How To Invest In Community

Over the past decade, we’ve witnessed the emergence and prevalence of vertical communities. They’re digitally native, composed of highly engaged members, anchored in a (shockingly large) niche, and usually built around an individual personality who leverages content as firepower. When done right, we believe these communities can produce billion dollar outcomes, as they lend themselves to a wealth of product and service opportunities bolstered by high-value interaction points for members. Community leaders who capitalize on their audience stand to benefit tremendously from the value creation – in fact, Sam recently described the class (and their opportunity size) as the “Billionaire Next Door”:

Some leaders may choose to grow their communities slowly and organically, which is reasonable but becomes limiting – particularly in how fast and experimental they can be. To accelerate their outcome, we believe a little bit of venture-style capital can go a long way (especially when the “competition” isn’t capitalized). But how should communities that 1) are amorphous at the early stage, and 2) frankly aren’t classically investable be financed?

We can envision two approaches to investing. The first is to invest in the community as though it were a regular company; but there are key challenges to consider:

• Unknown monetization: it’s difficult to know where value will be unlocked at the outset, and consequently how the community is going to monetize. As a result, investors need the deal to be sufficiently broad to realize any upside generated by the community. This often requires deal “add ons” to ensure the structure includes the full future scope of the community. For example, if you’re backing a community of moms against microplastics, you’d want the deal parameters to encompass anything born of their kinetic energy – like if they decide to start a lucrative nanny marketplace unrelated to endocrine disruption. While not impossible, accounting for ‘unknown monetization’ can become a boil-the-ocean exercise.

• Leader growth: the community leader is, appropriately, going to grow their personal brand with and learn from the capital. But, as discussed, their efforts confuse where value might accrue (i.e., to them directly). Moreover, at the early stage, the leader is often synonymous with the community, and their participation / enthusiasm is essential to its success.

• Pricing: while investing in communities can prove to be a great bet for investors, it’s still new and risky. Raising capital for the community through a standard seed process will likely yield few investors who understand the model and/or aggressive terms / valuation (remember, investors have to justify investments to LPs!).

The other approach is the one we are pursuing at Slow, where we invest directly behind the community leader. Rather than the additive approach above, this approach is subtractive; the leader can delineate what’s not in the deal rather than trying to capture everything that might be in. As discussed in prior newsletters, this model allows investors to realize upside, offer better pricing and terms, and most effectively align with the creator on resource (capital and time) allocation. There are obvious risks to the model – for example, the leader could disaffiliate with the community or choose a different path altogether. But investors could also consider regular-way, follow-on funding for subsidiary products or services if specific projects gain meaningful traction – creating additional community exposure for the investor.

We expect to see many more individual-first communities in vertical niches evolve into sustainable, multi-line, and cash flowing businesses. In this model, the individual stands to accumulate wealth, and the community benefits from real infrastructure and meaningful touch points. We anticipate the most enterprising leaders will realize the competitive advantage of early / seed capital to accelerate the ‘billionaire next door’ outcome. Today, these leaders and communities are massively underserved by the capital markets, but with the right investment structure and a few examples of success, capital should form in short order.