. And so, we're targeting artists that are already pretty successful.

We alleviate them of that. So there's the studio management division. And then there's the accelerator program, which is modeled after Y Combinator, where twice a year we will pick 15 artists and we invest in them just by buying some of their [00:24:00] work. There's no liquidity of it in an artist studio.

So, buying equity in their studio would just be silly. And if you, do everything on sort of an income sharing basis, first off, these artists careers, they don't take off overnight. So, you would need to have an income sharing agreement for like 15 years and no artist wants to do that.

So what we've realized was like, if you want to get in early on a hot artist, like you just buy their art and like, when they become famous, like that art goes from $20,000 when you bought it to $2,000,000. I mean, that's a venture style return. And so what we do is we buy an amount of artwork equal to 30 percent of what they earned last year.

So if they made $100,000 from their studio practice, we will buy $30,000 of their art. We put that into our collection and hold onto that as our asset. And then we put them through this three month program. We have our own version of Demo Day at the end where we bring in curators and gallery owners and other professionals and try to introduce them to like next level people in the art world who can kind of take their career to the next step.

And then in exchange for that, we get an option to buy more of their work over 8 years at a discount. And we also get a 5 year contract on studio management. So we actually make all of our [00:25:00] investment back from the studio management services, which really reduces our risk. It allows us to run their studio in a really professional way, which, decreases failure rate, improves outcomes.

And it just, it ended up being like a really fair deal for them. They get great services for 5 years while they're paying some of this, return back to us. And where we make the big profits is when the 3 to 10 percent of our artists become superstars and the art , it hits these 100X multiples.

Matt Joseph: That's such an innovative model. I mean, essentially the works of art become the mechanism for generating returns. And as that artist grows in popularity, the value of the work grows up and that's where real upside in the business model sits. It's in having the next great artists come through the program. That's fascinating.

I want to give a little bit more context around the art industry as a whole. I read the Art Basel and UBS report on art,

and it's a $65 billion b usiness globally in 2023, with [00:26:00] 39 million total transactions, the U. S. is the market leader and the U. S. has 42 percent sales by value around the world, which I didn't know.

I, I assumed that there would be some people in Europe, some old families that are just, buying up all of the art, but America is a big art market. Why is it that the U. S. is such a large art market from what you've seen?

Joey Flores: In general the United States is just a more commercial country right? I mean, like most industries, do better here unless it's depending on the service they provide.

It's a place where entrepreneurship and capitalism sort of thrive. Also New York is just like the epicenter of the art market in the world. So, the big auction houses are there. Some of the world's wealthiest people are there. I mean, essentially there's just so much money in New York City that, that tends to be a place where the art world thrives.

I mean, there are other huge markets. Like Asia has become like a much larger market over the past 10 to 20 years and everything else. But yeah the United States, I think just, produces a lot of innovators and tends to just approach things with a more business minded mindset.

A lot of times I think in Europe and other places, it's, I mean, even [00:27:00] here, the arts are still fun, dominated by philanthropy and museums and things like that. And like I said, nonprofits and grants and things like that. But I think, there's a lot more willingness to just spend money on art in the United States and think of it more as an investment and things like that. Whereas in other parts of the world maybe it's just not viewed in that way so much.

Matt Joseph: Yeah that last point, I think, is spot on. I mean, I know that there are some characters out there who use art as a means of generating tax savings, and it ends up getting caught up in their complex financial webs. But I like to think that people are buying art because they like the art in an ideal case.

Joey Flores: Yeah, I think the majority of people are buying art because they like the art. And then, like the small percentage of them are doing it to launder money.

Matt Joseph: Oh man. Okay. So I want to zoom out a little bit more one more time. So from what I saw, you've had 3 startups now one, which we didn't discuss that was focused on sports. The second was focused on music and now with Inversion Art, it's Not really a startup, [00:28:00] but now you're in the art world. You have really seen the breadth of the entertainment industry and building startups for the entertainment industry. Why is it so difficult to build entertainment startups?

