Big venture capital organizations are becoming increasingly interested in the online influencer culture. However, rather than personalities, the true money may be found in digital technologies.
Last summer, Tucker Schreiber, a 28-year-old co-founder of Combo, a video editing platform startup, noticed a significant increase in the number of emails in his inbox. Despite the fact that his company had no staff, no products, and had not even said that it was seeking funding, investors bombarded him with mails.
“I started getting five to ten inbound emails from investors every day for a couple weeks straight,” he added.
Mr. Schreiber’s company was riding a wave of interest from investors looking to get into the so-called creator or influencer economy. The rise of the creator economy has reignited interest in social media among venture capitalists, who previously believed there was no purpose in seeking for social upstarts with Facebook and Snap (which owns Snapchat) sucking up all the oxygen.
Creators are folks who establish internet audiences and then figure out how to monetize them. They are typically young digital natives seeking to make a career off of their social media activities. And huge Silicon Valley investors are increasingly seeing them as the internet’s next financial vein.
The creator economy, which gives influencers digital tools and helps them operate their enterprises, is a massive, largely untapped sector. According to venture capital firm SignalFire, 50 million people around the world consider themselves content creators, and venture capital firms have invested $2 billion in 50 creator-focused start-ups so far this year, according to technology news site Information.
Traditional venture capitalists’ increased interest could lend respectability to what some may still consider a fringe enterprise. It could also reinforce the idea that this burgeoning world of dancing, discussion, and humor is more than just a passing fad.
But, as the phrase goes, don’t invest in gold miners; instead, sell their equipment. Silicon Valley appears to be significantly more interested in the digital tools and platforms that content creators utilize than than directly investing in the creators themselves.
Founders Fund, for example, led a $15 million funding round for Pietra, a start-up that helps influencers develop product lines, last month. Seven Seven Six, a venture firm led by Reddit co-founder Alexis Ohanian, and Bessemer Venture Partners made a $16 million investment in PearPop, a platform that enables creators monetize their collaborations and social media interactions, in April.
The list could go on and on. Stir, a platform that helps creators manage how they make money, was valued at $100 million in February by Andreessen Horowitz, a well-known venture capital firm.
Seven Seven Six sponsored a $4 million funding round for Dispo, a photo sharing software that simulates the experience of digital cameras, while Spark Capital led a $20 million investment round. Benchmark Ventures led a $20 million funding round in Poparazzi, an app that allows users’ friends to publish images to their profiles, thereby turning their friends into their “paparazzi.”
Then there’s Clubhouse, the market’s heavyweight, which is generating a lot of attention in Silicon Valley and the media and entertainment industries. Clubhouse is a social network centered on audio-only chat rooms that requires an invitation to join. It raised $200 million in a capital round headed by Andreessen Horowitz in April, valuing the company at around $4 billion.
“When I first started in venture capital in 2016, there was this general perception that”it would be really difficult for another significant social network to emerge,” said Li Jin, founder of Atelier, an online creator-focused investment firm.
The offices of Tik Tok in Culver City, California, made it easier for up-and-coming social media personalities to get noticed. Rozette Rago of the New York Times contributed to this article.
All of that was turned upside down by Tik Tok. The app prompted changes from established social networks like Instagram and Twitter, which had shied away from catering to the people who created the popular content on their platforms, by focusing on influencers.
TikTok made it easier for up-and-coming social media stars to get noticed, as well as providing a more direct way to earning money through the company’s Creator Fund, which pays creators a set sum based on views.
“Older social networks were all about communicating with your friends online,” said Linus Walton, vice president of investment firm the Chernin Group. “Now it’s all about becoming that influencer, or that next TikTok star that everyone is watching,” she says.
Fans pay creators for access to premium material through subscription services like OnlyFans and Patreon, which helped investors recognize there was a solid financial case for providing tools for creators. The term “creator” has now become a buzzword, used to describe a variety of enterprises in order to attract investors. So much so that internet entrepreneur Alexander Finden invented the term “creator washing.”
Turner Novak, the founder of Banana Capital, which invests in early-stage software start-ups, remarked on Twitter in April that “there are more creator economy start-ups than artists.”
Rex Woodbury, a 27-year-old principal at Index Ventures in San Francisco, embodies the best of both worlds. He began his career as an Instagram influencer, amassing over 237,000 followers by providing lifestyle content. He went full-time into investment after graduating from college, where he has built a niche as an authority in the creator economy.
Mr. Woodbury said, “I’ve seen a couple posts from V.C.s saying, ‘Eight of the ten companies I met with today are creative companies.” “It’s all the rage right now.”
In December, he joined Index Ventures, just as venture funders were beginning to show interest in artists and searching for aid from experts who knew the landscape.
Mr. Woodbury explained, “A lot of young investors feel credible in this because we are digital natives.” “This is the world in which we grew up.”
Clubhouse raised $200 million in April in a funding round led by Andreessen Horowitz, valuing the company at $4 billion.
Major platforms, such as Spotify, Twitter, and Facebook, are now racing to catch up to start-ups, especially Clubhouse. Greenroom, a Clubhouse competitor that Spotify constructed after acquiring the live audio start-up Locker Room, was just launched by Spotify. Twitter has already launched Twitter Spaces, a competitor to Clubhouse, and both Twitter and Facebook are launching newsletter services to compete with Substack, which lets users to simply set up subscribers for their work.
With the barriers between venture capital and the world of creators eroding, many traditional venture capitalists are also looking to become creators. Firms such as Andreessen Horowitz have used their Clubhouse investment to promote their employees through the app’s suggested user list. Nait Jones, an Andreessen Horowitz partner, has over four million Clubhouse followers and has recently signed with the talent agency WME.
Even as investors rush to invest in social media start-ups, it’s unclear whether some of the apps on the market will survive. After one of its co-founders, YouTube star David Dobrik, was entangled in scandal over sexual assault charges against a member of his “Vlog Squad,” Dispo, February’s most buzzed-about social media start-up, experienced blowback a month later. Spark Capital announced shortly after that it has discontinued all relations with the company. Seven Seven Six did not terminate relations, but stated that proceeds will be donated to an organization that helps assault survivors.
According to app analysis firm Sensor Tower, Poparazzi, which was the top free iPhone app in the last week of May, had slipped to No. 156 by mid-June. While Clubhouse had 5.3 million downloads in the first two weeks of June, 4.8 million of those were for its Android app, which was released in late May, according to Sensor Tower statistics.
Bobby Thakkar, 21, co-founder of Ampersand, a product firm that provides tools for creators, said, “For years, no one cared or acknowledged this market as a space with real money.” “Now that money is flooding into the field, we should expect to see more companies, greater rivalry, and more start-ups incorporating artists into their operations.”