The Current State of Creator Investments
The slow fade of creator funds reminded creators that platforms don’t have to pay creators to stay on their platforms. Creators are building their empires on rented land and BigTech companies are their landlords.
What about creator investments? Is that a matter of the past as well? Last September I wrote a piece about “Social Tokens Don’t Work” (which I still standby today), and today we will fully contextualize the idea of “Investing into Creators”
In this article, you are expected to read about the following
How do creators finance themselves?
The market landscape with creator institutional investors
Are creator equity investing viable in the long term?
Before we start, did you know that in 2015 Youtube rolled out a loan program to creators providing them with access to capital? They wanted to provide cash flow to support their creators but it was too costly to operate - knowing the majority of the channels would not be profitable.
Let's dive in.
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What are the financing options available for creators?
Before we look into the idea of investing in a creator, let’s take a look from the other side of the table, what are the different ways Creators can obtain capital?
a) Traditional Bank Debt
Traditional bank debt providers include the big banks (e.g. JP Morgan, RBC) that would provide you capital based on your credit rating and collaterals. So they would assess your (or your business's) earnings profile to provide you with a revolving credit based on traditional metrics. It has been known to be incredibly difficult because banks hate volatility with income especially when it is driven by AdSense or brand deals, therefore the terms are usually very unfriendly for creators. Therefore companies like Karat have come in and built credit terms that are reflective of the creators’ true earning potential.
b) Revenue-based Financing (RBF)
Revenue-based financing is similar to a collateral loan but the collateral is the content catalogue that you have ALREADY made. It is one of the most popular non-dilutive options for creators to obtain upfront cash without sacrificing ownership of their channels or branded products. Examples are Creative Juice (3 months - 3 years), and Spotter (Long-Term 2-5 years).
It is relatively a newer category of financing as Spotter, the largest RBF company for creators was founded in 2019, it is a great alternative for creators because they don’t have to take on any financial debt while having full autonomy with their creative pursuits. However, it is not as accessible to medium-small size creators.
c) Crowdfunding
Crowdfunding was invented as a mechanism for entrepreneurs to raise money from potential consumers, usually for consumer products (tech gadgets) or creative arts (films, books, stickers). Platforms like Kickstarter and Indiegogo are there as a launchpad for creators to (a) validate a concept that they are pursuing and (b) raise funds from the community to pursue it. It works best when there's a tangible project you are looking to pursue, for example writing a book (Catherine Yeo on publishing her book) or creating a film (Yes Theory).
d) Income Share / Shared Earnings Agreement (ISA/SEA)
Income-Sharing and Shared Earnings Agreements are different from revenue-backed financing as they are typically forward-looking. They are extracting a % of your income earned in the future. Hugo Amsellem wrote a great piece about income-sharing business models applied to large-scale creators which apply to all creator-facing businesses (i.e. JellySmack (tech) and Labels (agencies))
This is sometimes a great option for creators because when ISA/SEAL deals are made, it becomes a partnership. Now every party is financially incentivized to help the creator achieve more and take their content to the next level.
e) Continuous Agreement for Future Equity (CAFE)
It is a new category that started with Slow Venture, where the investment object isn’t their old content catalogue (RBF) or new content catalogue (RSAs), the investment object is the person him/herself, which means the investor would have rights to any intellectual property the creator creates in the next 30 years. It is literally the earliest form of investing, some called it pre-idea.
As creators, many don’t have an opportunity like this, and even if you do, it is very difficult to predict your future earnings at that stage of your creator career. Therefore, we don’t see massive adoptions of other funds or institutions following the idea yet.
P.S. For decentralized finance (DeFi), most startups have created tokenized ISAs/SEAs and distributed them across retail investors (mix of c & d).
The market landscape with creator institutional investors
The term investor refers to partners with an equity stake in your business. They don’t represent debt facilities (e.g. Karat with credit) or affiliated revenue (e.g. Youtube / TikTok Pulse).
Here’s a quick breakdown of the businesses in the market map:
Slow Ventures → investing into a person (% of creator-related revenue and IPs)
Creative Juice → banking/growth tools, with a $50M AUM Investment Fund
Everbloom → creator equity marketplace to share future AdSense revenue
JellySmack → content repurposing platform built for scaling creators
Electrify Video Partners → private equity acquiring and building mature channels
CreatorDAO → investment platform and venture launchpad investing in creators
Spotter → catalogue licensing platform in exchange for upfront capital
Night Media → Talent management agency managing artists & their businesses
Alternatives of Everbloom include Exceed, Gigastar
In this market, creator investors can be classified into three types:
Capital-First Investment Fund (Slow Ventures, Creator DAO, Spotter)
These institutions are return-focused where their primary source of revenue comes from investment returns. According to Linkedin, most of their teams are comprised of investment professionals. They make minority investments in creators in very different formats.
