The Year That Every Creator Became An Investor
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The Year That Every Creator Became An Investor
Why creators are becoming investors and how tooling is making it easier for them to fundraise and deploy capital
The inspiration for this post is Halle Kaplan-Allen’s ‘The year that everyone became a creator’ on her incredible Substack, Automatter. Halle touches upon how in 2020, more and more people became ‘creators’ and started developing additional revenue streams and how some are starting to privately invest.
Creators are getting cash thrown at them - for them to then throw at companies. Since last year, nearly daily, I've been seeing a tweet (with an accompanying thread, of course) from a creator sharing that they’re now investing in startups.
What is a ‘creator’? They’re somebody who publishes content online. Anyone can be a creator, but the more specific you are about your content, the better. This is because it’s easier for people to find you as they’re likely looking for a particular subject to read/watch/listen. They’re also ‘productising’ themselves, they themselves are the brand, not the content.
And why are creators becoming investors?
Charli D’Amelio having a fund isn’t because of her dancing. (Well, it kind of is.) It’s because she has 138m followers on TikTok. The reach a startup can get if she advertises it to her followers is insane. But that works for consumer startups that would appeal to her audience. Charli's reach wouldn't be a value-add for companies that don’t appeal to Gen Zers, such as B2B startups.
A B2B startup may look at somebody like Lenny Rachitsky, who writes a popular Substack newsletter aimed at product managers. The readers of his newsletter are the target audience for these companies because they’ll be working at companies that are potential customers for the B2B company.
But away from the reach, these creators can offer advice to the startups they’re investing in. Let’s not forget that they’re successful businesspeople in their own right. Whether you think it’s ridiculous or not that Charli has a following of over 100m people, it takes strong acumen to build a personal brand like she has. That branding knowledge could prove invaluable for a company with her on their cap table.
Lenny Rachitsky founded a company acquired by Airbnb and became a product manager for them. He can support founders who need product advice and guide them in the negotiation in a potential sale to a larger company.
Creators investing in companies isn’t new, it’s just that as more people are becoming creators and their reach is increasing, more opportunities are coming their way. Curtis Jackson, who received a small stake in Energy Brands (of vitaminwater fame) explains:
“I took quarter waters, sold it in bottles for two bucks
Then, Coca-Cola came and bought it for billions—what the fuck?”
So, we understand why companies are getting creators to invest in them, the question now is how are creators raising money?
Over the past few years, the democratization of venture capital has seen exponential growth. And that’s mainly thanks to one company, AngelList. Spinning up SPVs (Special Purpose Vehicles) to gather money to then invest in a company is a lot easier, thanks to AngelList. Because investors can log onto AngelList, click how much they want to invest, wire the money and they’ve invested. Simple. But early in 2020, AngelList released a new product that changed the game.
Rolling Funds. Before going into what they are, let’s start with a bit of background.
Venture funds raise money in a cycle, unlike an SPV which raises money for a specific company. When Andreessen Horowitz (a16z), a VC firm, raised their $2.2b Crypto Fund III, they told investors what their thesis would be and invested. a16z has the discretion to allocate its investors’ capital to the companies that offer the best returns.
The money for the fund will last for a few years. Notably, the $2.2b is ‘committed’ to a16z by their investors. But a16z doesn't receive all of the money up-front. During the fund’s life, they’ll do a capital call. This is where a16z says, “Hey, you invested $80m into our fund, we want $20m of that right now”. Capital calls can be unpredictable for investors, and they’ll have to ensure they’re liquid enough to meet the capital call because they’re obligated to provide the money.
So that’s the ‘traditional’ fund method. Back to Rolling Funds.
A Rolling Fund is like a subscription. A creator
will set up a Rolling Fund that asks for $10,000 per quarter with a one-year minimum commitment. And every quarter, they get their money and allocate it. And because people invest in Rolling Funds through AngelList, it is much easier to fundraise for the creator. For investors, the capital calls are predictable and after the year, they can end the ‘subscription’.
A mentor of mine said there are two sides to venture: picking great companies and raising money. Venture funds will split employees into those two buckets. There’ll be some people who focus on picking companies and others who raise. With some back office admin staff too.
For creators, this can make investing difficult. Rolling Funds and other products offered by AngelList and other vendors simplify this process by handling a lot of the back office work for the creator. So it’s a lot easier for creators to invest as one-person bands.
Creators have niche audiences (with 100m+ followers you may think Charli content isn’t niche, but the demographic somewhat is) and companies want to have them on their cap table (a list of investors in the company). And it’s easier for creators to raise money thanks to tooling that AngelList and others have built.
Slowly, more creators are moving to building their own venture funds. But that’s for another newsletter.
If you want to keep up with the terminology I use as I write these newsletters, you can find an ongoing glossary here.
If there’s anything particular you want me to cover or you’d like to learn more about angel investing, reply to this email or message me on Twitter or LinkedIn.
Rolling Funds aren’t limited only to creators. Anybody who’s accredited (unfortunately that is a requirement, unlike SPVs/syndicates) can setup a Rolling Fund.