Venture Capital in the Creator Economy

Hey, hey, you're listening to the Level Up Creators Podcast. Amanda Northcutt here, founder and CEO. We help digital creators build thriving, sustainable businesses they love. We're so glad you're here. Welcome. Today we're going to peel back the curtain on the world of venture capital for creators. You can think of this episode as a short course of sorts on what VC funding for creators is, if that's something you wish would or should consider pursuing, and what signpost investors are looking for when they're vetting opportunities. My expert guest today, who will bring a lot of context and color to this is Megan Lightcap, a principal investor at Slow Ventures. Slow Ventures is an innovative venture capital firm with a very unique creator fund and POV on where the creator economy is heading. And Megan has a notable decade of experience in finance, starting with investment banking at JP Morgan, leadership positions at a few startups, and now she focuses on leveling up creator-centric businesses in her current role at Slow Ventures. And Megan is joining me today from New York City. Welcome, Megan.

Thanks, Amanda. Excited to be here.

Yeah. Before we dive into our topic for today, can you tell us a little bit more about yourself and your journey so far in the creator economy?

Sure. So my journey in the creator economy actually started when I joined Slo, a little over 18 months ago. So my whole background is actually within consumer. So I've obviously spent some time in finance doing kind of investment banking and then on the growth investment side at a fund called El Caterton. And then went on to the operating side at kind of 2 consumer startups. So like through and through, I've always been just a big student of consumer and fan of the category. And so my entry into the creator world was really centered around the realization that creators control a ton of consumer mind and wallet share. And so as you think about kind of where consumer may be going, or at least a portion of it may be going in the future, paying attention to what creators are doing, building, driving, influencing, right? Like, I think it's a pretty important theme to deeply understand. And so that was kind of my entry into this super fun world.

So venture capital has historically been most readily available to tech startups like software as a service or SaaS companies. What about creator-first businesses and the creator economy on the whole is capturing the attention of big Silicon Valley, New York, and Boston-based VCs?

Yeah. So I mean, I think the realization for us was kind of taking a step back, right? 2019, 2020, you saw the emergence of what are now very high-profile creator-led brands, the likes of Skims and Chamberlain Coffee and Prime and Feastables. And they were kind of the early starts of what could be almost an upper bound of what kind of the outcomes of these that these creator businesses could become. And so we looked around and said, there are a lot of creators that are building pretty big and meaningful businesses, not only launching products, but their content brands, products, services, other interesting type business opportunities and ventures. And these businesses were— had multiple revenue streams earning real cash flow. And kind of looked like not even SMBs, but just like true MBs. And so despite all of this, though, they don't really have access to like growth capital in the same way that traditional startups do, where if you're a tech founder, you can go knock on every door in Sand Hill Road and you know have a have a conversation. But you know, so we we basically saw this opportunity to say, okay, what if we actually gave creators? Who are building not just around their content, not just in their— for their content, but kind of in and around their content, their community. What if we gave them low-cost, low-risk equity capital, um, in the same way we do startups? And then I think one important thing to mention here is, um, just the debt versus equity conversation, which is these creator businesses, um, the world is just getting crazy, right? Like there's Discontinuous outcomes, you don't really know what's going to happen. I think the rise of, I mean, you look at Prime doing $1.2 billion in sales, I think their fastest growing hydration drink ever. And where there's high volatility, equity is a really good product. Where there's consistency and, you know, like more easily able to wrap your arms around what the different income streams are and what the different cash flows are, debt is a great product. And so for us, just given, again, like the way that these businesses are built, we're like, it should be equity. You know, there's a real reason for it to exist here. And so that's how we got excited about it. Can't really speak on behalf of other venture firms, because, you know, we're one of only a handful kind of pursuing this. But yeah, we think there's a real opportunity here.

Yeah, definitely. You guys are on the front of a trend on a huge growth market, and I'm sure others are going to follow in quick succession when they start seeing the success that you're having. Speaking of which, can you tell us about a few of the creator economy businesses in the Slow Ventures portfolio? And you touched on this a little bit a minute ago, but what made them attractive enough to invest in?