Joey Flores: That's a great question. But first, just thanks for acknowledging that. Yeah. It's really harder, I think, than a lot of other areas. I mean, certainly like deep tech and biotech and stuff. That's that's crazy and hard, but the arts is unnecessarily hard. Like I, it's it doesn't need to be so hard.

It's hard to raise capital right? And I think one of the reasons for that is because there's just this misconception that artists are all poor people which is just ridiculous. Like the average visual artist in the United States makes $5,000 a year, more than the average real estate agent. There are 140,000, like not even counting all the people who work for companies, but there are 140,000 self employed visual artists in the United States who make over $90,000 a year.

They're not poor people. And, when I was building Earbits, everybody said like bands don't have any money. And I was like, my band spent $30,000 on marketing. What are you talking about? Like every [00:29:00] band we knew was spending money on things. But they mostly weren't spending money at the rates that other kinds of small businesses do because the tools suck so much.

Like, why would I keep dumping music into these tools that make me do all the work? And so I think like a lot of the solutions kind of suck and so those companies don't do well, and then people look at it and blame it on the bands or blame it on the artists, when actually the models are just like not innovative and they want good businesses.

And so, I think that's part of it. There's also this desire to think of art in this like purist way, right?

That, art shouldn't be about the money. And that we shouldn't think about art as a commodity. We talked to investors and they're like, I think that's really cool. And I'm glad you guys are trying to support artists, but I just don't think of art as a commodity and I don't want to be involved in a business that treats art like a commodity. My question is like so do you think that artists right now are being properly served by the market?

And like the answer is if anybody's being honest is no, they're not like, artists have a really tough go of it and they're not being given those same types of opportunities and tools and platforms as other individuals. They're not being served by the way that [00:30:00] it works now. The same people who tell us that, they will donate to the museum and then the museum spends a bunch of that money, like taking these trustees on trips around the world and basically trying to drum up the next donation. It's just it's ridiculous, right?

Like it's a totally inefficient way to deploy capital to the arts,

But it feels good, right? Like now your name is on the wall of the museum and things like that. And so people in the space want to be seen as philanthropists and donors. And we hear them tell us like, I can't be seen to be profiting off of artists.

That would not be a good look for me. I'm on the board of such and such museum. And it's just ridiculous. I mean, it basically means that artists are stuck doing things the way they always have for 40 years, because people think that they should just continue to be these poor people that are like slaving away in their studio and shouldn't be treated like business people when they're running businesses and making. Assets worth tens of thousands of dollars. It's crazy. Like you could, you're willing to buy this work for 50 grand. You should at least acknowledge that the person who made it as an entrepreneur.

It's a little bit different in the music space, but not very different. [00:31:00] People told us that what we were doing was unethical. Charging bands to be on the radio was unethical. I was like, you're not out picketing, Kinko's for charging them for printing flyers.

Joey Flores: And that sucks. Printing flyers is a total waste of money. What we're doing actually works. And you're telling me it's unethical, but meanwhile, you want artists to go do all these things that waste their time and money, and that's ethical? It's this perception issue and it's really unfortunate to be honest.

Matt Joseph: Yeah, it does seem like people look at entertainment very differently than they look at other areas. People get exposed to entertainment through their own personal interest. Just they see it as fun and interesting. For certain areas of entertainment, people do not take the businesses seriously because they've permanently put it into this class of, product that they don't see as being as serious as the next, B2B SaaS productivity app or whatever it is that they're spending their time on.

And I think also that oftentimes, the people who try to start these [00:32:00] companies are people who are practitioners in a sense themselves. It is people who were musicians or were when they were growing up. There's people who were artists when they were growing up, and they are familiar with the problem. They know it. But investors, the kinds of people who scale businesses look at that and they say, well, this is a passion project. This isn't something that, I can take seriously because you're just doing this for fun. Even though some of the greatest enterprise value that we've seen has come from companies that are focused on entertainment. And I think that will continue to happen. It seems pretty clear to me.

