Different Ways Creators Can Create Value for a Company in an Equity Deal

Many consumer-focused startups are starting to think about providing equity to celebrities and creators after seeing the insane growth of creator-led brands like Prime, Feastables, and Rare Beauty. But, many brands are thinking about those partnerships the wrong way. They are looking at the creator simply as a, “free” distribution channel. It goes much deeper. In today’s newsletter we show how creators can significantly enhance a company's value through strategic involvement beyond traditional endorsements and promotion.

Happy Tuesday Friends,

Ring, Ring 🏘️ 📹️ 

Jamie Siminoff, founder of smart home security company Ring, went on Shark Tank in 2013 to raise capital for his company. Although the sharks declined to invest, the company experienced a significant increase in sales due to the exposure. A few years later, basketball legend Shaquille O’Neil was at the Consumers Electronics Show in Las Vegas and stumbled across the company. Shaq was already a Ring customer and believed in the product - he wanted to get involved in the company. A few weeks later Shaq agreed to invest a reported $1 million into the company and agreed to public appearances on behalf of the company. Shaq’s investment in the company ended up being critical in helping Ring expand to selling 1.7 million doorbells per year (the company was eventually purchased by Amazon for more than $1 billion). Yes, occasionally he talked about Ring on social media and TV providing the company with ‘free’ exposure. But, Shaq’s main contribution was not what you would think.

Tapping into Local Law Enforcement 👮‍♂️ 

Ring had been trying to get in touch with local law enforcement agencies to establish partnerships to increase home safety in their local communities. They had no traction as their calls went unanswered for months. Siminoff shared his frustration with Shaq and asked him to help. Within days, Shaq arranged multiple meetings with law enforcement agencies. This led to Ring forming more than 500 partnerships with local law enforcement agencies across the country to reduce neighborhood crime.

Why was Shaq successful, but not Siminoff?

• First, Shaq had previously been a supporter of local law enforcement agencies and had several pre-established relationships in his network.

• Second, celebrities can open doors that others simply cannot. It’s just how the world works. Just ask yourself, would you accept a call from Jamie Siminioff or Shaq?

Providing access to their networks is just one example of how creators can help companies in concrete, meaningful ways. But, let’s look at some of the ingredients on why this partnership was successful.

A Couple Lessons for Effective Creator Equity Deals 👩‍🏫 

First, let’s start with Shaq’s investment philosophy:

Second, Shaq believed in the product:

Shaq was already a Ring customer at the time of investment and truly believed in the product. He tells the story that before he found Ring, he talked to several security camera service providers when looking for a home security system. Some of them wanted to charge more than $80,000 for an elaborate security system. Due to Shaq’s belief in the product he was willing to:

• Invest cash into the business.

• Go above and beyond to help Ring build their distribution and brand.

This is the dynamic every company should seek out when looking at equity deals with creators or celebrities. One where the talent truly believes in the product, is willing to invest their own cash, and will go above and beyond contractual commitments.

Let’s look at some other ways creators can create value for a business.

Ways Creators Can Create Value 💸 

Creators can drive tremendous value for companies when there is the right creator-product-market fit. Beyond promoting a product or service directly to their audiences, creators can help in the following ways:

1. Establishing Credibility and Trust

2. Retail Partnerships

3. Recruiting Talent

4. Fundraising

5. Media & PR

Let’s look at each one a bit closer.

1. Establishing Credibility and Trust 🔐 

Most emerging companies lack credibility and trust. Solving this issue is crucial when dealing with customers, suppliers, and channel partners. It can lead to closing early sales, securing favorable purchasing terms, and fostering long-term relationships. Attaching the right creator(s) to a brand can help with this. Why? Because creators are becoming a primary way consumers and businesses discover and purchase products. They are becoming one of the fastest channels a company can use to build credibility and trust with their audience.

2. Retail Partnerships 🛒 

Getting on retail shelves is not easy. Getting on retail shelves at favorable terms is even more difficult. It can take years to build relationships and create the necessary trust to work with major retailers. Having a celebrity or creator attached to your brand can help shortcut this process. Retailers like Target, 7-Eleven, and Walmart are increasingly working with creator-backed brands. We have also seen retailers put their own marketing dollars behind well-known creator-led brands such as Chamberlain Coffee, Prime, and Feastables. A select number of retailers have gone even further to create brands in partnership with celebrities and creators. Walmart launched a cookware brand in partnership with actress Drew Barrymore as well as a crafting brand with celebrity designer and decorator Todd Oldham. Why? Creators drive foot traffic to the store. And when those consumers are in the store they probably aren’t buying just one product.

3. Recruiting Talent 🦸 

The success of any company is highly dependent on having a talented team. Founders often rely on selling both the vision and underlying mission of a company to land key team members. Recruiting top talent for early-stage companies is hard. Companies often don’t have the resources to compensate high performers the way larger companies can. It is also be difficult to get people to jump ship and leave a secure, well-paying job for a startup that may run out of money within a year or two. Bringing creators on as equity partners can be a magnet for attracting early employees. The individuals you are recruiting may follow or be a fan of the well-known creator that is now a part-owner of the business. By working at your firm they now have the opportunity to work with someone they have a high level of respect for or look up to.

4. Fundraising 💰️ 

Many early stage venture capital and private equity firms are followers when it comes to investing. They often wait until a high quality, brand name firm invests before they join in a funding round. In venture capital, this may be the likes of Sequoia or A16Z. These followers rely on these Tier 1 funds' internal due diligence process and track record rather than making full-conviction bets themselves. If a company brings on a well-known creator or creators in the consumer space it can increase the level of interest many funds may have in the company. We have seen having the right celebrity or creator as a part-owner of your company can create momentum with fundraising.The main reason is investors know that creators can create a tremendous leverage for direct distribution.

5. PR & Earned Media 📣

It’s hard for many businesses to get PR and earned media coverage, especially in the early days. Many journalists won’t give early stage companies the time of day without a decent-sized budget. The dynamic changes when you have a well-known creator or celebrity attached to the company. Journalists know the public loves to read about well-known names and coverage will get them views and clicks. Having creators on board will make it much easier to secure PR and earned media. Creators oftentimes have their own team members and PR relationships that can be leveraged for the company as well. Lastly, creators are often keen to contribute to interviews or articles because it could help further build their personal brands and images. Let’s say a well-known female creator partners with you on a fashion brand making biobased clothing without any nasty chemicals. She will be motivated to share publicly why biomaterials and sustainability are important to her.

Write it All Down 📜 🖋️ 

Although creators can create value for companies well beyond, “free” top-of-funnel distribution, it does not mean that they will actually help. We have found the most important thing (more important than the contract) is the creator has a deep connection with what the company is doing. It is also important for them to see and feel that being involved with the company will help them build their personal brand along the way. When this happens we find the creator will go above and beyond what is included in the contract. But, it is very important for companies to have a clear, concise contract when working with creators. The scope and deliverables related to the partnership should be outlined clearly in the contract to ensure expectations are aligned.

Have a great week and remember to Go Direct!

Build with love,

Jordan & Scott