Why This VC Is Investing $60M Into Creator Entrepreneurs | Megan Lightcap, Slow Ventures

0:00Megan Lightcap:They have the upside potential of like a standard venture investment because they're at the end of the day, they're building companies, right? But they have greater downside protection given oftentimes you can just monetize from media and content or even like launch an agency around whatever their vertical is. So it's kind of this, you know, I think if you if you plot these investments on a graph, you're likely to have fewer zeros. And you do in theory still have the same upside potential as like a standard venture fund. So it's sort of like a better risk reward from my perspective. but obviously we have yet to see the results of that.

0:32Welcome to the Hot Start VC podcast, the show where we break down how celebrities and creators build billion-dollar brands. Today, I'm joined by Megan Lightgap, partner at Slow Ventures, where she leads a$60 million fund investing directly into creator holding companies. In this episode, we break down what makes a creator investable, how Megan performs due diligence on creators, how their investment structure works, and we dive into some of their recent investments. So without further ado, let's get into the conversation. Megan, thank you so much for coming on.

1:01Megan Lightcap:Yeah, thanks for having me. So I'm very curious. Slow Ventures obviously has been around for over a decade, and they're known as this early stage generalist fund that has made some very exciting investments in companies like Slack, FEMO, Airtable, Robinhood, often is also one of the first investors. So how did they all end up actually becoming interested in investing in creators? And also, how did you end up joining the team to make it all happen? Yeah, I think, you know, that's exactly right. You know, being early stage investors, our job really is to match early stage capital with early stage founders.

1:35Megan Lightcap:And I think the idea around creators was kind of this recognition that there will be a class of creators that are founders in the same way that our seed and core fund founders are entrepreneurial and building businesses. is creators just happen to be going about building companies a slightly different way, right? They almost like invert the pattern of business building where instead of building product first and then finding customers or actually building, you know, customers and community first and launching really right fit products and services for their audiences on top of these like deeply, deeply committed communities, which is super cool.

2:07Megan Lightcap:And, you know, I think we often have to think in decade timelines and just kind of saw, right, The first version of it was like Mr. Beast and Feastables and I see Prime on yourself and Logan Paul and Prime. And we kind of played that forward and we were like, I think the same entrepreneurial motion is going to happen in the super long tail where you can be the go-to person in woodworking, right? And you build deep loyalty and community around that niche and kind of become the voice of authority and then launch a company and products to sell to that audience. And how I arrived, I kind of came at it a slightly different version.

2:37Megan Lightcap:I feel like I tell this story a lot. So forgive me if anyone has heard this. But I come from more of the traditional kind of consumer world, did some early stage consumer investing and very traditional kind of brands and apparel and accessories, restaurants and retail, and then also spent some time on the operating side. And I think my interest in this or my like aha moment was just the level of influence that these creators had over consumer mind and wallet share. Like they were going to be like unbelievable business builders if done right. And it seemed like a very cool opportunity to go back then.

3:07Megan Lightcap:I had no experience in like Hollywood, digital media, talent, like the whole A &R world. And I think what the Slow team and I really came to is like, that's actually not what we're doing. We're really looking for this kind of founder creator, if that makes sense. I really applaud the whole Slow team for this because they obviously have been quite successful as early States investors. And they still actually looked at something completely new, something that they're not familiar with at all. And kind of made the jump into the deep instead of just kind of replicating what they were already doing really, really well.

3:38Megan Lightcap:Yeah. And I think, you know, our, we tend to try and think about, even if it sounds crazy on the surface, like, and the term in the venture world, which is gets overused, but like from a first principles basis of like, why is something done the way it's done? Right. And I think when you look at the creator world at the time where we were thinking about this, there was a lot of investment happening and kind of pouring into the world, but in two forms, right? One was you either fund like the upstarts, right. And, and startups kind of powering the creator economy. So the Lincoln bio companies, and there was like a ton of money incinerated in that era.

4:11Megan Lightcap:Some companies kind of came out okay and did super well. And then the other version was you basically go and back one specific product or idea. So like you would just put money into Prime or just put money into Chamberlain. Like the issue with that is that whatever the creator focuses on is ultimately going to be the thing that's successful. So you're kind of taking two risks. One is that the creator continues to be a creator. And then two, that the creator continues to focus on the project that you've backed. And so there was just this natural like conflict of interest. And we were like, what is actually the valuable thing here that we want to like be in business with?

4:46Megan Lightcap:And it's the creator in the community that they've built. And so we kind of came up with a slightly different structure funding the holding companies, which we can obviously get into, but you know, it was definitely like a third door that we felt no one was really experimenting with. Yeah. I will ask a follow-up question about that holding investing versus like the underlying companies. But before that, we'd love to talk a little bit more practical about how you guys invest. So you recently launched a$60 million fund to invest directly into creators. So what does the typical investment look like?

