Creators are looking to diversify their revenue streams and, just as media companies do, occasionally seek the aid of VC funding to do so. But with VC funding comes a variety of pitfalls, as our industry has learned all too well. Charlotte Henry examines a potential model that can help creators sidestep those pitfalls.
The first thing people tend to ask when they find out someone is a creator is “how do you make money”. Readers will know that there is a fairly long list that serves as an answer to that question for creators – brand deals, ads, affiliate and so on. The same question is increasingly being asked of more traditional journalists too and is getting ever more painful to answer.
Alongside the methods listed above, creators bring in money via investment rom venture capital funds. Creators often start businesses that offer various products, and VCs invest in those businesses on the understanding they will take a portion of them in the process. Creator products can be anything from chocolate like Mr Beast’s Feastables range, clothing and other merchandise to courses and digital templates. Gumroad is a firm that helps creates make some such items and now it wants to be an alternative to VCs too.
As the Publish Press newsletter from Colin and Samir reported, the company is going to invest in creator business but be repaid in a different way. They will take a 10% stake and get dividends back over time instead of waiting for the business to be sold, which is how VCs normally get a return on their investment. It’s also worth noting that Gumroad cheques will go to the creator directly, not their business. This approach encourages both the creator and Gumroad to build the business as opposed to finding a way to sell it, Gumroad founder Sahil Lavingia explained to The Publish Press:
“By investing in the creator directly, rather than the business entity, we keep things simple and let the creator maintain full control. Dividends instead of equity also keeps incentives aligned around sustainability and revenue growth, not an exit or liquidity event.”
She added that “this initiative came from countless conversations with creators who needed growth capital but didn’t want the strings that come with traditional VC or debt.” This makes sense. While the barriers to entry in the creator economy are low, the costs of growing can be high.
Prioritising creation
It is also counterproductive for creators to be distracted from doing the thing they do best, the thing that makes their business have value – creating content. A financial boost of the kind proposed by Gumroad should allow them to retain that focus and grown without having to worry about short-term income.
The investments will reportedly range from $100k to $500k. Serious money, for sure, especially when it is just for a 10% stake. However, they are still a far cry from what top creators earn. For referenc,e Forbes’s Top Content Creators 2023 list said that Mr Beast earnt $82 million, KSI $24 million and Jake Paul $34 million. These comparatively small injections of cash could really help boost lower tier creators and help them get to the next level.
This is important because, while success should be rewarded, the creator economy is not sustainable if there are just a few massively wealthy creators hoovering up all the brand deals and AdSense revenue. As I noted in my first ‘Lesson from the creator economy’ column, “there are a host of individuals and small businesses covering everything from tech to beauty to sport. They are doing robust work that brings in audiences and revenues.” There also needs to be a multitude of ways to support them.
It is fair to say that in traditional media VCs are not exactly warmly welcomed. While I’m not someone to take the simplistic view that all such firms are vultures, it is certainly true that various previously much-loved publications have been wound down once in their hands. Gumroad’s approach is therefore worthy of some attention outside the creator economy. This is not necessarily because it can be directly replicated, but because it shows a desire to think a bit differently and we all need to do a bit more of that.
While there are not infinite possibilities for generating revenue, too often both creators and traditional publishers limit the ways they can do so. It usually normally boils down to some mix of ads and subscriptions. There is nothing wrong with the ad/subscription mix as a fundamental, of course, but we all need to come up with some new options too. After all, not every publisher can own Wordle or rely on a multi-millionaire sugar daddy to come to the rescue. Micro-payments and not for profit models can only go so far as well.
It will be fascinating to see how the Gumroad investments pan out in the medium and long term. However, on the face of it, it would seem that traditional publishers could learn quite a bit from an industry trying to find a new approach. They need to find people who are prepared to back outlets in return for income not exits, who can be a partner not a pariah.