How can Creators become successful Angel Investors?

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Creators are Increasingly Branching into Startup Investing—and Li Wants to Help

There has been a growing trend of successful creators making a foray into startup investing. This week, we saw Jake Paul and entrepreneur Geoffrey Woo launch their own venture capital fund, which has been received with mixed reactions. Sway House, a collective of male TikTok creators, recently announced that they are raising a $15 million fund. And last week, Night Media, MrBeast’s management company, launched a $20 million venture fund, as well.

As an increasing number of successful creators try their hand at angel investing, Li’s Atelier Angels program wants to help them do it in an informed way. Through a two-month long cohort-based program, she plans to teach 30 creators how to angel invest, covering deal sourcing, picking, winning, and growing companies.

Why should creators start investing?

Creators are crucial to the success of UGC platforms. By creating content, they attract large consumer audiences, which help platforms build  network effects. However, even though creators drive so much value for social platforms, they don’t enjoy any financial upside in the underlying platform’s success.

Instead, their income is tied to their social relevance in-the-moment, through monetization models including ads, sponsorships, and direct user payments. One small update to the platform’s discovery algorithm could have significant financial consequences for creators. In other words, social relevance—and creators’ careers—is fragile. Angel investing reduces these risks by enabling creators to diversify their income streams. Creators can have a financial upside in the platforms they help to grow. 

Angel investing is much easier said than done.

Not every creator should angel invest. Most startups fail, so it’s inherently risky. Creators need to think about whether they would rather get guaranteed compensation upfront via sponsorships, or invest in a company that might potentially grant them exponential returns—or nothing at all. 

There are also financial prerequisites to investing in most startups. One has to become an accredited investor, which means having an income over $200,000 or a net worth of over $1 million. Some startups like Republic are making it possible for non-accredited individuals to angel invest, but for now, opportunities are limited.

However, even if a creator meets the financial requirements, investing can be tricky. 

The most common mistake is to view companies from purely a consumer perspective

Creators who are just starting out as investors tend to look at companies from an overly-consumer perspective, and not with an investor lens.  This means they invest mostly in things they like and use themselves. To be sure, this can be a helpful perspective, but will tend to tilt a portfolio towards D2C products and other trendy consumer products rather than creating a portfolio of promising businesses. As Li says, “Just because you like staying in the hotel doesn’t mean you want to own it.”

By contrast, professional investors develop decision-making frameworks that give them a better chance to understand which companies will deliver long-term value. They peek under the hood of a company to truly understand the business model, product, founding team, competitive landscape, and founder-market fit. They ask themselves questions like: is this founder obsessed with the market? Do they have a personal story and connection to the company that will resonate? Is their personality well-suited to the space?

All of these are important questions to ask, and they may not be apparent to a creator who is just starting their investment journey.

But asking questions isn’t enough: one also needs to be able to interpret the answers. And in order to do that, the most important thing is putting in the reps to calibrate one’s judgment.

You have to know what good looks like

When Li started investing, she got excited about almost every team she met. But it was only after seeing hundreds of  deals over the course of many months that she started to calibrate which founders were truly extraordinary.

Before making the leap into investing, creators should ask themselves whether they’re willing to dedicate the time required to hone their picking ability. If that’s not realistic, they should find experienced partners and mentors that they can lean on.

(Side note: As part of Li’s course, the cohort will take founder pitches together and discuss the deals afterwards. This kind of hands-on practice is the most tangible way to learn how to invest.)

What founders should consider before accepting a check from a creator

As a founder, it seems compelling to accept an investment from a creator. They bring with them their phenomenal distribution power that can help kickstart the distribution of consumer products on day one. However, before accepting a check from a creator, there are three key factors that founders need to consider: 

First, the extent to which a creator-investor can actively promote your product. There should be a strong tie between the creator’s audience and your company’s target customer. Without that alignment, the distribution a creator can bring isn’t really worth much. Additionally, A creator’s time and effort may be spread too thin across multiple investments, which might make it hard for them to post about it often enough to drive results. Creators may also have sponsored posts they do for brands, and want to keep the ratio of sponsored posts to regular posts within certain bounds. When choosing between long-term equity value in your startup and short-term cash from a sponsor, some creators might often choose the latter.

Second, founders should do due diligence to determine who they want on their cap tables. Creators lead a highly publicized life and their social standing is built on a precarious foundation. Founders should do their due diligence to ensure that the creators they have on their cap table truly reflect the company’s values. Founders need to minimize the risks associated with the inherent fragility of social relevance.