Joey Flores: Yeah. I think so. I mean, I think though that the fact that seasoned, very good entrepreneurs and founders don't necessarily build in these spaces and that solutions have to be created by artists who see the need, know the need very well, but don't know really all that much about how to build a business ultimately results in a lot of those businesses not doing very well because, the people who start them are inevitably like not the greatest business people on earth.

They are themselves artists just trying to help out the art [00:33:00] world. And so it's just I mean, you look at Oh, most bars, that get opened, fail. It's like most bars that get opened are like opened by alcoholics. You what I mean? Everybody wants to open a bar.

It's like the cool thing to everybody wants to open a restaurant cause like they have their mom's good recipes. Like they're, it's not because they're all great operators, right? It's because they're just really excited about the idea of doing this thing. And so I think that there is a lot of businesses that get started the arts that are by people who are just like, not going to be, like always the best entrepreneurs to build these massive scalable businesses.

And and then the, the people who could build these businesses, tend to shy away from these markets because maybe they just don't understand it. I think, people tell us like, how could you possibly pick winning artists? Like it seems so hit or miss and I'm like, you're a venture capitalist.

What are you talking about? 90 percent of the stuff you invest in turns to crap. Of course, like it's going to be the same it's, yeah. Anyways, I think that a lot of people just put these perceptions on the arts that, apply to other areas or they don't really dive into the real reasons why these things happen and just sort of paint with really broad strokes, and, I think that's just doing a disservice to the [00:34:00] arts.

Matt Joseph: Well, let's close out on this. Fast forward 10 years.

What's your vision for the next decade of Inversion Art?

Joey Flores: We want to one, be providing studio management services to thousands of artists so that they can just focus on making good art and that their operations run more effectively and they're able to scale. It's really hard to get past this point of being an individual practitioner to having a team. You got to go hire an accountant.

You got to go hire this person. Like piecemealing that together as an individual is quite hard. So we want to be a one stop shop for the day to day affairs of the business, of the studio, so that the artists don't have to focus on those things. It can instead just be great artists. We want to invest in about 800 artists over the next 10 years and buy about, 22, 2400 works of art.

Which means that we will have about. We hope $300 or $400 million worth of art assets on the balance sheet. Once we have a significant number of artists whose studios we manage, we want to start replacing some of the other services in the space that are too expensive, hard for artists to manage.

Joey Flores: So [00:35:00] shipping, art across the country is very expensive and, it doesn't necessarily need to be that way. But, shipping studio space, fabrication facilities, reproduction, facilities and things like that, all of these things, they're actually pretty hard for artists to work with to find both good, reliable ones.

But also, with shipping, in fact, I mean, with fabrication and reproduction they need to be able to go in and experiment a little bit in these facilities. And that's just not something that's really available. So they need more like maker spaces. So like our plan is to, build a very large business that manages artists studios and invests in artists through the accelerator program.

And then use the relationship we have with the artists to roll out other services that make their life easier. And I think just more generally, like we want to be the organization that invested in 10 years, I will expect that a bunch of the artists that we're working with today will be the biggest art stars in the art market.

And, the same way that, YC is now responsible for Dropbox and Airbnb and, you know, Coinbase and Goat Group and all of these great companies. In 10 years when you read ArtForum magazine and read about these like massive art stars whose works are going for [00:36:00] $10 million, like they're going to have come out of our program.

Matt Joseph: I love that. Well, I will set out an invitation for you to come back on the pod in 10 years. And, we talk about that then hopefully you'll come back sooner, but this has been an incredible conversation. Thank you so much for joining and I will hopefully talk to you again soon.

Joey Flores: Yeah. Thanks, Matt. I really appreciate the questions. Thanks.

Matt Joseph: All right, Joey. Talk to you later.