Axios Pro Rata: 😎 Social media's VC power

Plus: Chattin' with Betches | Saturday, April 30, 2022

Open in app View in browser   Presented By Latham & Watkins   Axios Pro Rata By Kia Kokalitcheva · Apr 30, 2022 Happy Saturday — I'm back in your inbox one last time before Dan returns for our regularly scheduled Monday programming 🙂. 🚨 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar. Today's newsletter is 1,201 words, a 4½-minute read.     1 big thing: TikTok stars close second VC fund Illustration: Sarah Grillo/Axios   Animal Capital, a venture firm that counts TikTok superstars Noah Beck, Josh Richards and Griffin Johnson among its partners, has raised over $35 million for its sophomore fund and inked a partnership with Betches Media. Why it matters: Celebrity involvement with venture firms isn't new, but Animal Capital is explicitly leaning into its famous partners' outsize online influence as a selling point. The big picture: The Gen Z-centered vehicle was founded by Marshall Sandman, who previously worked at Warner Media and Goldman Sachs, after his pandemic charity efforts got him in touch with Richards. He teamed up with Michael Gruen, co-founder of the agency that manages Richards and Johnson, and last year they raised $16.8 million for a first fund. (Gruen has since departed from Animal Capital.) From the start, Animal Capital has signed up a slew of celebrities, including Paris Hilton, Christina Aguilera and Nicholas Braun, among its limited partners. From Wall Street, it's got the likes of Anthony Scaramoochi and the Winklevoss brothers. And for its second fund, it's added influencers like ex-Olympic gymnast Shawn Johnson and her husband, ex-NFL player Andrew East. "They've become the definitive parent influencers… and it really pushed our audience age up," explains Sandman. Between the lines: Sandman is not coy about the fact that his partners' influence as professional social media stars — and their ability to get products in front of millions of eyeballs — is the firm's sales pitch to companies it backs. "I had to work very, very hard to get the founder [of plant-based Daring Foods] to agree that we were going to help them on the marketing side," says Sandman. Beck and Johnson ended up creating deeply discounted sponsored TikTok videos for the company, at a time when an early business can definitely benefit from saving millions in marketing spend, he adds. The intrigue: If Johnson and East represent Animal Capital dipping into the parent demographic, its partnership with Betches, best known for its decade-old satirical blog for women, serves as its expansion into the millennial female group, Sandman says. The media company, which has expanded over the years to podcasts and other ventures, has its own fervent fanbase and social media following. Founders Jordana Abraham, Aleen Dreksler and Samantha Sage are getting carry in Animal Capital's new fund, and will counsel some of its portfolio companies on marketing. Yes, but: Banking on young social media stars is not a strategy without its risks — namely, there's no guarantee they'll be famous forever, or even for much longer. "If Animal Capital has the same group of celebrities in every fund, then we haven't done what we set out to do," says Sandman. He's keenly aware that at some point over the coming two years, he'll be recruiting the next 18-year-old up-and-coming star to come on board. What we're watching: Other Gen Z social media stars like Jake Paul, the D'Amelio family and Mr. Beast have already jumped into venture investing. Who's next?     2. What they're saying: Betches Media Illustration: Shoshana Gordon/Axios   I chatted with Samantha Sage, one of Betches Media's co-founders, about the Animal Capital partnership. Here are excerpts from our conversation: On working with brands and advertisers for a decade: One particular lesson that we learned a little bit earlier and that sort of prepped into how media is positioned now: Authenticity is really the name of the game… You have a lot of creators marketing themselves as being authentic, but ultimately authenticity is not something on the creator to espouse, it's on the audience to determine. On Web3 and crypto: The NFT space is really interesting to us. Not necessarily just for the way that people are using it now, but the instrument of the NFT has so much potential in the future… [But] it's pretty rare — that I've seen at least — where it has a real impact for the owners of that NFT. On Gen Z vs. millennials: The Gen Z audience is much more focused on mental health and more politically active and less afraid of saying what they think… At the same time, because they're younger, there's sometimes less of a nuanced take… But there's a layer of authenticity that maybe was less encouraged among millennial women. I think Gen Z has almost sort of learned from that, 'wait, we don't need to do the prescribed path,' because they watched it not work out for millennials. On being bootstrapped entrepreneurs advising venture-backed startups: I think it just innately impacts my perspective on business in general — sometime I look at a business and I'm wondering 'how are they going to generate more money than they're spending?'. Obviously not every business is going to be profitable from Day 1, but are they hiring at the right level? Are they overhiring, and so on… We're not a product business so we never had to buy inventory… We also started when Facebook was around, and they were letting the algorithm do its thing… I know there are some businesses that cannot expand without money and there are some that can — and knowing the difference is just as important as knowing how much money to take.     3. Yes, but: When celeb promo goes wrong Illustration: Sarah Grillo/Axios   Celebrities promoting products and investments doesn't always go well — sometimes even turning into a regulatory and financial mess. The big picture: Most recently, that's been particularly true with celebs getting involved in the crypto and Web3 world, such as: Floyd Merriweather et al.: The professional boxer has gotten in trouble with the SEC, as well as sued by investors, over promoting fraudulent digital tokens. The founders of Centra, one token project that executed an illegal initial offering, were eventually convicted and sentenced to prison. Last year, Merriweather and Kim Kardashian were sued by investors over their promotion of EthereumMax. De'Aaron Fox: The Sacramento Kings star angered fans and investors earlier this year when his much publicized NFT project suddenly went offline and cut off communication, leaving more than $1.5 million unpaid to almost 100,000 investors. Fox later said he wasn't happy with the initial execution and wanted to delay the completion of the project until the NBA season was over so he could focus on it. Nevertheless, fans were left feeling scammed. Between the lines: It's not surprising to see a growing number of celebrities promote crypto on their social media, or show up in ads (cue Matt Damon), given the gobs of money these companies are making and spending on marketing. It's not just crypto: SPACs are another popular recent trend where celebrity involvement hasn't yielded success. 21 out of 33 SPACs tied to celebrities posted negative returns for 2021, Bloomberg reported in December. The bottom line: Celebrity endorsements can be a double-edged sword and highlight how success in one field doesn't automatically translate to another.     A message from Latham & Watkins Capitalization tables 101     What's in a capitalization table? Everything. Voting rights, economic rights, and the value of your shares if you accept new VC funding. Learn what a cap table should include and see pre and post-Financing examples at LathamDrive. Get started.     📚 Due Diligence Creative Juice is flowing with a $15 million Series A and a $50 million boost to its investment fund (TubeFilter) D'Amelio family launches VC fund 444 Capital to invest up to $25M in high-growth startups (TechCrunch) Here's Where Celebrities Invested Their Money This Year (dot.LA)     🧩 Trivia Celebrities have been jumping into venture investing for quite some time now. Question: Which is your favorite celebrity VC and why? (Not really trivia — just an opportunity to share with me your fave!)     🧮 Final Numbers Data: Axios Research; Chart: Baidi Wang/Axios     A message from Latham & Watkins Incorporating a startup? Here's where to start     Latham has helped hundreds of founders incorporate their businesses. Now, we've created a free tool that lets you do it yourself — LathamDrive's Document Generator. Keep moving forward — check out LathamDrive's Document Generator today.   🙏 Thanks for reading! 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