Sure. So just to not to be pedantic about it, but there's creator economy startups that we've backed, the likes of Pearpop, Creative Juice, Stem is one in the music space. And then there's creators, right? Where we're actually putting equity into their holding companies and kind of more backing them directly. So we can talk about the creator economy startups, or we can talk about the latter, which I think is the point of this conversation. But yeah, I mean, I think when we look to back a creator and kind of all of our investments to date follow this profile, We really look for kind of 2 things, a creator that is niche enough where you don't have to squint very hard to understand the different ways in which that business could monetize. And they're more easily underwritable because there's existing consumer comps. So pick any category, take chess as an example. You could basically say, All right, here's like the, you know, there's a deeply engaged community of chess enthusiasts surrounding this creator. They have a content business. Maybe they spin up, you know, an online chess course or, you know, a chess league or chess pieces or what have you. Like, you don't have to— it's more easily underwritable and more easy to wrap your arms around versus something like general entertainment where harder to monetize, harder to underwrite, way more subject to virality, and ultimately basically what's an attention game, which can be hard to sustain. And so kind of the first thing is, are they category or vertical specific in a category where there's real commercial opportunity and that has existing tailwinds and it's compelling for its own reasons and macro trends and all that stuff. And then kind of the second thing is they have to be early enough where an investment of $1 million to $2 million actually matters. So MrBeast, as an example, is like way too far along where that kind of capital would even be important or meaningful. And so I think we look to creators where they're early enough in their career where That can actually move the needle, but they still have content market fit. They have an engaged audience and community, have either launched something alongside their content or plan to kind of with or without us. So those are the types of folks we generally look for. And if you think about kind of our, or as I think about our current portfolio of creators, they all generally track to that.

All right. Very interesting. So you're looking for a very specific kind of sweet spot in terms of, you know, growth stage and things like that.

Exactly.

Yeah. Okay, cool. And I'm sure I'm wondering, so I'm sure some of our listeners are wondering about the name Slow Ventures. Would you mind explaining your firm's ethos and kind of like POV so everyone has a little aha moment about the name?

Yeah. You know, I probably should have this more off the top of my head. I don't know the exact story, but one explanation that I have heard in passing is simply just the idea that good businesses just take a while to build. And so this idea of kind of the antithesis of move fast and break things, of build methodically, build thoughtfully, be in it for the long term, play a long-term game. Real, like, I don't know if I, if I actually kind of play this forward, like maybe it's, it's, you know, suggestive of contrarian thinking at our firm, which, you know, I think we tend to do as we kind of look across the ecosystem. But yeah, I wish I had a better— I probably should have dug that up before this interview.

So. No, I think that's a really great answer. And you're right, that is quite a different place to plant your flag as a VC. Firm as opposed to that move quick and break things, which is like Silicon Valley 101. And so I think that aligns really well with how you're kind of adding value to the creator economy and working toward building sustainable businesses that, you know, have a chance to stick around for the long term and be excellent for obviously your portfolio and completely change the lives of creators. And one quick Extra question. What types of activities do creator, individual creators typically spend these like major cash infusions on? Like, where are you guys directing those creators to spend your investments?

Yeah, great question. So it's the capital is entirely up to the creator how they use it. So we're actually non-directive. There's no board seat. We don't tell them how to spend it. It's entirely Entirely up to them, and we've we've structured the investment such that that is kind of first and foremost. Generally, what we see is a portion goes towards kind of investment in content and and just to pour gas on the engine that is already working, maybe level up the production or just kind of take it to the next level. Another portion of the funds is generally used or directed towards. a specific business that is either top of mind or that they're already kind of underway building at the time of investment. And I'd say a third bucket, high level, would be more just like experimentation. I think back to our perspective of like, you don't really know how these communities are ultimately going to monetize and will probably do so in a number of different ways. Part of the reason to take on an investment is such that you can have a war chest to move fast and deploy against something when the time is right, versus saying, okay, I see an opportunity. I could basically self-fund this over the course of the next 3 years, but I'm not actually sure this opportunity's going to exist by year 3, versus, again, having capital ready to go when the time is right. So that's generally like a very high-level breakdown of the different quote unquote like capital allocation buckets.

