Why digital content creators will be the next great wave of founders.
“I got CAUGHT CHEATING on my wife” is one of the many recent videos uploaded by Jake Paul, a YouTuber with 20 million followers, and one of the many reasons it’s easy to discount the impact of digital content Creators. With clickbait titles and overzealous repetition of “make sure to like and subscribe”, it can be easy to forget that digital content creators aren’t a fad, but a substantial economic engine that’s been spinning for over a decade. Rolling back the facade, digital Creators, defined as those who garner large followings by producing and distributing digital content, innately possess many of the same traits VCs desire in their founders:
To date, that entrepreneurial spirit has been harnessed to drive tremendous value at scale to content platforms, building sites like YouTube from an offshoot of the internet to the defacto entertainment source for anyone under 18. Creators have become the second ‘B’ of the B2B2C equation, driving value to content platforms just as SMBs drive value to Shopify.
Thus far, the results have been staggering. A few mind-blowing facts in case you’ve been living under a rock…
Two content platforms now have over 2 billion users per month. For comparison, Netflix has a total of 160m total users and the US has 93 million pay-TV subscribers. Even when television was at its 20-year peak [105m subscribers in 2010], it doesn’t compare to the reach of modern UGC platforms.
In May 2018, Morgan Stanely valued YouTube as a standalone business at $160b (higher than Disney or Comcast at the time) based on a 7x multiple of their estimated annual revenue of $22.8b. Soon after, Bloomberg valued Instagram at $100b. As these platforms continue to see sustained global growth (driven substantially by Southeast Asia), they continue to establish themselves as a dominant force, challenging traditional media conglomerates.
Thanks to YouTube’s Partner Program, which enables Creators to earn 55% of ad revenue run against their content, top YouTubers bring in tens of millions per year on YouTube ads alone. The top-earning YouTuber of 2018 is an 8-year-old toy reviewer named Ryan earning $22m (and 2019 is expected to far exceed that number). On platforms without direct monetization, sponsored posts can also prove lucrative, with top earners bringing in $1m+ / post (see Kylie Jenner on Instagram). These opportunities for wealth creation signal a shift in how we should think about Creators: less as individuals and more as SMBs.
After a decade of driving value for platforms, however, Creators are increasingly focusing on driving value for themselves and diversifying their revenue. This started with sponsored content and merch (leading to the turnaround of Y-Combinator company TeeSpring), but has evolved into full-blown Creator-backed product lines (as Amanda Perelli breaks down) carried by major retailers (Ex. ‘Whimsical by Wengie’ is carried nationwide in Target and Walgreens). As a case study, Joshua Slice sold $800k of Lucas the Spider plushies in 10 days, and that’s not atypical. VCs are getting in the mix as well, backing companies like Influence.co, a professional community (w/ 150k+ members) built for Creators and brands, or Pocket.watch, which turns Creators like ‘Ryan ToyReview’ into 100+ licensed products and a top-rated Nickelodeon show.
While these licensing deals and product lines are lucrative, what they generate in immediate returns they give up in long term value creation. Selling $1m of plushies in a year is one thing, but building on that year-over-year to build a venture scale business is another. However, that’s beginning to change. Increasingly, we’re seeing entrepreneurial-minded Creators evolve into Creator founders and partner with talented co-founders to build venture scale companies.
As Stephanie Zhan (Sequoia) points out, top Creators bring the following to the table as founders:
- Direct distribution to millions of fans
- Direct emotional connection to their consumers
- Ability to involve their audience in co-creating a brand
Pairing those attributes with a more operational savvy co-founder isn’t just a logical next step, but a lethal combo, and it’s becoming increasingly common.
Cosmetics was the most obvious vertical to disrupt, and the first clearcut example of this was Michelle Phan (OG beauty influencer) pairing up with Marcelo Camberos and Jennifer Goldfarb in 2012 to create Ipsy; a beauty subscription business reportedly valued at $800m. Then came Huda Beauty, founded by Instagram Creator Huda Kattan, which is now valued at $1.2b. And of course, everyone knows how Kylie Cosmetics helped Kylie Jenner decrown Zuck as the youngest self-made billionaire ever. And those are just the highlights.
Creators have built plenty of high-value businesses in other categories as well. Jack Conte teamed up with Sam Yam in hopes of finding a way to better monetize his YouTube videos and created Patreon (valued at $660m). Maker Studios, arguably the only positive acquisition to come out of the MCN-fever of the late 2000s, was founded by a consortium of Creators including Lisa Donovan and Danny Zappin and sold to Disney for $675m
We’re seeing a new wave of Creator founded companies enter the market now as well. The Creator behind @WeWoreWhat (2.2m Instagram followers) recently announced MoeAssist, a workflow SaaS product for Creators. Lauryn Evarts Bosstick, Creator behind @theskinnyconfidential (1.1m Instagram followers + massive blog), co-founded Dear Media, a podcast network focused on female voices with 30+ podcasters.
A New Normal
This isn’t a fad but a recipe for success. Creator + Operator = Resonating brand w/ massive reach and low CAC. And what’s exciting is we’re just at the beginning for multiple reasons:
1 — More platforms and more users = a larger talent pool. A large talent source pool is necessary for the top 1% of the top 1% of talented Creator founders to surface. Ten years ago, it was news when YouTube broke 120 MAU. YouTube now has 2b MAU and of those users, 5.2m have uploaded a video in the last year (the baseline talent pool of Creators). Based on a little data and a lot of assumptions, we can do some napkin math to see how Creators looking to build venture scale businesses can emerge.
That’s just YouTube. For each additional platform, of which there are many, that initial talent pool grows.
2 — The same fundamental drivers leading Creators to diversify revenue and build businesses still exist and will continue to for a while. Only a few platforms (most notably YouTube, but also Twitch and Facebook) have partner programs enabling ad revenue sharing with Creators (Instagram, Snapchat, and TikTok notably do not). Paired with demonetization and algorithm changes, Creators are increasingly anxious to diversify their revenue streams, leading to the creation of new off-platform businesses.
3 — Increasing DNVB CAC costs make Creator founders increasingly attractive. With overall CAC up 50% over the last 5 years, a co-founder that comes with a built-in brand and a direct connection to millions of fans becomes an invaluable foundation piece to build a company.
In a way, content platforms have created a market dictated incubator. Creators with the best brand building and communication skills rise to the top and have the optionality to funnel those talents into a company. This has created a new founder archetype of the Creator Founder who, when paired with the right co-founder, has the potential to build a billion-dollar business. As Hamish Mckenzie, co-founder of Substack (backed by A16Z and YC) says, “The 2010s were about platforms owning creators. The 2020s will be about creators owning platforms.”