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Inside Atwater Capital – a PE group with a strong social conscience and content monetisation strategy

Los Angeles-based Atwater Capital, a Media & Entertainment-focused private equity group, is on a mission to spot and invest in companies best placed to benefit from digitisation as demand for distributed content increases.

Los Angeles-based Atwater Capital, a Media & Entertainment-focused private equity group, is on a mission to spot and invest in companies best placed to benefit from digitisation as demand for distributed content increases. Founded by former KKR executive and CIO of Jay Z’s Roc Nation, Vania Schlogel (pictured), Atwater’s ethos is to provide operational capital to companies generating diverse content and to emphasise what it calls ‘positive amplification’; backing management teams willing to embrace good ESG practices and help them identify new avenues of value creation.

The spark that ignited Vania Schlogel’s interest in business was thanks to a decision made by her father. Running a small business from home, Vania’s father put a small desk next to his so that she could watch him work and talk on the phone and pretend to be the boss.

“It was so formative,” Vania says. “I knew I wanted to work in business, even though I didn’t know what investment management was when I started. It’s primarily fuelled by intellectual curiosity. I love private equity because I’m constantly having to read up on new companies and meet new people.”

Vania is speaking to me from her home in Idaho where she has been living during lockdown. Those early years watching her father instilled a drive and ambition that saw her graduate summa cum laude from UCLA before joining Goldman Sachs in 2006. This then led to her joining KKR in 2009, where she set up its Growth Equity division, after which she spun out to become Chief Investment Officer of Roc Nation at the end 2014.

In 2017, she decided to set up a firm moulded in her own image. The result was Atwater Capital, a media and entertainment sector-focused PE firm based in LA.

Explaining her decision to set up Atwater, Vania says:

“I knew that I wanted to do a certain type of investing and I didn’t quite see it in the roles I was being offered. I felt it was the right thing to set something up on my own while I was still young, and to follow that dream.

“When I was at KKR the first investment I made was in BMG Music Publishing. Investing in music rights has become the plat de jour but back then people thought it was insane. We were looking for creative ways to deploy capital and over the course of three-and-a-half years we turned it into the world’s largest independent music publisher using a buy and build strategy.

The role at KKR required extensive meetings with BMG’s management team and a lot of operational elbow grease to integrate different assets. It was an important role in the sense that it inculcated Vania’s investment philosophy prior to setting up Atwater. First, she knew she wanted to focus solely on media and entertainment investing. And second, that it would be based on high conviction, low volume deal making with an emphasis on operational capital.

At KKR, one of the most important lessons she learned was listening to different opinions and working with different stakeholders to foster a culture of constructive debate; even if she didn’t always agree with those opinions. It is a lesson that informs the culture at Atwater to this day.

“As operationally-focused investors, it’s important to build collaborative relationships with management teams,” she says. “The mistakes I’ve seen in the PE industry tend to be related to the attitude of ‘Okay management, we are leading from the top down, now go and execute the strategy’. We can be constructive and offer good ideas, but we also have to listen to “management when they disagree with us. There has to be a constructive dialogue back and forth.”

Connective tissue

When setting up Atwater with a team that also includes Joseph Lee, who oversees Atwater’s business interests in South Korea, the emphasis was to not only develop a USP to stand out from the crowd but also be pleasant to work with. “Our mantra is we are operational capital but also a pleasure to work with; not only with our portfolio companies but our strategic LPs.

“Take Kakao for example; think of them as owning the Korean equivalents of Whatsapp, Spotify, Uber. They are one of our largest LPs. One of the things we do is try and anticipate business development opportunities between our portfolio companies and some of our strategic investors like Kakao.

“We act as the connective tissue. It goes deeply to how we operate and has been the formula behind our early success, so far.”

Providing that connective tissue is arguably part of what sets Atwater apart from its peers, as well as a willingness to make it its business to talk to industry participants frequently on trends and developments within the media and entertainment domain. Add in Atwater’s emphasis on ‘positive amplification’ and one begins to get a sense of what its USP is.

Expanding on the connective tissue point, Vania explains:

“The team should be good at spotting trends and following capital that benefits from those trends, as well as anticipating the needs of both our portfolio companies and our strategic LPs, finding opportunities that can be synergistic to all parties. When we get interesting ideas, we share them with our strategic LPs to see if they could be relevant to their business. If I can find an investment in Europe or the US that I know from day one has a lot of strategic applications, and where I know a big strategic investor in Asia has clear interest, I can rest at night knowing when this company is ready to launch in Asia, it will offer a huge vector for growth.”