Okay, cool. Thanks for explaining that. And that totally makes sense. I mean, we creators often lack the opportunity just simply because of cash and time. And many creators who are kind of mid-stage are often still doing it as a side hustle and not even necessarily as their full-time gig yet. And so the freedom and flexibility that cash allows and having a savvy investment partner like Slow Ventures kind of unlocks the floodgates, if you will. I mean, the sky truly is the limit for creators, but if you don't have the requisite business skills to sort of like act as the CEO of your own creator-first business, or you need to bring someone in to do that, you need to bring in other operators, like really savvy marketers who are skilled in one-to-many product sales and marketing automation and strategy and video editing and all those kinds of things. I mean, cash is Cash is king, as it always will be and always has been. So I think what you guys are offering to specific creators is just incredible.

Totally.

So of all the content creators I've spoken with, I mean, they all feel so deeply connected with their community of followers. They know them well, spend time with them, create special content and products just for them, obviously, and are generally quite protective of their audiences, right? And in many cases, followers feel reciprocal levels of affinity toward the creators they follow and are most loyal to. As a trickle-down effect of that mutual affinity and loyalty between creators and their communities, what kinds of shifts are you seeing in consumer behavior toward creator-first businesses as compared to, say, globally recognizable legacy brands?

Yeah, I mean, there's the obvious answer, which is I think trial is Way higher, right? You know, if you think about willingness to try Prime versus some new hydration drink that hits the shelves that you have zero relation prior existing relationship with, and then obviously just like the benefit of sheer brand awareness of when you already have an embedded audience or kind of customer base that is tremendously helpful from an actual like operating leverage and kind of marketing acquisition perspective. But I think the more interesting answer, quite frankly, is one that I've observed actually in speaking with a creator that we've partnered with, which is I think there's a lot more willingness for, or maybe not willingness. I think there's greater acceptance of the creator to move into related but adjacent categories. That feels more authentic and natural and organic than say a specific brand. So to give you an example, just because I wrote about it this week, Alo Yoga is an athleisure brand best known for kind of workout sets and apparel and whatnot. They I forget when they announced this, but at some point in the past couple years, they announced that they're expanding into skincare. And as a consumer. who knew them for great yoga clothes, right? I was kind of like, huh, like, I'm not quite sure, you know, I'd be the first one to buy. Like, it didn't really make sense. Like, maybe if you squint, it does. Versus let's say you have a yoga or like Pilates wellness creator. Maybe she or he has, you know, a fitness subscription, maybe they have a podcast, a bunch of things going on, maybe props and accessories and things like that. They are a person, and I think what you find is that the relationship between the creator and the community—the community—is constantly asking: What are you eating? What's your skincare routine? What makeup are you doing? How are you raising your kids? Like, where do you find your name? Like, all these questions related to obviously their main core competency and kind of core focus, but them as a whole person. And so, what you find is these natural extension opportunities. In things that like may not be as natural for the Alo Yogas of the world for this creator to go pursue. And, you know, I was having, as I mentioned, a conversation with a creator who we partnered with, and this was a massive aha moment for them. And just as she thinks about kind of business growth and where to extend next and, you know, the different opportunities that were available to her, It was just an amazing insight.

That is so fascinating. And I wrote an article this morning, actually, we have not published yet because it's, it's a draft. But I was speaking to that exact same thing and the opportunity that creators have because of the affinity and loyalty they have with their community of followers, because those followers want to be more like the influencer. I mean, I don't know if you've seen research that's come out. Let's see, Adobe, Teachable, and ConvertKit in the last 3 months have all come out with sort of like major long-form content pieces backed up by research. And they all talk about how consumers feel so much more affinity and therefore likelihood to purchase products from these individual creators that we follow and feel that we have a real human connection with. I mean, we feel that we know these people, right? I mean, we're following them, we're seeing their content every day. And there is a massive disconnect between that relationship and the relationship between us consumers and gigantic brands. And so I think there's such an amazing opportunity for capitalizing on the attention that creators have with their communities of followers. And the specific purpose of the article that I was writing is that we're seeing, you know, kind of a significant amount of hesitancy for mid-tier creators kind of earlier on in their journey to sell things to their audiences. And so I'm trying to kind of like break down the psychological pieces of how there's opportunity for mutual value exchange between creators and their communities. And how you can actually, you have a real opportunity here to help your followers achieve their foundational desires. Like people want to belong, people want power, respect, they want to be smarter, they want to be seen as the kind of person they want to be seen as, and creators can totally put fuel on that fire in the best possible way and help people become more like their fully recognized selves. And that's like a little bit heavy and crazy to kind of think about the opportunity here, but I definitely am very interested in like changing the narrative and conversation about how creators feel and how they can be in the right mindset that they are not like sleazy salespeople, but they have opportunity to add value to people's lives on an ongoing basis by providing amazing products and services. So I'm glad you brought that up. That's very top of mind for me and pretty incredible.

