Did you know that YouTube channels are now raising money - and even getting acquired - as media businesses?

You’ve probably read headlines about Theorist selling to LunarX, or the Smosh founders buying their channel back from Mythical.

This week’s Creator Logic is a little different.

Last week, I attended an invite-only Leadership Summit at VidCon Baltimore, where I learned a ton from a bunch of suits (bankers) I’m not allowed to name.

There were some valuable insights there that I think would benefit all Creators to understand.

Let’s get into it!

What if I’m not a YouTuber?

I believe that other Creator channels and assets will be ripe for acquisition in the future.

• Short-form channels (TikTok, Snap, Reels, YT Shorts) have massive reach

• Livestreaming channels have highly engaged, transactional audiences

• Podcasts and newsletters have huge media value

• Membership provides recurring revenue

The list could go on.

Regardless of what kind of Creator you are, the following insights should be valuable to you as you strategize around growing your Creator business.

Why are channels getting acquired?

Companies like LunarX, Electrify Partners, Mythical, and more are now looking to acquire and “roll up” YouTube channels.

They’re doing it for three (3) things:

1) Scale - If a firm owns lots of channels in a category, they can cross promote between all of them to grow the reach and influence of all of them, thus “owning” that category. These verticalized scale plays are all the rage.

2) Cash - If a firm owns lots of profitable channels that they can make even more profitable by reducing their operating costs and adding new revenue streams, they can recoup quickly and start to generate a lot of cash.

3) Equity - Executing on both of the above increases the equity-value of a business, enabling firms to turn around and resell the “rolled up” group of channels for a huge windfall profit.

How do you increase the value of your channel?

Here are some of the more useful quotes from the bankers on the Creator mergers and acquisitions panel at the invite-only VidCon Baltimore Leadership Summit!

The first thing to understand is that smart investors are looking for safe bets in this (crappy) economic environment.

YouTube channels aren't valued (by smart investors) like tech startups - valuations are based on profit, not revenue.

Ignore the hype examples, like MrBeast trying to raise at a $1.5B valuation despite being unprofitable. That’s not happening anymore.

Focus on building a good, profitable business.

You can increase the value of your Creator business two ways:

1) Increase EBITDA, which is measured in your accounting.

EBITDA (earnings before interest, taxes, depreciation, and amortization) is a measure of profitability.

If your revenue is higher than your costs, congratulations - you’re profitable!

2) Increase your multiple, which is negotiated with the investor.

When someone offers to buy your business, they’re projecting how big they think your business will get, and how long it will stay that way.

They then offer you some amount of money that is your EBITDA multiplied by a number.

That number - the multiple - represents how many years it will take (if profit stays the same) to make their money back.

The faster you’re growing, the bigger your potential, the less risky you are…the more they’re willing to bet that they’d make their money back faster.

That makes them willing to offer you more money (a higher multiple).

To increase the multiple, you have to show growth, infrastructure, and diversification.

And that leads to…

Taking a hit to your profit margin can increase your multiple, and thus your overall valuation.

How?

If the hit is because you're investing in critical operational infrastructure.

Buyers want to know you're buttoned up. We've seen too many operational failures harm Creator businesses.

A recent example is Linus Tech Tips' controversy around workplace culture.

An older example is the alleged sexual assault in David Dobrik’s old videos, after which he pledged to “hire HR”.

If a potential investor sees high margins but no operational infrastructure, they know they'll have to work on that.

That’s more spending for them, which will reduce how much they value your business.

I’ve said it once, I’ll say it again:

Diversification is the path to freedom value in the Creator Economy!

YouTube revenue is the most predictable revenue, but it's not perfect.

The algorithm could change, YouTube could adjust its policies…it’s all happened before (remember Adpocalypse?)

That goes for any social content platform.

The more revenue streams you have, the more insulated your business is.

The more insulated your business is, the less risky it is.

Investors want protection from risk.

Give them that protection, and you’ll see your multiple rise.

Thanks for reading!

My mission is to enable a million people to find freedom in the Creator Economy.

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