5:14What do you guys look for in a specific creator?

5:16Megan Lightcap:Yep. I've written about this a lot. So if people want to dig in further, they can look at my newsletter. But we basically look for kind of four broad criteria. One is the person themselves. Like, do they think about themselves like a founder as much as they do a creator? Like, do they have that entrepreneurial drive? Are they thinking really big? Like, do they have this ambition to go build an empire? Like there's a lot of stuff we actually borrow from seed investing in terms of like, how do you back a good founder? And like, do they have the level of charisma to bring along audience and team members and shareholders and other stakeholders in their business, which is like kind of a crazy thing, right?

5:50Megan Lightcap:And maybe like probably not going to succeed if, you know, based on statistics. And then are they just like so deeply obsessed with the problem? Like there's a bunch of factors that we look for in the actual person themselves. So that's kind of bucket number one, if you will. Number two is the community, right? Like we ask ourselves a question, you know, why, well, two things, why is the audience attaching to this person? Like what is the reason why they're watching their least viewed video or doing a deep dive on some product that they mentioned, or are they just like laugh alongside them when they laugh and they post it, right?

6:20Megan Lightcap:Like they're like, what is that about? And then two is like, who are they? Right? Like and we don't really care necessarily about, you know, demographic data, but we really want to understand the psychographics, which is, which is related to point one, but we really want to understand the value set of these people, right? Like what do they care about? What do they prioritize? And by the way, there can be multiple different demographics within a single psychographic. And so that's something we try and deeply understand. And then two, we look for this like cult factor almost of like, we've met this one creator who we love, you know, and she gave us some very funny stat, which is like, or some data point, which is like, you know, people were dressing up as her for Halloween.

6:56Megan Lightcap:And we were like, that's like, that's like a total like cult signal. And like, we love that, right? Like, has there been or, you know, what is their ability to convert people from online to offline? And better yet, are they paying for it, right? Like, there's all these things you can start to unpack to kind of measure how deep is the community. Third is the category, right? Like how interesting and, you know, commercializable, right, is the category? How competitive is it? Are there other companies in the space that it's going to make it really hard to win, right? You know, what are the dynamics that, or like, what is the insight that the creator has in their category where you're like, this is probably a good idea, like even with or without distribution, right?

7:33Megan Lightcap:Like the distribution just helps. And then fourth is kind of very standardly, like, you know, evaluating the business that if they, you know, they have a business today and looking at, you know, quality of their earnings and, and, you know, what their, what the makeup of their profitability is, right? Like very standard stuff, but that's like high level how we think about, you know, or what we look for. And then in terms of structure, yeah, it's really kind of in this holding company model where, you know, we'll invest, call it one to three million into the holdco, which very broadly, right, represents their creator career.

8:02Megan Lightcap:So anything that they launch their audience or promote to them, or like, I don't want to use the word extract, but like extract value from their community, in theory, should go into the holding company. And we're passive investors. So, you know, there's no board, we're non-directive our stakes are usually like you know call it 10 to 15 ish percent we really just want to be you know a consigliary for them when when they need us um and interestingly like this holding company structure is becoming a lot more popular i think since beast has and jimmy has become a lot more open about you know beast industries and all the different sub companies there's other big big creators too that are now talking more about it so yeah we think that we're only gonna hopefully see more of that too yeah and i think it also to a certain extent definitely makes sense for a lot of creators like you already referred to Mr.

8:46Beast and before that you also talked about Prime with Logan Paul but actually if you look at their business history Mr. Beast had Mr. Beast Burger, Logan Paul at Liquid Marketplace, he had the CryptoSue, other companies that actually went under before he actually had his success so like if we we typically invest in the underlying companies if we would have invested in Beast Burger versus Feastables and we now actually, we were first investing in Beast Burger and a year later he launches Feastables, we would not necessarily be mad, but we would be like, hey, normally you would use your ad space to actually promote Beast Burger.

9:21And now all of a sudden you're using that prime real estate to promote something completely else.

9:25Megan Lightcap:Yeah, and I think it gets down to like the incentives of the creators, right? Creators have so many opportunities and so many ideas and things that they could go launch. And like, by the way, their audience just gives them way more permission to try stuff and fail and then try again they just i think relative to a a kind of no-name founder they just have a lot more they have more shots on goal and i think they have like more latitude to go pursue that and iterate and experiment and fail and try again and so as an investor like you really want to be covered right on that and and especially when you're investing so early and kind of the stage in which we do you don't know the thing that's going to work right you don't know if it's going to be beast burger or feastables or ViewStats or Step, right?

