Influencers, or people who make social content as a career, aren’t the big growth opportunity in the creator economy, according to John Lambros, cohead of US technology at the M&A advisory firm Houlihan Lokey.
They’re never going to be great customers, and they can be volatile. Instead, look at companies that sell tools for content creation that service a wider swath of users, Lambros told Business Insider.
“We think this is going to impact everything from the influencer to the Fortune 100 company, and there’s going to be a whole group of businesses and platforms in between that are really going to help,” Lambros said.
Houlihan Lokey recently issued a creator technology outlook report that defined the creator ecosystem broadly. Essentially, anyone who makes content, whether they’re working for a company or on their own, is a participant. BI spoke to Lambros about the state of the creator economy and the firm’s recent report on the industry.
Some key takeaways from Lambros:
- There aren’t going to be any more successful single-feature startups in the creator economy. You have to offer more than one service.
- Businesses are important customers for these startups, which have to think beyond individual influencers.
- Exit opportunities, such as mergers and acquisitions, remain relatively uncommon in the nascent industry. But companies that can help streamline content creation, like Avid or Squarespace, are well positioned for exits.
Let’s dive into each of those ideas.
One trick ponies in the creator economy aren’t cutting it
Some early creator-economy startups that launched with a single innovation, such as Cameo or Spring, have struggled to grow.
To last, companies need to build out a broad set of features to support content creators, Lambros said.
“You have to be in the business of providing multiple services,” Lambros said.
The exception to that rule is the few companies that are the best at what they do, Lambros added. Usually, those companies started a while back — like Patreon or Linktree — and are not common in the next crop of seed-stage startups.
Even still, startups that are the de facto winners of their respective spaces have had to layer on additional services and products to grow. Patreon, for one, has expanded into community features and is doubling down on its podcasting tools this year.
In its creator technology outlook, Houlihan Lokey highlighted several companies that have grown by expanding their feature sets, including the courses platform Mighty Networks and newsletter tool Beehiiv.
The creator economy needs to crack B2B
Companies should not rely on influencers to make it big. Businesses — including small and medium-sized enterprises — will be key customers for a lot of creator-economy upstarts, Lambros said.
Unlike many individual creators, these companies have substantial budgets to spend on services that will help them make content and understand its performance across platforms like TikTok and Instagram.
“Already you have big brands kind of seeing the light,” Lambros said. “There’s some really cool companies that are combining content creation with analytics and performance metrics, leveraging information about what people are actually looking at.”
M&A and other exit opportunities remain tough
Exit opportunities, such as M&A or public offerings, are tough for creator upstarts given that it’s still early days in the industry. But companies that offer creation tool kits that can be used by a wide array of customers, such as Avid and Squarespace, are acquisition targets.
In May, private equity firm Permira announced that it would acquire and take Squarespace private for about $6.9 billion.
Publicly traded companies within the creator economy include Shopify, Eventbrite, Roblox, and Reddit.
However, smaller companies may struggle to find appropriate buyers.
“Many of the companies in this market are not at scale,” Lambros said. “That’s ultimately the biggest challenge.”
Private-equity firms, an increasingly common buyer in the startup space, still have some learning to do about the creator economy, he said.
“When private equity initially invested in the category broadly, they tried to in some cases turn a subscription media business or a licensing business into a SaaS business, and that met with degrees of success and failure,” Lambros said. Those investing in the space need to “dig deep into it to really understand what’s going on to get much more comfortable with alternative business models,” he added.
And yes, TikTok, YouTube, and Meta will still get a lot of the industry’s dollars. But there is growing demand for startups that can help users navigate a changing media landscape built around digital content.
“It’s always the content and not the distribution where there is most value,” Lambros said. “All the major platforms and those around the world are significant beneficiaries because they’re the organizing force, and so they’re going to get a disproportionate amount of monetization. But nobody’s going to own it.”
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