Every investment thesis developed by the Atwater team factors in this type of operational value creation. Its portfolio investments, to date, include wiip, an independent US TV studio which Atwater provided growth capital to in March 2020, Mad River Pictures (also an LA-based TV production company), Epidemic Sound and LEONINE Studios, an independent German content production house.

Two factors play a role in how Atwater constructs its portfolio: acyclicality, to reduce macro risk exposure, and capacity to build on digitisation trends. Consuming content is acyclical; even in ’08 when the world fell into financial chaos, HBO Box Office did well because even if people couldn’t afford their usual summer vacation, they still needed to be entertained. The same has been true over the last 15 months, with platforms like Netflix rushing out content including the Michael Jordan docuseries, The Last Dance, to slake subscribers’ thirst.

“We understand that content is acyclical but what is most buoyed by digitisation? There are three avenues for content monetisation: transactions, subscriptions, and advertising. The transactional avenue is like renting a movie and along with advertising, is most geared towards the macro economy, while the subscription model is less so. We focus on how to monetise via subscriptions and determine what content could be used by OTT (over the top) platforms like Netflix, Apple TV, Amazon Prime etc.

“Investing in content has become somewhat of a buzzword these days, but we have sought to find the type of content that big OTT players are demanding,” says Vania, explaining that the reason for investing in wiip is because the big OTT platforms need premium episodic content and wiip is one of the only independent purveyors in the market.

“Their best-known content includes Dickinson, which aired on Apple TV in 2019 and Kate Winslet’s Mare of Easttown, which also made a splash with its recent launch. 

“If you’re Netflix you need to grow internationally and if you look at our portfolio, we have a focus on local language content (i.e. LEONINE Studios),” she says.

Organic, diverse content

In her view, there is a lot of scope for organic international expansion for content creation companies. Atwater’s mission is how best to partner with content providers like wiip, think through how to optimally source content, and evolve their international content monetisation strategy.

“Wiip only started in 2018,” states Vania, “but the level of respect they have is incredible; they’ve already shown that they can create globally relevant content. Diversity of content is important. I don’t want to live in a world where everything is produced with an American view (for an American audience). I was thrilled when Parasite won the Oscar. As Bong Joon-Ho said: if we can get over the hurdle of a one-inch subtitle it will open up the world of storytelling. 

“Diverse content can have a big social impact in terms of our willingness and ability to understand other people and other cultures.”

To re-assert the connective tissue analogy, one of Atwater’s strategic LPs – JTBC Studios, a Korean media conglomerate – has just acquired a majority stake in wiip from CAA. Atwater will also sell its stake in the company. This is illustrative of how Atwater is able to connect its LPs and portfolio companies. For a 3-year old US-based content creator, getting the backing of a major Asia media company is a significant result.

“We introduced JTBC Studios to wiip and for the past year they’ve developed a great relationship, cross-pollinating intellectual property. We don’t just develop the theme to invest, we connect strategic LPs with our portfolio companies,” enthuses Vania.

Some of Atwater’s investments have involved partnering with larger PE funds.

One of these investments is Epidemic Sound, a Stockholm-based start-up which has raised USD450 million from Blackstone Group and EQT Growth in an equity round that values the platform at USD1.4 billion. Vania is Chairwoman of the Board; a testament to how much larger PE groups trust Atwater as a minority investor.

Positive amplification

Since inception Atwater has placed a lot of emphasis on the ‘S’ in ESG and with Vania at the helm, there is strong female leadership and a willingness to respect each individual’s work/life balance. It is a culture centred around the humanity of each member of the team and a recognition of how important family is.

“We must acknowledge that if leadership is more diverse, it is less likely to have blind spots and act according to people’s differentiated needs e.g. be proactive and schedule meetings that take into account different religious holidays, be cognisant that to retain female leaders we need to allow the flexibility to take time off to attend their children’s music recital at school, and so on. 

“Mental health, physical health and family life…that’s a big part of the culture at Atwater,” says Vania.

This naturally extends to how Atwater builds relationships with management teams in what it refers to as ‘positive amplification’.

“I knew from our various interactions that Matteo Perale (one of the co-founders of wiip) was a very good and ethical person,” continues Vania. “Then I met the CEO and fellow co-founder, Paul Lee. When he was at ABC he oversaw the creation of shows like Blackish and Fresh Off The Boat, depicting diverse families on mainstream US media at prime time. These are people I knew I wanted to partner with.

“Four of wiip’s first five shows have had females as the lead writers. That’s exceedingly rare in Hollywood! And four of those five shows have featured a strong female protagonist.

“These are exactly the kinds of companies we want to get behind.”

As the media and entertainment sector continues to digitise, the next decade looks like it should be ‘prime time’ for investors like Atwater Capital.

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