10:08Megan Lightcap:He just acquired the FinTech company. And so at the end of the day, you just want to empower and enable the creator to pursue whatever the highest ROI thing is. And you kind of want to get out of the way. Yeah, no, completely agree. I just think it's very interesting to see what's happening. But I'm also wondering, like given that you guys like to invest in the holding company, I think, and this is just an assumption, but I think that means that you guys are also excluded from a lot of investment opportunities just because the valuation is too high. Like if you look at Mr. Beast, he recently raised at a$5 billion valuation.

10:39But let's say we look at lower tiers, lower tier creators. If they have 10 million followers or 10 million subscribers on YouTube, probably their valuation is already into the multi eight figures, close to nine figures. Meaning you can't obtain that 10 to 15 % or not really.

10:56Megan Lightcap:Not as like I would be careful equating follower count to valuation. Of course. Right. Like there's a lot of people that have a lot of followers, but can't convert a single thing. And then vice versa. There's a lot of people that have, you know, a hundred thousand followers on Instagram. And you'd be surprised by the numbers that they're doing in revenue. Not from advertisers, by the way, from selling products. So the short answer is like, yes. Right. Like with any strategy, like you're going to have your buy box and like there's going to be things that fall outside of your buy box. And there's going to be the things that fall.

11:23Megan Lightcap:You just have to be like unbelievably focused to like the cohort of people that you actually want to serve. and you actually want to support. So 100%, we see things all the time that are too big or quite frankly, even more commonly, like too media focused, right? Like they're not actually building a product or service or thing or are too general, right? Or not niche enough. There's a whole bunch of reasons why we would be excluded from things. To be honest, it's more frequently the latter than it is kind of people being too expensive because you have to remember, this is still so new, right? Like this is not an efficient marketplace.

11:58Megan Lightcap:This is not, you know, there's not that many huge, huge creators. And I think there's a lot more in the longer tail that kind of fit our size and scope. Yeah. And talking about kind of the stage of the creator, like, do they already need to have a business or can it also be that they want to launch a business? They have the plan fully ready, or can it also be that they have a desire to become an entrepreneur, but they still kind of figuring out what direction they want to go to? Like, can you maybe elaborate on that? Yeah, good question. So I think the latter of like they have a desire, but they don't necessarily know what they want to go launch yet is probably a click too early for us.

12:33Megan Lightcap:I think we really want to invest when there's either a business already up and running or they're very actively working on the business plan and they're going to launch it with or without us, right? Like it just, you know, they're committed to the thing. They have a team in place, right? Like they're off to the races. We also meet a lot of creators that are quite frankly in that bucket of like they're interested in being an entrepreneur. They know that, you know, media is not the end and kind of want it to be a means to an end and content is really the growth engine, but they're not yet sure what the thing is or what the idea is.

13:04Megan Lightcap:And so those are people that I think are really interesting. And, you know, we have a whole bucket of like, we should track these people and life is long. And some of the best partnerships come out of, you know, meeting these people early. And then we push them, we help their thinking a little, and then they'll come back, you know, six months, a year later. And they're like, hey, guess what? like had our conversation went back to to the coal mines and figured out like what the interesting thing is and hey here's this idea what do you think right so there's a lot of that too which is pretty cool yeah no i love that and are there specific platforms that you guys are most interested in that the creator has built his or her audience like youtube versus tiktok youtube is is a big one right like i think a lot of roads lead back to youtube just because it's where the best monetization is i think a lot of more serious creators are there given the barrier to make youtube content is just higher than let's say TikTok.

13:50Megan Lightcap:But I think increasingly, I wanna be careful not to like, say we only invest in YouTube because I think it deeply matters the category or vertical emotional. Like take for example, parenting, right? Busy moms are not necessarily on YouTube watching long form videos. They're scrolling Instagram at night when they're feeding their baby. So it really depends on the category. I also think like Substack is really interesting. There's just like a different buying motion and follow motion. Of all of the platforms, I'd say TikTok is probably the least interesting. The stickiness of the fans there just look a little bit different.

14:22Megan Lightcap:That's both because of, you know, the way the outlet is made, but also just the barriers to making content, right? So yeah, I'd say YouTube and then, you know, depending on the category, Instagram, Substack, sometimes Twitter, which is interesting. So yeah. Yeah, one of our goals at Hot Start VC this year is actually to invest in a creator that has this or her main audience on LinkedIn or on Substack. Or yeah, LinkedIn's another one, totally. It's funny that you brought up Substack. So how is the investment typically used? Is it always used to kind of pursue that launch of the company or acceleration of the company?

14:56Let's say you guys are investing$2 million. Can it also be that$1 million actually is immediately funneled to the JV? And then the other million dollars is used kind of to run the operations and grow the content business or whatsoever.

