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- Creators are making big bets on launching their own companies, taking equity over royalties or marketing fees.A sale of one of these brands can lead to a massive payday — but it can also be risky.Here's why most creators should skip founder mode and go for a mix of equity and a cut of sales.
George Clooney and Casamigos, Kylie Jenner and Kylie Cosmetics, Jay-Z and Tidal.
It's easy to see why celebrities and influencers find brand building alluring. In the most successful cases, it ends with a celebratory exit, a nine-figure check, and, for some, the title of billionaire.
But aspiring entrepreneurs, beware: The founder mindset is risky, and many creators walk away with almost nothing.
"Ninety-seven percent of creators and celebrities should not be launching their own brands," Scott Van den Berg, the founder of HotStart VC, which invests in influencer brands, told Business Insider. "They don't have a strong enough audience to actually create a billion-dollar company."
Despite this, many creators — including MrBeast and Emma Chamberlain — have chosen to start their own ventures in recent years. A typical formula goes like this: Launch a brand, use your following to help it blow up, and then hope to cash in on your equity when the company is sold or goes public.
The desire to own something, rather than promote other brands, stems from the "creator anxiety" of relying too heavily on advertising and brand deals to make money, said Eric Bogard, CEO of talent-firm UnderCurrent Management.
However, betting on yourself presents its own drawbacks. Take the example of Logan Paul and KSI, two big-name YouTubers who launched Prime Hydration three years ago. The brand skyrocketed to success in its first year, but has since floundered in some markets — and may provide a cautionary tale.
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In looking back on our reporting on failed influencer businesses and conversations with industry insiders, a clear theme emerged: It's often better to skip founder mode. Savvy influencers can negotiate for short-term revenue via royalties or marketing commissions, and worry less about equity.
"The math you want to always be doing is, is this equity potentially worth 10 times more than what I would charge to post about it?" Bogard said.
Bogard's advice is to opt for a healthy mix of equity and royalties.
Take his client Landon Bridges, a food influencer and comedian who launched a hot sauce brand called Lava Sauce in March.
While Bridges had some equity, his pay was more focused on a royalty for each bottle sold, Bogard said, who helped launch the hot sauce brand via UnderCurrent's product studio, Viral Goods.
So when Bridges said in April that he'd sold 600 bottles in 48 hours, propelling the product to the top 10 hot sauces on Amazon, he wasn't just celebrating a sales milestone — he was celebrating a payday.
A Prime cautionary tale
The rollout of beverage brand Prime presents a clear case for why creators could be better off opting for some royalties over just equity.
The brand had a meteoric rise. In 2023, its first full year in operation, it generated $1.2 billion in sales, according to court documents. Grocery stores and bodegas couldn't keep it in stock, and a black market formed on playgrounds, with tweens reselling the colorful bottles at a profit.
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If Paul and KSI had a deal like Bridges' one, they could have cashed in on the upside via 2023 royalties. Even a straight endorsement deal with some sponsored videos could have been a sizable payday.
But the creators went the founder route, opting for equity instead of royalties, two people with direct knowledge told Business Insider. KSI and his management team, Proper Loud, owned 25% of the company, one of them said.
It's possible that the cofounders were able to cash out a portion of their equity via a private sale, as some startup employees do with their stock options in private markets.
KSI, Paul, and representatives for Prime did not respond to requests for comment.
The strategy they employed had a huge potential payout. Owning a significant stake in Prime could pay off if the company went public or was acquired. But waiting for a financial outcome like that could take years, and it is certainly not a guarantee in the highly competitive beverage industry.
Meanwhile, Prime's initial momentum has fallen off.
While total revenues for 2024 are not public, Prime sales in the UK — a key market that, in 2023, represented more than 10% of the company's total — fell about 70% from £112 million (about $149 million) to £33 million (roughly $44 million), according to June filings.
Consumer interest in its brand has moderated, the company wrote. Last year, Prime was hit with a lawsuit from one of its suppliers that alleged sales were "falling well below" expectations due, in part, to a series of lawsuits and "fading social media buzz."
Once a brand loses its heat, the downward spiral often continues, as the influencers become less motivated to promote the product, Van den Berg said.
"Other things will come by that make them a lot more money directly, and then slowly these businesses die," Van den Berg said.
The celebrity brand graveyard is littered with once-promising companies that have gone south, from Arielle Charnas' Something Navy to Addison Rae's Item Beauty.
Kicking it back to the old school
On the other end of the spectrum are sponsorship deals, which are the foundation of the influencer industry. In these deals, an influencer posts about a brand on Instagram or TikTok in exchange for a fee. They usually don't get any ownership in return.
Eighty-four percent of marketers said they work with creators on sponsored content compared to 16% for product collaborations, according to a July survey from the influencer-marketing firm Linqia.
The tactic isn't as sexy as launching a product, but it's reliably propped up the industry for years.
Then there's the middle path, which predates the age of the influencer. It's what made some of the most famous celebrity spokespeople, from Michael Jordan to George Foreman, so rich.
Groundbreaking for moving away from the low-risk, fixed-reward endorsement model — appear in a commercial, earn a check — these stars earned a cut of the sales they drove, whether it was a pair of Nike sneakers or an electric grill.
For many creators, a combination of these models may be the best bet.
"You want your partnerships that are paying you fees, and those keep the lights on," Bogard said. But if you're in a comfortable position with brand partnerships and other revenue, then you have the luxury to pursue being an entrepreneur and "getting some equity in a company you really believe in," he said.
Look at Alix Earle's recent deal with soda brand Poppi. The TikTok star promoted the brand — posting content, shooting a commercial, and making her own flavor — in exchange for a fee and equity. That equity ended up being valuable when the brand was sold to Pepsi for almost $2 billion. But even if there hadn't been a deal, she would have earned something.
