How can Creators become successful Angel Investors?

Also: Spotify’s answer to Clubhouse, Cameo’s $1 billion valuation, Substack’s $650 million valuation, and more

New this week: check out the bottom of this post for reading recommendations and more from Li!


Creators are Increasingly Branching into Startup Investing—and Li Wants to Help

There has been a growing trend of successful creators making a foray into startup investing. This week, we saw Jake Paul and entrepreneur Geoffrey Woo launch their own venture capital fund, which has been received with mixed reactions. Sway House, a collective of male TikTok creators, recently announced that they are raising a $15 million fund. And last week, Night Media, MrBeast’s management company, launched a $20 million venture fund, as well.

As an increasing number of successful creators try their hand at angel investing, Li’s Atelier Angels program wants to help them do it in an informed way. Through a two-month long cohort-based program, she plans to teach 30 creators how to angel invest, covering deal sourcing, picking, winning, and growing companies.

Why should creators start investing?

Creators are crucial to the success of UGC platforms. By creating content, they attract large consumer audiences, which help platforms build  network effects. However, even though creators drive so much value for social platforms, they don’t enjoy any financial upside in the underlying platform’s success.

Instead, their income is tied to their social relevance in-the-moment, through monetization models including ads, sponsorships, and direct user payments. One small update to the platform’s discovery algorithm could have significant financial consequences for creators. In other words, social relevance—and creators’ careers—is fragile. Angel investing reduces these risks by enabling creators to diversify their income streams. Creators can have a financial upside in the platforms they help to grow. 

Angel investing is much easier said than done.

Not every creator should angel invest. Most startups fail, so it’s inherently risky. Creators need to think about whether they would rather get guaranteed compensation upfront via sponsorships, or invest in a company that might potentially grant them exponential returns—or nothing at all. 

There are also financial prerequisites to investing in most startups. One has to become an accredited investor, which means having an income over $200,000 or a net worth of over $1 million. Some startups like Republic are making it possible for non-accredited individuals to angel invest, but for now, opportunities are limited.

However, even if a creator meets the financial requirements, investing can be tricky. 

The most common mistake is to view companies from purely a consumer perspective

Creators who are just starting out as investors tend to look at companies from an overly-consumer perspective, and not with an investor lens.  This means they invest mostly in things they like and use themselves. To be sure, this can be a helpful perspective, but will tend to tilt a portfolio towards D2C products and other trendy consumer products rather than creating a portfolio of promising businesses. As Li says, “Just because you like staying in the hotel doesn’t mean you want to own it.”

By contrast, professional investors develop decision-making frameworks that give them a better chance to understand which companies will deliver long-term value. They peek under the hood of a company to truly understand the business model, product, founding team, competitive landscape, and founder-market fit. They ask themselves questions like: is this founder obsessed with the market? Do they have a personal story and connection to the company that will resonate? Is their personality well-suited to the space?

All of these are important questions to ask, and they may not be apparent to a creator who is just starting their investment journey.

But asking questions isn’t enough: one also needs to be able to interpret the answers. And in order to do that, the most important thing is putting in the reps to calibrate one’s judgment.

You have to know what good looks like

When Li started investing, she got excited about almost every team she met. But it was only after seeing hundreds of  deals over the course of many months that she started to calibrate which founders were truly extraordinary.

Before making the leap into investing, creators should ask themselves whether they’re willing to dedicate the time required to hone their picking ability. If that’s not realistic, they should find experienced partners and mentors that they can lean on.

(Side note: As part of Li’s course, the cohort will take founder pitches together and discuss the deals afterwards. This kind of hands-on practice is the most tangible way to learn how to invest.)

What founders should consider before accepting a check from a creator

As a founder, it seems compelling to accept an investment from a creator. They bring with them their phenomenal distribution power that can help kickstart the distribution of consumer products on day one. However, before accepting a check from a creator, there are three key factors that founders need to consider: 

First, the extent to which a creator-investor can actively promote your product. There should be a strong tie between the creator’s audience and your company’s target customer. Without that alignment, the distribution a creator can bring isn’t really worth much. Additionally, A creator’s time and effort may be spread too thin across multiple investments, which might make it hard for them to post about it often enough to drive results. Creators may also have sponsored posts they do for brands, and want to keep the ratio of sponsored posts to regular posts within certain bounds. When choosing between long-term equity value in your startup and short-term cash from a sponsor, some creators might often choose the latter.

