YouTubers and Insta models are here to save your returns

Happy Sunday. A relatively slow deals week, though we made up for it with a more in-depth editorial note. Let’s get started:

It’s easy to make fun of Kim Kardashian.

But, investors increasingly need to acknowledge that she’s at the forefront of a generational shift in how brands grow.

Earlier this month, Kardashian partnered with beverage maker Alani Nu to launch a limited-edition energy drink called 'Kimade,' which promptly sold out.

Kardashian wasn’t the only celebrity influencer involved in the promotion — Alani Nu was itself borne from a social media following, founded in 2018 by health and wellness persona Katie Hearn.

Hearn has leveraged her audience to drive rapid adoption, quickly landing critical retail placements like Target and Wal-Mart to build a nearly $100 million EBITDA business. That may come as a shock for those that thought Instagram influencers were just scraping by with sponsored posts.

The creator involvement in Kimade doesn’t end with Kardashian and Hearn. One of Alani Nu’s backers is Congo Brands, which, among other ventures, led the launch of PRIME, an energy drink business rolled out by YouTubers Logan Paul and KSI, which is reportedly nearing $500 million of run-rate revenue within just 18 months.

So, some celebrities you haven’t heard of are selling strange drinks, who cares?

Last week, reports emerged that Alani Nu is evaluating strategic options, including a potential sale that could fetch more than $3 billion. That’s a lot of money, and no one loves big exits more than private equity.

What It Means

The upshot is that investors have taken note. Consumer and media teams are now beginning to incorporate creators into their theses, positioning themselves as capital partners that can accelerate audience-driven growth.

Investors Are Taking Action

Last September, Jay Sammons ditched his role as Carlyle’s Global Head of Consumer, Media, and Retail to pitch Kim Kardashian on a proposal to launch their own fund, Skky Partners.

Their hope is to leverage Kardashian’s influence to massively accelerate growth at portfolio companies, providing a competitive edge over other brands and investors.

Should they succeed in combining Kardashian’s portfolio-level cachet with other influencers at the brand level (as in Kardashian’s Alani Nu collaboration), they could unlock a powerful strategy that would be exceedingly difficult for legacy firms to replicate.

TCG Emerges as an Early Leader

That said, part of the appeal of the creator-led strategy is that it’s not a zero-sum competition for the world’s biggest celebrities. Kim Kardashian makes headlines, but there are exceptional outcomes even when partnering with creators that have a fraction of the notoriety.

The Chernin Group, an early adopter of the strategy, leans into this by taking a slightly different tack than Kardashian’s mass-appeal brands.

Their playbook focuses on high-engagement communities, often led by smaller creators with passionate niche audiences. It’s worked well so far, with a current and realized portfolio that’s full of success stories, including:

• Epic Gardening (Kevin Espiritu)

• Cars & Bids (Doug DeMuro)

• MeatEater (Steven Rinella)

• Food52 (Amanda Hesser)

• Plus, some more mainstream brands, including Barstool Sports (Dave Portnoy) and HelloSunshine (Reese Witherspoon)

Naturally, that’s led TCG to double down on the thesis with its latest venture, Night Capital.

Partnering with creator talent agency Night Media, TCG has committed $100 million to go after “consumer-facing companies in partnership with leading talent.”

Night Media obviously brings the talent, but the agency also comes with its own brand-building expertise. Among other products, Night’s venture arm launched the Feastables chocolate brand in partnership with YouTuber and agency client Mr. Beast.

Feastables hit store shelves in early 2022, yet the business has already scaled to the point that investors are debating the merits of a short position in 129-year-old rival chocolate maker Hershey.

TCG and Night’s plan also targets the logical next step for the thesis. Rather than investing only in creator-led businesses, they hope to buy existing DTC companies and pair them with influential creators, ultimately cultivating communities around the product.

That’s all you really need, according to Barstool CEO Erika Nardini, who credits TCG’s success with a focus on building around “tribes.”

It All Seems So Easy

The strategy may sound like a shortcut to a huge exit, but it’s not without its own unique set of challenges.

• How do you solve for key-person risk?

• What if your creator gets themselves canceled?

• What do you do if they just get bored of the whole thing?

Or, what if you have a management or operational dispute? Even if you’re a control investor, the last thing you want to do is risk souring the relationship with the person that can change the course of your entire investment with a single Instagram story.

Where Does It Go From Here?

For Kim Kardashian, the first year of Skky Partners has been dedicated to the build-out of an investment team full of Stanford grads and megafund alums. But, at least for the moment, her focus is elsewhere.

She’s fresh off a $270 million raise for her shapewear business Skims — Wellington Management led at a $4 billion valuation, with participation from a host of other blue-chip backers.

Whether you like it or not, Kardashian and the creator economy are putting up big numbers. Investors can choose to go along for the ride, or risk getting left behind.

🍾 Deals, Deals, Deals | The week's most interesting transactions

1. L Catterton hits a double-digit (unrealized) MOIC following this week’s IPO of portfolio company Oddity Tech.

• Oddity Tech (Nasdaq: ODD), a tech-enabled beauty retailer, ended the week at a $3 billion market cap following a very positive reception of the offering.

• That’s beyond a homerun for L Catterton, who had invested $50 million back in 2017 — that stake is now worth more than $900 million, or an 18.0x+ MOIC.

• Can L Catterton go back-to-back in the coming months with another success in its rumored Birkenstock IPO? If Oddity is anything to go by, the IPO window has been thrown wide open.