Totally. And I think it becomes all the more important in a world where there's just endless choice, specifically within certain categories more than others. But I think creators can serve as curators of sorts or almost brokers in the marketplace of products and services and whatnot where We think a lot about analysis paralysis and you look for kitchen soap and you type in kitchen soap on Amazon and 10,000 products populate and you have no idea where you even begin versus if you have a relationship with a creator who you deeply trust and they talk about it, seem knowledgeable and kind of curate, that's an amazing shortcut for a purchasing decision. And I just, I think even the term creator, right, can mean so many different things. It's not that every creator needs to go launch their own product or service, but I think just recognizing that they are delivering real value from a consumer perspective, especially if they do so super thoughtfully and really invest in the relationship with their kind of community and followers.

That's right. And we all want recommendations from friends, right? And so it's, it's this kind of strange thing that's going on right now where these creators online feel like the products that they're recommending, it feels like a recommendation from a trusted friend that we know. And so we will take that advice and vote with our wallets on what happens. But you're absolutely right. I mean, the creators are becoming and are gatekeepers for what people will buy. And that's just So amazing. Which kind of leads me into my last question here. So I would love for you to kind of like call your shot on a 2-part question here. What do you think the future of the creator economy is? And what will consumer behavior look like in the next 10 to 15 years as a result?

So one of the things I've been thinking about a lot, like I mentioned before, is just the definition of a creator. And so I think that we are about to see an explosion of people who call themselves creators and as a result capitalize on or take advantage of the opportunities that are in front of them. And so just to kind of bring it even real-life example, my boss who's an LP GP or a GP here at Slow, he has a decently big Twitter following, has a microphone on the internet, Recently launched a podcast and he is capturing emails, capturing first-party consumer information with respect to kind of who his audience and followers are. And he's obviously not a creator, but he's taking advantage of the same things that are available to him in the sense of distribution and engagement and followership that inevitably unlocks opportunity that wouldn't have otherwise been available. And so I just think we're going to see so many different forms of creator and kind of what that means. Even, I mean, not to get too technical, but OpenAI this week announced their new app store and opening up to developers where developers can actually start to make money with GPTs and earning revenue share. And it's like, that's the same mechanism of creators on YouTube. And so I just think we're going to see so many different types of this word, and it really just reflects kind of this fundamental shift in labor. And then on the consumer perspective, to your second question, I think that, and this has been a trend for a while, but I just think it's going to kind of continue, just the fragmentation is just going to get like niches are going to be more niche and you're going to just find these like Crazy loyal, uh, communities around a specific topic. And you may be a part of multiple, um, but they're going to serve different parts of your interest graph in your life and different kind of emotional and intellectual needs or what have you. Um, and it's just going to continue to fragment into kind of different corners of the internet. Um, so those are my two, my two takes, if you will.

Yeah, strong agree on all counts. Well, thank you so much for joining me today, Megan, and for sharing so much of your knowledge on the future of venture capital in the creator economy. We're very excited to see how the Slow Ventures Creator Portfolio evolves. Where can our listeners find you online and get more information about Slow Ventures Creator Fund?

Sure. They should subscribe to my newsletter, Slow Upload. I think just Type into Google, or maybe you can add it in show notes or whatever. Slow upload Megan, or the— yeah, I should have a link for it. I will send you, I'll follow up with the link. And on Twitter, I'm @mmlycap. You can tell I'm not a very good creator because I don't even know like where I should tell people to find me. So find me on Twitter. I have a very recognizable last name. You can connect with me on LinkedIn. And then yeah, check out more on our website. So,

all right, awesome. Thank you again, Megan. And we know that time is precious. Thank you for sharing yours with us. Level Up Creators exists to amplify the voice, reach, and impact of creators making a positive impact in the world. With your expertise as our focus, our team of strategists, marketers, sales pros, product developers, administrators, and tech gurus handle the heavy lifting of building and optimizing a profitable business that will transform your life for good. Subscribe to the show and check out welevelupcreators.com for more information and resources for creators just like you. See you next time on the Level Up Creators Podcast.