2024 State of Creator x Media Economy Fundraising: Efficient Studios, Aggregators, AI Hype, Power Founders, Pay Advancers, et al

Welcome to RockWater Roundup! Analysis to make you a better investor and operator in all things media, agencies, and creator economy.

Hi readers,

Below is part 3 of our annual letter, which discusses fundraising within the creator and media economies. Part 2 last week focused on M&A consolidation in media and creator economy, and part 1 focused on M&A consolidation in ad and talent agencies.

Our 2024 annual letter has two main goals; provide a reflection of 2023, and highlight market themes that will shape 2024. Our analysis will focus on capital markets (M&A and fundraising) for the media, agency, and creator economies.

The goal of this letter is to help founders and investors better deploy capital, grow their business, and earn good ROI.

Our findings are based on market research, client advisory assignments, and executive conversations. It is thus a mix of science and on-the-ground operator feedback.?

I’m entering my 19th year of advising or building media-related businesses. I’ve experienced four business cycles, two up and two down. I believe we’re on the precipice of entering a new third bull cycle.?

But I believe the markets still require rightsizing.?

It’s the hangover effect from poorly allocated capital and misdirected growth strategies from the past few years. Further, sellers are stuck on old valuations while buyers remain risk averse. So layoffs and shut-downs will persist as companies transition to viable business models and while the bid-ask spread closes. Fortunately this transition is already happening.?

In turn, our media and advertising communities emerge stronger. And I believe we’ll see more growth bets get made as we exit the low point in the cycle.?

More on RockWater → we specialize in financial and strategy advisory for media, agencies, and creator economy. Recent client projects include running a sales process for an influencer representation company, a valuation and “diagnostic” for a social agency evaluating strategic options, a fundraise for a digital media rollup, a sales process for an influencer ambassador tech platform, and go-to-market strategy for a digital studio. Our full suite of services are here – DM me or email me at chris @ wearerockwater dot com if you need help.?

Onward,

Chris, Founder of RockWater

2024 State of Creator x Media Economy Fundraising: Efficient Studios, Aggregators, AI Hype, Power Founders, Pay Advancers, et al

The fundraising environment in early 2024 is wildly different than a couple years ago, when capital flowed more freely.?

Today’s media x creator economy investors have more rigorous investment criteria and are cautious. That means a focus on proven entrepreneurs and operators, clear product / market fit and existing customer traction, viable business models that show revenue growth and positive margins, and high capital efficiency.?

And the investor profile is changing.?

VC funding in our industry pulled back significantly. These growth investors got burned on over-sized bets relative to market size and unproven business models. So VC are now writing smaller and fewer checks, and refocusing their investments on other consumer sectors, or turning their attention to B2B businesses.?

The result is smaller check sizes and fewer growth stage bets. According to The Information, 2023 saw YoY creator economy funding drop 58% to 1.7 billion, and 62% for just the US. That led to 36 startups getting acquired or merging with peers, double vs 2022, and 8 shutting down altogether, also double vs 2022. No surprise to anyone who read my 2023 Thrive or Survive blog post .

The VC pullback is a good thing for our market, since media and creator economy have a different ROI profile and support needs vis-à-vis venture -- we need investors with more flexible investment criteria, and who can bring strategic support to help founders grow smarter, find revenue through their network of commercial partners, and can facilitate collaborations with their other portfolio companies (looking at you family offices, media-focused PE, strategics, sports and media celebrities, and angels). And particularly for family offices and media PE, these funding sources can offer other capital beyond just equity, like debt. Of note, debt investment criteria is more rigorous, and requires consistent cash flows for interest payments and principal paydown. But it also means less dilution to founders and early investors.?

(Regarding the VC pullback, a key caveat here is that VC and growth investors do have a lane within media x creator economy, and that is in deep tech businesses. These include AI, and certain tools and analytics, that service creators and their fans. I expand on these below.)

