Influencers wait for investors

Venture capitalists are circumspect when it comes to investing in influencer-backed businesses

- Pratishtha Bagai

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 earnings to future-proof their careers, ensuring steady income even when 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.