Second, founders should do due diligence to determine who they want on their cap tables. Creators lead a highly publicized life and their social standing is built on a precarious foundation. Founders should do their due diligence to ensure that the creators they have on their cap table truly reflect the company’s values. Founders need to minimize the risks associated with the inherent fragility of social relevance. 

And third, it’s important to think about round construction with creators relative to other investors. Creators are great for distribution, but may be less equipped to help in other dimensions of company-building. That means you’ll want to leave room for other kinds of investors on your cap table. For example, operator investors are usually chosen based on their business specific expertise. Would creator-investors be able to help solve an internal company crisis? Or analyze external business threats? 

With all of these considerations in mind, the path forward is for founders to aim for a healthy balance of creator-investors and traditional VCs on their cap table. Creators bring with them their distribution power, fan affinity and user empathy, while traditional VCs bring their business expertise, network, and crisis solving skills. 

Working with celebrities is nothing new—but creators can be uniquely valuable to startups

Many traditional celebrities have been angel investing for a while. But having creators on your cap table is different.

Traditional celebrities are selected by gatekeepers, while internet-native creators are elected by fans. This means that they have a powerful, direct channel and emotional connection with them. And they’re in more control of the channels they use to communicate with their audience.

Founders have now started realizing this, and in the long run, the fact that creators can be valuable investors due to this distribution power is going to be widely accepted. 

Why is Li doing Atelier Angels?

Many investment firms have programs that encourage angel investing—like First Round Angel Track. But Li’s version is focused specifically on creators.

For her, it’s a way to scale her relationships with creators. They’re integral to her fund’s thesis, and having a network of creators that she can connect with founders creates wins for everyone involved. Doing a cohort-based course for creators is a good way for her to build that network. 

But it’s also a good way to avoid disruption. In 5 years, creator-investors might become preferred investors when it comes to fundraising for consumer tech companies. If a founder of an early-stage social network is choosing between accepting investment from a traditional VC and a fund run by 20 TikTokers, they might choose the latter for  its distribution advantages.

Further Reading: 

We put together a database of creators who have invested in companies, and examples of them using their distribution power to promote it to their fans.


Top Stories in the Passion Economy, 04/03/21


Spotify Is Launching a Clubhouse Competitor

  • Spotify recently acquired Betty Labs, the creator of live sports audio app, Locker Room
  • Specific details around Locker Room’s acquisition price and integration into Spotify’s ecosystem are still unclear and speculative. However, Spotify did confirm that both apps will be kept separately for the time being.  


Cameo Raises $100 Million at $1 Billion Valuation 

  • Cameo, the platform that lets fans pay for customized video shoutouts from their favorite celebrities, recently raised $100 million, valuing the company at $1 billion. 
  • Earlier this year, the platform revealed some key numbers from 2020: celebrities sold 1.3 million videos through Cameo facilitating transactions worth $100 million. (the company has a 25% take-rate on these).
  • Out of the 10,000 celebrities who joined the platform in 2020, 150 earned more than $100,000. 


Substack’s Latest Funding Round Values The Company At $650 Million

  • Newsletter publishing platform Substack recently raised a $65 million funding round led by Andreessen Horowitz. 
  • Newsletters and the platforms that help writers publish them are having their moment—Twitter’s acquisition of Revue and Facebook’s plans with its own newsletter product underscore this. 
  • A16z is betting on Substack’s ability to leverage this steady growth of newsletters despite recent backlash over paying specific writers and discussions over its hands-off content moderation approach.


Instagram Just Launched a TikTok-like Duet Feature

  • Instagram recently launched ‘Remix’, a feature within Reels that lets creators record new videos alongside another creator’s existing content. This is akin to TikTok’s highly engaging ‘Duet’ feature. 
  • Snapchat is also testing a similar feature, creatively called Remix. 


