VidIQ Buys Creator Now + Our Valuation Estimate

February 9, 2024 by  Chris Erwin

RockWater Roundup

RockWater analysis to make you a better investor and operator. Today we discuss VidIQ’s purchase of Creator Now, why investors took the deal VS going for an outsized return, and my valuation estimate.

BTW our next LA meetup for creator economy execs will be April 2. Sign up here if you want to join us.


VidIQ Buys Creator Now + Our Valuation Estimate

 

VidIQ bought Creator Now for all stock.

I break down CN’s user growth, why investors took this deal VS trying to get a future outsized return, and I then estimate valuation based on their two revenue lines.

Let’s start with the key details…

 

🎯TARGET: Creator Now

  • Online education startup for aspiring creators

  • Courses taught by prominent creators like Yes Theory, Zach King, Ryan Trahan

  • Founded 2021 by Zack Honarvar, Kate Ward, Erick Decker (aka YouTuber Airrack)

  • $2.8M in funding

  • Backers incl Upfront Ventures, Casey Neistat, Colin & Samir, Jack Conte

  • 2023 revenue of $1M

  • 9 employees + 3 cofounders

 

💰BUYER: VidIQ

  • Analytics provider to help YouTubers grow audience

  • Has AI tools like title / thumbnail / tag / description generators

  • Founded 2011 by Rob Sandie and Todd Troxell

  • $6M in funding by Mark Cuban, others

  • Bought Video Creators coaching biz in 2022

  • “Supports 3M+ creators globally”

  • 140 team members, based in SF

 

🤝DEAL DETAILS

  • Price undisclosed

  • CN investors had shares convert to VidIQ stock at unknown valuation

  • $1M was in CN bank at time of sale – TBD if portion was kept for working capital, and rest returned to investors

 

🤝POST-DEAL OPS

  • CN will operate independently within VidIQ

  • CN will focus on irl events e.g. meetups for creators

  • 7 CN employees join VidIQ, 2 left for other roles

 

💡DEAL RATIONALE / SYNERGY

  • Helps VidIQ expand from just tools, into online education and community features

  • CN founders saw difficult path to $10M in revenue

  • CN cofounder Airrack was a long-time VidIQ user

  • Net net, deal gives CN investors higher likelihood of positive ROI, though with much less upside

 

🤔What else I find interesting about deal…

The founding team of Creator Now was born out of One Day Entertainment, which was founded by Zack in 2017. ODE is a talent management and business development company for influencers, and clients include Yes Theory and Airrack. Kate Ward joined the company two years later in 2019 as Director of Operations.

Seems Zack, Kate, and Erick (aka Airrack) came together in 2021 with the idea for the company and raised the $2.8M in funding.

There’s some client and revenue data in the press release, so let’s estimate the breakdown of 2023 revenue…

 

💡What We Know

  • 10,000+ total clients since 2021 founding

  • $1M of 2023 revenue

  • Annual membership = $199

  • 1-off boot camps = $200-400

 

👀My Assumptions

  • 3,300 new customer addition in 2021

  • 100% new customer growth each year = 3300

  • 50% annual churn across all customers

  • $300 average boot camp price

  • Annual members only signed up for 1 bootcamp / year

 

🔎Findings

** I’ll link my google sheets model in comments

  • EOY user growth curve:

    2021: 1,650

    2022: 3,300

    2023: 4,950

  • Total membership revenue of $821,000 ($199 x the avg of starting + ending customers)

  • Total bootcamp revenue of $179,000 (2023 total $1M revenue less membership revenue)

  • At $300 bootcamp rate card, implies 597 signups or 14.5% of avg annual members

 

That’s nothing to sneeze at.

But…

…let’s assume their seed round was done via a SAFE at a $10M valuation cap. Assuming a SAAS multiple of 10x ARR (very high relative to current market), and a goal of a $100M+ exit to ensure VC investors like Upfront still had high ROI after future funding round dilution, CN would have to more than 12x current ARR to get to a $10M run-rate.

That’s no easy feat considering all the headwinds facing creator economy businesses today e.g. challenging unit economics from expensive UA / high churn / low LTV, arising from growing competition due to low entry barriers and AI, a smaller current addressable market than anticipated, etc.

And only needing to 12x revenue is an optimistic case!

I therefore give the CN leadership credit for being honest about the challenges ahead of them. Zack’s quote below sums it up well….

“I definitely think we’ll see more M&A, and it’s a good thing because a lot of these companies that have raised money have built some pretty valuable stuff, but it’s probably not big enough to be what’s required in this new macroeconomy for what a venture-scaled business needs to be,” Honarvar said.

“It’s a really great time in general for more mature, sophisticated businesses to look at what has been built.”

To his 1st point, I believe that VCs are not the right investors for most creator businesses. Instead, angels, strategics, and family offices are better fit. They have more flexible investment criteria, lower ROI expectations aligned with current market reality, and more ways to support growth through commercial partnerships and strategic introductions.

To his 2nd point, we completely agree. Our RockWater team is getting a lot more inbounds about buy-side opportunities…much consolidation is ahead.

On estimating a valuation for Creator Now, here’s my math…

My guess is that the ARR multiple was in the low single digits. For Q4 2023, SAAS businesses were trading in the 5-7x ARR range (they were near 10x+ in 2021!). Because CN is a subscale biz, and was also facing growth challenges, I’d expect it to trade at a discount to public market comps.

And then the 1-time bootcamp revenue was likely valued at no more than 1x revenue.

So assuming a 2.5x multiple at $821,000 ARR, and 1x multiple for $179,000 bootcamp revenue, the implied valuation is…

$2.23 million!

Which was then granted to CN investors as equity in VidIQ, at a TBD valuation.

Of note, CN investors put in $2.8M of funding, and if they only owned 10-20% of the biz (typical for a seed round), then that would only be worth about $500k of equity value in this deal. BUT, most SAFEs have 1x liquidation preference, so in this scenario investors would get back 80% of invested capital (2.23M / 2.8M), assuming no debt.

That’s still a tough pill to swallow since not liquid. But it’s the market reality right now.

And maybe their VidIQ equity will be worth well above their $2.8M investment, though a lot will have to go right for that to happen. And maybe my valuation estimate is too low.

Anyway, these are critical numbers to know for any creator economy biz founder or investor.

 


I’m the founder of RockWater Industries. We do financial and strategy advisory for media, tech, and commerce. From M&A and fundraising to consumer research and go-to-market planning.

DM me on LinkedIn or email me chris @ wearerockwater dot com

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