The overall takeaway is that capital is much harder to come by. So founders and operators will have to work harder to prove their worthiness for investment. That’s a good thing for the long term. We needed the recent rightsizing. And now there’s a lot of capital on the sidelines. Excited to see it put to work in a more thoughtful way.

Some themes for who I think will attract investment:

??Capital-Efficient Digital Studios

FazeWorld is good inspiration here, which raised $750k from prominent media execs and personalities back in December. I wrote about them here . It’s a short form studio that makes content on TikTok, Instagram, YouTube, and is known for high production quality at low budgets – case in point, one of their first shows cost $18,000 and drove 150 million views. They’re founded by up-and-coming digital execs and are already profitable. I expect to see more bets like this, with similar-looking cap tables.?

??Digital Video Aggregators

I covered this cohort in my 2024 State of Creator x Media Economy M&A Report . It includes companies like Electrify Video and Lunar X. They’ll keep raising capital if they accomplish a few key objectives: sourcing even larger digital-native media brands to acquire to get to scale faster, proving out they can provide value-added services and cost synergies from centralized functions, and finding new ways to scale and monetize through technology acquisitions. They’re on the right track, but still a lot of work to do.

??Creator Tools w/ Power Founders and Traction

Many creator tool companies will consolidate or shut down, as I wrote about here due to the challenges of creator UA. These companies span link-in-bio, creator education, personalized tokens and subscriptions, merch, etc. BUT, there will be edge cases for platforms with rockstar founders who boast strong KPIs in user growth, UA economics, engagement, revenue generated for creators, net revenue or ARR (their take rate), and operating margin trends (to ensure there’s a real future path to profitability VS being a cash loser forever). A good case study here is the recent $40M Series A raise by Passes, founded by entrepreneur wunderkind Lucy Guo. See my case study here . Unfortunately, I don’t expect to see many similar headlines in 2024. Those companies that do fight to survive and stave off asset sales / acqu-ihires / shut-downs will either raise small friend and family rounds or re-ups from existing investors, who believe there’s a real path to near term profitability.

??AI Hype + Note of Caution

There’s a whole new cohort of AI-enabled services and tools being built. For creators and publishers, these include text to image/speech/video, analytics, copy for metadata and titling, production/editing/dubbing, chatbots, and even AI-generated creators. For tech platforms and industry service providers, AI is enhancing influencer discovery and selection, performance tracking, and more. Investors are leaning in and the raises are generating much PR buzz. Example deals include Captions (a video editing app) raising a $40M series B, and Runway (gen AI tools for creators) raising a $141M Series C extension, both in July 2023. More recently, AI audio shows signs of gaining momentum, with ElevenLabs raising an $80M Series B and Wondercraft (“Canva of audio”) raising a $3M seed, both in January 2024.

But as industry and creator pros have put these new AI offerings into practice, feedback I’m increasingly hearing is that the tools leave a lot to be desired. I’m therefore very curious to track usage and revenue trajectory for these AI businesses. As I noted above, UA and unit economics challenges plagued creator tools businesses and have caused a massive fundraising pullback since 2022, leading to shut-downs and consolidation. I expect the same things to happen in creator AI, a natural part of the industry’s growth cycle. But we’re still early in the cycle and “opportunity hype”, so I expect fundraising to keep pouring in, and consolidation to not happen till 2025/2026. But expect criteria for AI creator startups to become more rigorous as more players enter the space – strong founders, user traction, business models generating recurring revenue, and less competitive markets will get the fundraising $$.

An interesting case study here is Midjourney, which got to $200M in revenue without any VC funding. It reinforces a meta point about AI in that the new tech enables high-growth startup building with less and less capital, due to services like Github’s Copilot which can 10x the output of a single engineer. I still think UA success for AI creator tools is going to require meaningful growth capital in Series B and C rounds, but seed and Series A check sizes could get smaller and smaller, leading to more market entrants.

