Illustration by Annelise Capossela/For The Washington Post; iStock
Creators want in as investors in brands and products, and founders and companies are thirsting to get them on board. But the fledgling sector of the creator economy lacks a playbook.
Creators “are wanting to do more than just earn money, they’re wanting to build wealth…they’re creating a lot of enterprise value, and they don’t just want a piece of sales,” said Kate McAndrew, the co-founder of the $100 million pre-seed fund Baukunst who has also become a creator herself. At the same time, founders of startup companies, “want creators on their cap tables. They understand the value of creators.”
Despite the mutual courtship, the existing industry norms around investing are not set up to reflect the unique factors a creator may need to consider when signing on to invest or for sweat equity — from use of their name, image and likeness, to affiliate promotion, to Federal Trade Commission regulations.
Cherub, an app and marketplace that connects founders, creators and angel investors that recently announced raising $4.5 million in pre-seed funding, is attempting to address those challenges to educate both creators and founders about working together. Co-founder and CEO Jaclyn Johnson said that more than $12 million has been deployed through Cherub connections thus far on the angel and founder side, with the creator component just launching last month.
While Cherub is not alone in trying to broker deals between creators and startups, it has focused on trying to set baselines for creator-investor relationships, including a new legal framework dubbed the “Creator Equity Agreement,” that Johnson previewed in an interview and at the platform’s application-only creator summit last month aimed at educating potential investors. Here are my takeaways from the event:
Sweat equity needs scrutiny: Creator investors stressed that sweat equity — a non monetary contribution in exchange for an ownership stake — can initially sound like an easier, less financially risky investment, and particularly appealing for creators used to leveraging their audience for brands. But they warned it often ends up being far more draining and a messier arrangement than cash.
“Sometimes it is easier just to write that check and then be like, whatever [promotion or services] we give you is just an added bonus,” said Thomas Berolzheimer, who invests with his wife, creator Julia Berolzheimer.
Creator and investor Valeria Lipovetsky said she has learned to be “very stingy” with sweat equity.
“I still run a media company. I still need to continue growing the personal brand. There are my other deals that are happening, so I cannot now come in and help you run the company, and [the company relies] on you so much,” she said.
Julia Berolzheimer recalled a similar experience working with a tech company and said posting about it on social media stopped feeling authentic, leading to the decision to give up the shares. “We were like, we cannot keep posting about this if they’re not getting any traction,” she said.
Creators need to know what to ask for: When Johnson asked a room of creators, agents and managers to raise their hand if they feel confident asking for a certain percentage when negotiating a deal for equity, only one attendee raised their hand.
The lack of clarity around rates and what even to ask for as a creator led to Cherub launching its Creator Equity Guide, which lays out different types of partnership types, what that service might look like in terms of deliverables, and sample percentages for pre-seed, seed or series A equity, along with a vesting schedule.
Creator and investor Maggie Sellers Reum said she started investing for 0.1% stake in a business and now wouldn’t take a deal under 0.5% for a company she believes has huge exit potential and large total addressable market. As a creator who started with an investment of $2,500 and now holds 25 equity positions, she said the standard she sees in the market is 0.25-0.5% for a creator vested over four years.
Creators have more to offer than content: “You have access to my network. You have access to certain information that I have about media. I can bring you initiatives. I can bring you into rooms. It's not just me constantly posting,” Lipovetsky said.
Johnson’s own agreements include sending out quarterly gifting boxes to her influencer friends on behalf of a brand, participating in press interviews, introducing founders to creators and investors, and integrating products into events, like those she hosts as the founder of Create & Cultivate (which she sold, and then bought back).
Creator as “co-founder” can be a red flag: As companies increasingly name creators to C-suite level titles, the creators warned such arrangements should be met with skepticism.
“We've had a few brands reach out and ask us to be like a co-founder or a creative director, and I always take it a little bit as a red flag of like, why do you need me so bad?” said Julia Berolzheimer. “I'm flattered, but also what's going on behind the scenes that you need me to come on in this way? I've turned down every one for that reason.”
They also cautioned creators to be mindful if joining a brand in their primary niche. “If you’re a beauty creator and someone wants you to be the co-founder of a beauty product, you’re about to take a ton of money off the table for yourself,” Johnson said.
This story is part of Verified, a newsletter that is published by Washington Post Creator, a team outside The Washington Post’s newsroom that is focused on the creator economy and content partnerships with independent creators. Learn more about Washington Post Creator.
