More creators are starting businesses, scrambling for investors

Mumbai: Venture capitalists are hesitant to back influencer-led businesses, deeming them riskier than other startups. VCs see multiple challenges in these businesses in terms of operational risks, fundamentals based on unpredictable trends, and lower audience retention. 

Creators with businesses, on the other hand, are scrambling to become competitive in the market, seeking investments to scale their ventures. Creator-turned-entrepreneurs are itching to leverage their popularity and diversify their earnings to future-proof their careers, ensuring steady income even when their online influence wanes.

Mentioning their concerns about ventures by social media influencers, venture capitalists remark it is much more difficult for these businesses to ramp up despite the headstart they have due to the popularity of the founder.

“While creator-led businesses hold immense potential, they also present unique challenges that can make them appear riskier than standard startups,” said Pranav Pai, founding partner of early-stage investment firm 3one4 Capital. Pai explained that influencers' businesses rely on using viral trends to sustain the draw of their products, which however makes retention unpredictable as it does not work with audiences that tend to move on from today's trend quickly. This makes repeat engagement and monetization with the customers a major challenge for them.

Building a brand

Pai also points out another concern—the operating challenges of launching a brand. "Building a sustainable brand requires more than just a large following—it demands a clear product vision, resilient operating expertise, and a deep understanding of the target market. Historically, many creators globally have struggled to transition from influencer to entrepreneur, which can make it difficult for creators today to secure funding," he emphasized.

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Investors have a holistic outlook on influencers as founders, thus focusing more on the vision and product than their promise and ability to leverage their popularity. VCs are sceptical about influencers being able to convert their massive social media following into loyal consumers.

"Influencer brands follow the same fundamental principles as any other brand. As such, VCs evaluate the team's ability to effectively navigate marketing, distribution, and product development in order to leverage the influencer's own brand and reach. It is essential to arrive at a product that aligns well with the influencer's persona and audience," said Apurva Dixit, assistant vice president at Blume Ventures.

More businesses from influencers?

That said, the market is seeing growth on the creator front, and the industry expects more businesses from influencers in the coming year, set up more professionally.

"Influencer-led businesses are experiencing tremendous growth as creators take a significant leap from personal brands to full-fledged enterprises," said Pranav Panpalia, founder of Opraahfx, a talent management agency. "Going forward, we expect more of these ventures to be co-piloted by professional partner CEOs working alongside creators, blending creative vision with strategic management expertise. This powerful synergy will not only sustain these brands but also propel them to new heights, ensuring lasting relevance and impact," he added.

For instance, fitness creator Gaurav Taneja, aka Flying Beast, leveraged his popularity and expertize in fitness and nutrition to start two fitness brands, Rosier Foods, with its flagship product, traditionally produced A2 Ghee, and Beastlife, a premium sports nutrition and bodybuilding supplements company. He launched Rosier Foods in April and Beast Life in May.

Also read: Customers vs influencers: User content is changing brands' marketing mix

"Creators have a limited span of internet popularity and relevance run by algorithms. Realizing that this would not last was scary. I decided it's a much safer bet to invest in a brand using my expertise in health and supplements to secure a future income," Taneja told Mint.

He added that because they do not have to spend a lot on marketing, as they strategized, they are not burning money and have ended up running a cash-positive business. "Unlike most other startups in this niche, marketing is not our biggest expenditure. We are working on the quality of products, scaling production to meet the supply and diversifying distribution channel," he added. He further said that they would be open to funding in future once they decide to go offline and would need to be cash-heavy. Currently, Beastlife expects to generate an annual recurring revenue (ARR) of ₹50 crore with 10% Ebitda, and Rosier is also seen generating the same ARR with a 15% Ebitda. 

On the other hand, Shlok Srivastava, popular as Techburner, who already has a successful apparel brand, Overlays Clothing, diversified his tech brand Layers, which earlier only sold phone skins, to roll out a smartwatch—Anarc. He invested $1 million to produce a "fashionable" and "functional" smartwatch priced at ₹7,999. However, the tech creator told Mint that within the first two weeks, the brand closed sales of ₹3.5 crore.

Building future-proof brands

Srivastava is also open to funding but points out that VCs are not keen on funding creators turned entrepreneurs, assuming that they would not be able to balance content creation with their venture. However, that is not the case with his brand, which is envisioning becoming a full-fledged tech brand in future. He also points out that having a huge following and being known to be a tech expert, the pressure is higher on him to deliver a quality tech product at an economical price.

"It has to be understood that creator-led businesses are nothing but another product business. Being a creator, the founder can only amplify the reach and shorten the process of acquiring customers. Beyond that, the product has to shine by being better than other products available in the market. The product is the core of the business, not the creator," stresses Srivastava.

This is an important aspect of the business that creators need to highlight when they target funding, suggest market experts. VCs will be assessing them as regular businesses and their products from an investment point of view rather than looking at them through the prism of their social media popularity.

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"Creators, with their massive social media presence, have an added advantage and headstart when starting a brand. However, to sustain that growth, they have to set up strong channels of distribution and products because investors ultimately view them as regular businesses seeking a return on their investments," Amiya Swarup, partner, EY, said.

Several agencies like House of X by podcaster Raj Shamani and Superclan, which has helped creators like Vishnu Kaushal build his brand—Peach—have also popped up to make the process of building brands easier for creators, which will boost the growth of creator-led businesses.