Breaking Down Different Creator Equity Models

Different models are starting to form around the concept of creator equity. Each strategy has their own distinct advantages and disadvantages that should be considered.

Happy Tuesday Friends,

We are starting to see different business models form around the concept of creator equity. In this piece we break down such models and provide our perspective on the pros/cons of each. These views are based on our 15+ years of experience investing in early, stage private companies and being LPs in several venture funds. For simplicity, we use creator in this piece as a catch-all term that includes celebrities, athletes, youtubers, and any other talent that has influence over an audience.

Before going through the equity models, below are three areas of a company creators are typically involved in when they have equity:

• Promotion/marketing → most obvious; applies to all creators.

• Product development → only applies to creators with experience or insights in a specific category.

• Company operations → least common as most creators are not equipped or interested in being actively involved in operations.

On to the models.

Creator-Founded Companies 🦸 

This is when creators are part of the founding team from the inception of the company. We have broken down four general strategies for creator-founded companies:

1. Individual creator → face of the brand

2. Individual creator → NOT the face of the brand

3. Multiple creators → face of the brand

4. Multiple creators → not face of the brand

#1 Individual creator → face of the brand 👨‍🎨 

✅ Pros

• Creator heavily involved; more emotionally invested.

• Creator willing to really engage their audience around the business.

• Creates a more authentic connection for audience.

❌ Cons

• Highly dependent on personality; difficult to separate company from personality. 

• If creator has negative news, can kill the company. 

• Creators can become overextended due to required time commitment.

#2 Individual creator → NOT face of the brand 🧑‍🎨 

✅ Pros

• Easier for a company to exist independent of the creator’s brand.

• Easier for customers to have a direct connection with the company vs the creator.

❌ Cons

• Creator can be less engaged and not as emotionally attached.

• Might not come across as authentic to their audience.

#3 Multiple Creators → face of the brand 👨‍🎨 👩‍🎨 🧑‍🎨 

✅ Pros

• Access and cross-promotion to multiple audiences that live independently of one another.

• Higher wow-effect of marketing and promotion activities when a group of creators are faces of a company.

• Less reliant on one personality; if creator A is busy, you can rely on creator B.

❌ Cons

• Managing multiple personalities who have their faces attached to the company can be challenging.

• Can have significant audience overlap.

#4 Multiple Creators → NOT face of the brand 👨‍🎨 👩‍🎨 🧑‍🎨

✅ Pros

• Access and cross-promotion across multiple audiences that live independently of one another.

• Less reliant on one personality; If creator A is busy, you can rely on creator B.

❌ Cons

• Creators must see tangible benefits or income along the way to stay engaged. 

• Can have significant audience overlap.

Creator-backed Companies

This is when creators join as equity partners well after the inception of the company. We see this typically happen when a creator can play a key role in one aspect of a company to help accelerate growth. This is most commonly either on the marketing/promotion or product development sides of the business. Two common strategies we see for creator-backed companies:

1. One Creator → face of brand

2. Multiple Creators → NOT face of brand

#1 One Creator → face of brand

✅ Pros

• Easier to manage one creator personality.

• Can go much deeper with how the company can drive value for the creator so it is a two-way street.

• Can help land traditional retail placement with retailers that want to be associated with a creator’s brand.

• Can feel much more natural to the audience when there is strong creator-product-market fit.

❌ Cons

• Creator and their audience may not move the needle for the company and now this person has equity in the business.

• If the creator has negative PR, it hits the company hard.

• Creator can become overextended and involved with too many other companies.

#2 Multiple Creators → NOT face of brand

✅ Pros

• Good strategy for smaller, long-tail creators and help companies dominate a category.

• Creates opportunities for content collaborations and cross-promotion across different audiences.

• Diversifies risks for companies if one creator has negative PR.

❌ Cons

• Difficult to manage; may need to hire someone to manage.

• Creators often do not have much incentive to be very involved. 

• Often transactional - creator A does X for Y. If he/she did X, he/she earns Y. Contractually they don’t have to do more.

• Creators and their audience may not move the needle for the company and now these people have equity in the business.

Venture Studios 💰️ 

Several venture studios have started to pop up with a focus on working with creators. In simple terms, venture studios are organisations that create startups. They form and test an initial idea, assemble a founding team, and often invest early capital into the business. We are not big believers in the venture studio model for most strategies as it is really hard to manufacture big outcomes without an obsessed founder pushing their own vision. Below are the two general venture studio models we are seeing:

• Co-creation → the studio asks creators what they want to build and they build a company around the creator.

• Creator-backed → the studio attaches creators to the company after it is formed.

Below are the general pros and cons of the venture studio model:

✅ Pros of Venture Studio

• Allows creators to stay in their lanes and do what they do well, create content.

• Can provide much needed operational support early on around supply chains, e-commerce, and other functions.

• Can provide access to early customers and relationships where they have deep domain expertise.

❌ Cons of Venture Studio

• Venture studio team can lose focus if it manages multiple companies.

• Hard to manufacture startup success without an obsessed founder pushing their vision.

• Broken cap tables - studios often own too much equity in a company relative to the value they provide. This can create structural issues for future investors.

We hope this provides a good overview of the creator equity landscape. We maintain a database of companies organized by these different equity models so if you are interested in learning more about a specific model shoot us a note of what you are looking for and we can provide a shortlist of companies.

Have a great week and remember to Go Direct!

Build with love,

Jordan & Scott