15:09Megan Lightcap:Yeah, I mean, I think that's exactly right. It more or less falls in like three buckets every single time. One is always like, okay, I have this business idea or like I have this company. I want to go, you know, put more gas on the fire there. The other is realizing that like content and media is the growth engine for that thing. And so they'll use some of the dollars to uplevel content and production, hire an editor, open a, you know, build a podcast studio, whatever it is. And then to our conversation earlier, a lot of these creators have many ideas. And so I think there's this, oftentimes they'll, a small amount of money, but like kind of use it for like miscellaneous and then some like ideation that that may they may not touch today but they'll touch in six months a year 18 months just because they do have so much opportunity available to them yeah no that makes a lot of sense i'm curious how does the creator fund kind of compare to a more traditional front a fund also from like a portfolio point of view like construction wise like typical early stage venture fund invest in 25 to 30 companies reserve some capital for follow-ons.

16:09Is that the same for you guys?

16:11Megan Lightcap:Pretty much. Yeah. And even if you think about like the fund is structured like a venture fund. So 10-year fund with two two-year extensions, like very standard, very similar portfolio construction of like, we have X number of dollars or reserve for these holdco investments. We have Y dollars reserved for follow-on company on investments, which by the way, don't go into the holding company, go into one of the different sub companies that is actually starting to work. And then if you think about from a risk reward perspective, I happen to think one of the more interesting properties of this fund, and this may bore your audience, depending on who's listening, but like, you know, if you think about it, they have the upside potential of like a standard venture investment because they're, at the end of the day, they're building companies, right?

16:49Megan Lightcap:But they have greater downside protection given oftentimes you can just monetize from media and content, or even like launch an agency around whatever their vertical is. So it's kind of this, you know, I think if you, if you plot these investments on, on a graph, you're likely to have fewer zeros. And you do, in theory, still have the same upside potential as like a standard venture fund. So it's sort of like a better risk reward from my perspective, but obviously we have yet to see the results of that. So we can talk about it in a decade. Yeah, no, I love that. Let's jump on the next call, like in 10 years time, and we can kind of reflect on this.

17:22Yeah, yeah, yeah. So how do you guys perform due diligence on these great investments versus like the more traditional early stage investments? Like what is similar and what is different? You already touched the one, like the creator community, and category and you talked about like quite similar because you're betting on the founder and that's also what you do in early stage investing so could you maybe elaborate on

17:42Megan Lightcap:what is different and what is what is the same good question so the biggest key differentiator is like we actually call people from their community and and we want to understand you know we'll get on the phone with their super fans right and we'll get on the phone or we'll get on the phone with like fans of the vertical but maybe not fans of them and be like why do you follow this category online but not this person or you know for their super fans will be like you know we'll just ask what we want to learn we want to understand like what makes them so compelling and really trying to trying to see what else they consume where else they shop who are they right and again like kind of getting at these like psychographic questions so that is one of the more fun parts of the job which is like doing a lot of reference calls both both people that you know they introduce us to but then other people that we just kind of find in the industry that they, that they don't and just do some back channeling.

18:29Yeah. Very interesting. So you're just talking to like a lots of consumer doing consumer research, basically.

18:34Megan Lightcap:Basically. Yeah, basically. Um, and then, then the other kind of diligence stuff you mentioned, it's, it's again, not all that different from kind of seed, seed stage diligence. Yeah. And how are you guys thinking about exiting your positions? Because like, I haven't seen a lot of creators like being acquired or holding companies or actually them IPOing. So how are you guys thinking about like actually returning the capital? Yeah. So it's funny. I actually wrote about this like a couple of weeks ago because I think for a long time and really like the path of least resistance around exits is like, okay, you know, one of the sub companies exits, right?

19:08Megan Lightcap:Like Feastables sells to Mondelez or, you know, so-and-so sells to a strategic or a private equity group. But like there's some exit at the subcompany level. That is the most likely path. And I think still the most likely path that we've kind of modeled or at least like talk to LPs about or fund investors about. But I do, I am very like intellectually curious about like the exit of the holdco. You know, Mr. Beast, his team has been, you know, pretty public, at least like more or less between the lines about what would an IPO look like at the beast industries level, right? And even in the past, we've seen Martha Stewart Omnimedia IPO, right?

19:43Megan Lightcap:We had this like weird deal with Kabi Lame, which I think was like more of a sideshow than anything, but like does get the wheels turning on like, could you see some sort of exit at the like holdco level or kind of the basket level. So what I'd say is like, we'll see. I mean, so much of this and a lot of the conversation with LPs was like, guys, like, we're still figuring it out, right? Like this industry and this world is so nascent. And I think people are really still in the early innings of like capital flows and value creation and capture and like who the winners are and what exits look like.