For Slow Ventures and CreatorDAO, they invest in the creator him/herself, including the rights to share a % of revenue in any creator-related earnings (AdSense, brand deals, memberships, merchandise, etc). For example, in 2021 Marina Mogilko agreed to give Slow Ventures 5% of her creator earnings for 30 years in exchange for $1.7 million. For CreatorDAO, they announced #TheSearch where they will invest $1 million in exchange for 20% of their creator earnings over the next 10 years.
Operational Investment Fund (Talent Agency, Electrify Video Partners)
These institutions are primarily service-based or operate in the form of an owner-operator. They are deeply involved with the creators they invest in. From channel management to venture building, payrolls to brand deals. For agencies, the investment funds are built on top of their existing operations, to further capitalize creators’ success and align incentives for both parties.
Technology-First Platforms (JellySmack, Creative Juice, Everbloom)
Technology-first platforms are product-led, which means their primary revenue stream comes from their products, not their investment returns. These creator investments served as an acquisition vehicle to effectively drive brand engagement and drive inbound creators to use their products. These investments' profitability is secondary; their primary growth metrics are user growth and product adoptions.
For Everbloom in particular, as a marketplace that facilities transactions between creators and their community, their profitability is driven by volume instead of returns, they are an exception where they don’t invest any capital themselves.
My thoughts on Creator Investments
In the last few years, there are many events trumping creator investments, namely from the celebrity NFTs pump-and-dump to creator funds slowly fading out.
I think the common knowledge we all have about the creator economy is that traditional institutions misunderstood and underwrote bad credit terms for creators, therefore creators often struggle to obtain financing outside of AdSense and credit card debt.
However, the uncommon truth is that creators often need a lot more than just capital, they need knowledge and connections.
To unfold that further, on knowledge. For Spotter’s RBF agreements, Spotter would have a partner development team dedicated to serving the creators that they financed, from helping on developing a Spanish channel like what MrBeast did to buying a content studio, Spotter would be able to offer knowledge on best practices from the clients they have previously served.
On connections, for Karat Financials, every creator who signed up for the Karat card would also be invited to a Karat discord channel with other cardholders, Karat hosts exclusive events for cardholders and it allows creators to connect with other creators. The network value is tremendous for creators because these opportunities would be able to fuel future video or even business collaborations, which are vital to the creator’s growth, in addition to the social value of being able to meet like-minded individuals which are difficult to do as a full-time creator.
This is also the reason why I believe retail investing in creators is going to be a tough business and labels/talent managers are not going anywhere.
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What Happened In the Creator Economy
Prime Hydration / Gatorade Blind Taste - it goes to show how important a brand becomes for consumer products, don’t ever tell people you know the difference between Coca-Cola and Pepsi, 99% of the time you don’t
Universal Music Group Suing AI-Generated Covers - As hard as the Drake/The Weekend collab song “Heart on my Sleeves” go viral, its really bad for the labels and the established musicians themselves - I think the spotlight is how Spotify/Apple music would react to this
Super Mario Movie Crossed $1B in 26 Days - Super Mario Movie will be the 5th title to notch the achievement since 2020, following Spider-Man, Top-Gun, Jurassic World and Avatar 2. I hypothesize this movie will boost game sales from the Mario franchise, given the hockey-stick trend on Google search volume.
Montana State Is Looking To Ban TikTok - Hank Green (from Montana) says he can’t lobby for TikTok. A state ban is probably going to be almost impossible to enforce and creators must diversify their platforms to truly protect their distribution/brand like Colin & Samir said in Creator Support.
MKPHD dropped his Sneaker M251 with Atom - This is a collab where Marques has helped design the shoe from scratch. We need more open-minded Atoms working with creators who are willing to put in the work to make something meaningful :)
Top Startups You Should Pay Attention To
Zealot (Pre-Seed)
Founded by Sam Farber, Zealot is a community marketing software for brands to manage ambassador programs at scale and streamline performance analytics/communication in one setting. With the rise of UGC marketing and organic campaigns, brands need better software to coordinate and collaborate with their own advocates.
Benji (Pre-Seed/Seed)
Founded by Mohammed Asaduallah, Benji is an AI tool that helps self-employed (creators) find tax write-offs that could be written as a business expense. Benji does not file taxes for you but helps you optimize tax savings. The model incentivizes a positive-sum relationship where Benji makes money by saving creators’ expenses.
JKBX (Seed)
Founded by Scott Cohen, JKBX is a marketplace for retail investors to invest in music royalty shares. Anticipating a launch at the end of 2023 with over $4 billion worth of music royalty rights available on the platform, it has also partnered with GTS Securities to execute the trades made on the platform. Given the rise of alternative asset class investment marketplaces, from sneakers (GOAT) to luxury watches (Bezel) to art (Peggy), I anticipate music royalty would be a viable asset class for both patronage and investment purposes.