Lastly, as AI tools increasingly saturate the creator market, there’s a big opportunity for managed services businesses to help creators sift through all the new AI toolkits and use them effectively. I expect ad agencies and talent representation companies to start offering these services to clients, enabling a revenue boost while they emerge from a slow growth year due to ad spend pullback (speaking of agencies, see my 2024 State of Agency M&A report here ).

??Creator Financing Get Crowded

Spotter and Jellysmack kicked off the social channel financing and “payment advance” business into high gear, starting with a library licensing model. But this space evolved into creator loans from companies like Breeze and Creative Juice, and even multi-decade “% of all earnings” deals from funds like Slow Ventures. And over the past couple years I must have spoken with 20+ other creator financing solutions spanning from venture backed startups and niche MCNs to HNW individuals, family offices, and traditional lenders. Each is financing their offering with mixes of debt, equity, and / or depositor capital. And all are experimenting with different payout structures, from advances solely against adsense and programmatic revenues, to participation in all creator business lines.?

Overall, it feels like a large and growing space that is underserved by traditional banks, and I do like continued innovation here to find structures where creators don’t go into debt, still participate in all revenue streams, and maintain control of their channels. My prediction is that the financing newcos who get funded will prove they have a scalable creator acquisition strategy that doesn’t rely on investor-funded media spend, and have strong underwriting criteria. Most new capital will come in the form of lines of credit, plus a small amount of equity. That means I don’t expect any of these to grow very quickly (which is not a bad thing). Investors should be wary that the growth trajectory is limited in the near to medium term – well-funded incumbents like JellyFi have pulled back from being more active in this space, and likely for good reason.

??Political-Adjacent Media

It’s an election year. The Guardian estimates over $10 billion will be spent on ads during the 2023-2024 election cycle. This will be a boon for companies that cover politics-related content, niche social and media platforms, or where target voting audiences spend time online. Funding will flow to companies on both sides of the political aisle, but conservative-leaning media orgs will get the most dollars. I think of Trump’s Truth Social, which is planning to go public via its acquisition by Digital World Acquisition Corp, and now has an implied valuation of $4 billion. And some of the personality-led conservative media businesses we covered here are also attractive targets. Even platforms like The Cool Down, which covers climate-related topics, could have a good moment to rally more funds for expansion. For media brands that seek to attract advertiser dollars and get on a path to profitability, developing content strategies that contribute to the election coverage and engage audiences could be a boon for their business…as long as they keep their brand voice aligned with their fans.

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And when traditional investors won’t write the checks…

??Crowdfunding Will Fill (Some of) the Gap

Since institutional capital is harder to come by, businesses are reaching out to their fans. Last September sports podcast network Blue Wire raised $245k from its community fundraising round on WeFunder, and earlier in 2023 EffinFunny Productions raised over $150,000 for its Dungeons and Dragons-inspired video series on Kickstarter. While these funding amounts will pale in check sizes from prior years (Blue Wire had previously raised $12M), this additional runway could be enough to bridge the gap to profitability, or give enough cash runway to re-tap the capital markets as they improve in 2024. I don’t expect to see a ton more of this, but crowdfunding should be part of the conversation. We commend founders who have built up loyal fandoms who are willing to give up both their watch time and money to support their fave media companies. Lastly, we’re also seeing more revenue-based financing solutions emerge – SLR Digital Finance specializes in digital media and ad tech, and we hear great things from our clients. And Blue Wire just announced a similar revenue-financing solution from Decathlon Capital.

That wraps part 3. Reminder that part 2 last week focused on the state of media x creator economy M&A , and part 1 focused on the state of ad and talent agency M&A .

I'm the founder of RockWater Industries. We do financial and strategy advisory for media, agencies, and creator economy. From M&A and fundraising to consumer research and go-to-market planning.

DM me on LinkedIn or email me chris @ wearerockwater dot com