Profiting from inefficiencies in markets with high transaction costs; a reminder that value is created at the edges but captured at the hubs.

Michael Karnjanaprakorn, Ari Gold for Entrepreneurs?

Do you think there’s a need for young entrepreneurs to have an agent/manager? In Hollywood, the agent finds the work with the major studios, and the manager makes the deal for the talent. That’s the relationship that Ari Gold (Agent) has with “E” (Manager) for Vincent Chase (Talent) on HBO’s hit show Entourage.

How would this work with entrepreneurs? I think you would have an agent that deals with all the annoying things for the entrepreneurs such as raising capital, looking over business plans, act as a sounding board for the startup team, etc. You can also have a manager that acts as the closer and negotiates and plays hard ball with every single deal. This allows the entrepreneur to focus all of their time building their business.

Also, the “entrepreneur agency” can play connector and hand over their Rolodex for any connections, curate small events for them to network, creatively help them solve their problems, etc. Maybe a simple company structure would revolve around an agent, manager, and client services. The agent would find deals, the manager would close them, and client services would meet with the entrepreneurs every month to stay updated, etc.

Much like the movie industry, the agency would never charge any upfront fees, but a percentage of either capital raised or small percentage of revenue throughout the year. Agents in Hollywood take a 10% cut of all jobs but I think it’s because business is a lot more clean with them (you get a job or you don’t).

But, thinking about it a little more, I think it would work better if this “entrepreneurial agency” acted more as a manager. In Hollywood, a manager’s job is to take raw talent and turn that person’s aspirations and goals and turn them into a successful career. Managers are prohibited from acting as a Talent Agent as I’m sure there are a lot of potential conflicts. They also settle for 15% but can go to a much higher percentage for newer talent.

From my conversation with Edward Harran on the topic:

These people exist: we usually call them consultants.

A big difference is timeframe: agents serve a very valuable purpose because there are high transaction costs associated with finding new work (films, shows, gigs, etc.). But entrepreneurs are generally expected to stay involved with one single company for a longer period of time, leading to less need for an agent to continually find new gigs. The question then becomes: how can an agent match up entrepreneurs, investors and employees more efficiently than today? And what compensation structure for agents would create the best incentive structure?

Venture capitalists often play a similar role, bringing in talented entrepreneurs without current positions as “entrepreneurs-in-residence” to help evaluate ideas and investment opportunities, providing entrepreneurs with a platform for their next startup and connections into the venture capital / entrepreneurship fishbowl, a potential win-win for bother parties.

But taking the notion further, Y Combinator recently showed the potential for making a market in ideas and execution with their Request for Startups, using their a) hub for entrepreneurs, developers and people with ideas (people with minds, skills, interests and time), b) their proven ability to pick, fund and dconvert ideas into startups, and c) their platform for executing investments (e.g. standard termsheets and processes) to reduce some of the transaction costs in the highly inefficient market for ideas and execution.

Remember, inefficient markets with high transaction costs are great business opportunities.

Related:

• A great video clip of Ari Gold on business plans, via Sam Huleatt.
• Wilson Sonsini Goodrich & Rosati’s Term Sheet Generator
• Matthew Ward, Finding funding for a non-breakthrough product.
• Me, Venture capital is not broken. But it could use an alternate incentive structure.
• MG Siegler on Techcrunch, Y Combinator Starts Seeding Ideas To Startups