Winners and Losers of the Next Phase of the Creator Economy: M&A Expert

Influencers, or people who create social content as a profession, don’t represent a big opportunity to thrive in the creator economy, according to John Lambros, co-head of the U.S. technology practice at M&A advisory firm Houlihan Lokey.

They’ll never be great customers and can be fickle. Instead, look at companies that sell content creation tools that serve a broader audience, Lambros told Business Insider.

“We think this will impact everything from an influencer to a Fortune 100 company, and there’s a whole bunch of companies and platforms in between that will really help,” Lambros said.

Houlihan Lokey recently released a report on the creator tech outlook, which broadly defined the creator ecosystem. Essentially, anyone who creates content, whether they work for a company or independently, is a participant. BI spoke with Lambros about the state of the creator economy and the company’s recent report on the industry.

Here are some of the most important takeaways from Lambros’ statement:

There will be no more successful single-function startups in the creator economy. You have to offer more than one service.
Enterprises are important customers for these startups, which need to think bigger than just individual influencers.
Exit opportunities, such as mergers and acquisitions, remain relatively rare in the emerging industry. However, companies that can help streamline content creation, such as Avid or Squarespace, are well-positioned for exits.

Let’s take a closer look at each of these ideas.

One-trick ponies don’t work in the creator economy

Some early maker economy startups that started with a single innovation, such as Cameo and Spring, have struggled to grow.

To survive, companies need to develop a broad set of features to support content creators, Lambros said.

“You have to be in an industry that offers a variety of services,” Lambros said.

The exception to this rule are the few companies that are the best of everything in what they do, Lambros added. Typically, these companies were founded a while ago — like Patreon or Linktree — and aren’t common in the next batch of seed-stage startups.

Still, startups that are de facto winners in their fields have had to add additional services and products to thrive. Patreon, for example, has expanded into social features and is doubling down on its podcasting tools this year.

In his review of tech for creators, Houlihan Lokey highlighted several companies that have grown by expanding their feature sets, including course platform Mighty Networks and newsletter tool Beehiiv.

The Creator Economy Must Break Through B2B

Businesses shouldn’t rely on influencers to succeed. Businesses — including small and medium-sized businesses — will be key customers for many of the startup economy builders, Lambros said.

Unlike many independent creators, these companies have significant budgets for services that help them create content and analyze its performance on platforms like TikTok and Instagram.

“Big brands are already seeing the light,” Lambros said. “There are some really cool companies that are combining content creation with analytics and performance metrics, using information about what people are actually watching.”

Mergers and acquisitions and other exit options remain difficult

Exit opportunities, such as mergers and acquisitions or public offerings, are difficult for aspiring creators, given that the industry is still in its early stages. However, companies that offer creation toolkits that can be used by a wide range of customers, such as Avid and Squarespace, are acquisition targets.

In May, private equity firm Permira announced it would acquire and privatize Squarespace for approximately $6.9 billion.

Public companies operating in the creator economy sector include Shopify, Eventbrite, Roblox, and Reddit.

However, smaller companies may have difficulty finding suitable buyers.

“A lot of companies in this market don’t operate at scale,” Lambros said. “That’s ultimately the biggest challenge.”

He added that private equity firms, which are an increasingly common buyer in the startup sector, still have a lot to learn about the creator economy.

“When private equity initially invested broadly in this category, in some cases they tried to turn a subscription media business or a licensing business into a SaaS business, and that met varying degrees of success and failure,” Lambros said. Those investing in this space need to “dig deep to really understand what’s going on to become more comfortable with alternative business models,” he added.

And yes, TikTok, YouTube, and Meta will continue to get a lot of industry dollars. But there’s a growing need for startups that can help users navigate the changing media landscape built around digital content.

“It’s always the content, not the distribution, that has the most value,” Lambros said. “All the major platforms and those around the world are significant beneficiaries because they’re the organizational force, so they’re going to get a disproportionate amount of monetization. But nobody is going to own it.”