MrBeast Is Planning To Invest in Creators

  • MrBeast, a famous YouTuber with 56 million subscribers, is launching a $2 million investment fund to back emerging creators. He is planning to offer $250,000 to creators in exchange for a stake in their content channels. 
  • Specific details around the type of creators he plans to invest in haven’t been revealed, but his plan is to provide upfront cash to growing creators for content creation and amplification. 


Medium Pivots To Solely Focus On Being A Platform Rather Than A Publisher

  • Medium recently decided to pivot its focus away from its own publications and concentrate on building tools that help independent writers and publishers instead. The company has offered a buyout option to their editorial staff. 
  • In a blog post explaining this decision, Medium’s CEO Ev Williams said: “Our goal was never to replicate the traditional publishing model”. 
  • Further reading: Mark Stenberg’s insightful take on what this means for the future of publications. 


Twitter Is Testing a Communities Feature 

  • Jane Manchun Wong, a popular tech blogger known for exposing platforms’ to-be-launched features, recently revealed Twitter’s tests around a ‘Community Page’, akin to Facebook Pages. 

 


TikTok Collective Sway LA Are Dropping A Reality Show

  • Popular TikTokers Noah Beck, Kio Cyr, Blake Gray, Bryce Hall, Griffin Johnson, and Josh Richards are producing a reality show called Sway Life, based on their lives as celebrity creators inside TikTok houses. 
  • The show will be distributed through the Facebook ecosystem—Facebook Watch, IGTV, and Facebook Messenger’s Watch Together feature. 


The New York Times Will Now Decide Whether Writers Can Have Their Own Newsletters


Seven Year Old Content Creator Nastya Signs a Deal With Will Smith’s Studio 

  • Famous seven year old content creator Anastasia ‘Like Nastya’ Radzinskaya has partnered with Westbrook Inc., a production studio run by Will and Jada Pinkett Smith. 
  • Through the partnership, Anastasia will be creating a slate of animated content targeted towards preschool aged children. 


Gen Z Focussed Content Studio Brat TV Records $35 Million In Revenue

  • BratTV, a digital studio that specializes in content creation for Gen Z, recently revealed key revenue figures to Axios. The studio is expecting a profit on their $35 million revenue this year. 
  • BratTV’s Gen Z content expertise has made it the go-to production house for Hollywood. Their rival AwesomenessTV was acquired by Viacom in 2018 for $25 million. 


YouTube Is Testing A Feature That Automatically Detects Products Featured In Videos

  • YouTube’s latest experiments involve an algorithm that automatically detects and lists products featured in videos. This could potentially open up a new set of sponsorship opportunities for YouTubers. 


Passion Economy Financings: 

  • Linktree, a link-in-bio aggregator and landing page tool for creators raised a $45 million Series B funding round led by Index Ventures and Coatue. Currently, Linktree has 12 million users and is registering 32,000 new signups per day. 
  • Public App, an Indian social platform that connects people based on their location, raised a $41 million funding round led by A91 Partners. The app has 50 million users and has a strong presence within India’s multilingual domestic market.  
  • Rec Room, a user generated gaming platform akin to Roblox, raised a $100 million funding round led by existing investors Sequoia and Index Ventures, valuing the company at $1.25 billion. Currently, Rec Room has 15 million users. 
  • On Deck, a company that facilitates community-based education for tech entrepreneurs, raised a $20 million Series A funding round led by Founders Fund, valuing the company at $250 million. 


Stuff We Love

What Li’s Reading: One from Many: VISA and the Rise of Chaordic Organization by Dee Hock  

Li’s Creator Spotlight: Shl0ms, an incredibly talented NFT art creator.

What Nathan’s Reading: The Nature of Technology: What It Is and How It Evolves, by Brian Arthur

Nathan’s Creator Spotlight: CPG Grey, an educational YouTuber, because his new take on Powers of Ten blew my mind:

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