2. Apollo co-founder Josh Harris gets it over the end line with NFL approval for his acquisition of the Washington Commanders.

• The $6.05 billion purchase sees the Commanders join Harris’ existing sports portfolio of the Philadelphia 76ers and the New Jersey Devils.

• It’s a rich valuation, setting the high watermark as the largest-ever deal for a pro sports team. Harris may be betting that scarcity will continue to drive multiple expansion, particularly as private equity becomes more active across a number of different sports.

• Harris’ celebrations are slightly marred by new sexual harassment allegations against former owner Dan Snyder, plus a $60 million NFL fine for Snyder’s withholding of $11 million in revenue that should have been shared with the league.

3. 3D printers are rolling up their sleeves as a nasty takeover battle bleeds into another week.

• Stratasys (Nasdaq: SSYS) is going to merge with someone, we just don’t know who yet. That’s despite the company having already signed a merger agreement with Desktop Metal (NYSE: DM).

• The other two players in the race are 3D Systems (NYSE: DDD) and Nano Dimension (Nasdaq: NNDM), whose competing offer just received a resounding rejection from the Stratasys Board:

“[Nano’s offer] is misleading, coercive, substantially undervalues the Company as a whole and is NOT in the best interests of all Stratasys shareholders. Nano has destroyed significant value and trades at negative firm value. Yoav Stern, Nano’s CEO, cannot be trusted, has made misrepresentations about Stratasys and is not qualified to manage Stratasys.”

• That’s opened the door for 3D Systems, who lobbed in an offer of their own. Desktop Metal may yet respond, though Stratasys management plans to terminate their agreement to focus on the 3D Systems approach.

This week’s other notable deals…

• Bain Capital has sweetened its offer for SoftwareOne to $3.7 billion following the rejection of its previous proposal.

• TPG acquired physician practice management software firm Nextech from T.H. Lee for $1.4 billion.

• Abu Dhabi National Oil Co increased its offer for German chemical business Covestro AG to $12.3 billion following rejection of its earlier $11 billion approach.

• Ball (NYSE: BALL) is progressing its aerospace unit divestiture, reportedly entertaining second round bids from suitors including Advent and Blue Origin.

• Goldman Sachs and General Atlantic are leading a take-private of Norweigan educational games marketplace Kahoot in a $1.7 billion deal.

• J.F. Lehman & Co. has agreed to acquire waste management business Heritage-Crystal Clean for $1.2 billion.

• Apax Partners, BC Partners, and Hearst Communications have bowed out of a potential deal for Ascential’s UK consumer data unit WGSN after declining to match valuation expectations north of $900 million.

• GI Partners bought a a 65% stake in two Illinois data centers from Digital Realty Trust (NYSE: DLR).

• Johnson Controls (NYSE: JCI) acquired FM:Systems, a developer of workplace management solutions, from Accel-KKR for $455 million up-front, plus a smaller contingent consideration.

• Ares Management has agreed to buy Singapore-based private equity firm Crescent Point Capital, with AUM of $3.8 billion.

• Lambda Labs, a provider of cloud infrastructure services, is raising $300 million from investors including Nvidia.

• o9 Solutions, a supply chain analytics firm, raised $116 million at a $3.7 billion valuation led by General Atlantic, with participation from KKR and Generation Investment Management.

• Farizon, a Geely-owned electric truck manufacturer, raised a $600 million Series A led by Boyu Capital and Yuexiu Industrial Fund, alongside United Clean Energy, Linjiang Industry Group, and Hidden Hill Capital.

💰 Fundraising | The firms stacking it up across buyout, growth, and venture

• CVC raised €26 billion for its ninth fund.

• Davidson Kempner Capital Management raised a $3 billion special situations fund.

• Angelo Gordon raised more than $1 billion for its most recent Asset Based Credit Fund.

• Bain Capital held a $1.2 billion first close for its debut insurance-investing fund.

• Onex closed a $750 million fund focused on transportation investments.

• Westlake Village BioPartners raised $450 million for a third biotech venture fund.

• Placeholder is targeting $200 million for a third crypto-focused venture fund.

• Coefficient Capital is seeking $250 million for its second fund.

• CoinFund raised $158 million for a crypto-focused venture fund.

• Bracket Capital raised $150 million for its third flagship fund, plus an additional $300 million co-invest vehicle.

• Polychain Capital, focused on early-stage crypto investments, held a $200 million first close of its fourth fund, which is targeting $400 million.

📜 Bullpen Reading | Get quick with the ALT + Tab

1. Early adoption in SF is great if you’re a tech company, but hasn’t turned out well for shoe brand Allbirds.

• Revenue is shrinking, cash is getting incinerated, and the stock price has drilled. It’s been a dismal year for a business that was once at the forefront of direct-to-consumer.

• The Wall Street Journal examines what went wrong for Allbirds, and whether there’s anything left to save. (Check it out: WSJ)

2. Would you let a sovereign wealth fund pull up to your next tailgate?

• Professional sports has been the hot investment over the past 12 months — is college athletics the logical next option?

• Extra Points columnist Matt Brown examines what foreign investment might look like. There’s probably no good avenue for investors to weasel their way into a stake in an actual team, but media rights could be up for grabs. (Check it out: Extra Points)

3. Delta boss talks bailouts, competitive dynamics, and why he hasn’t managed to get WiFi on every flight.

• CEO Ed Bastian sat down with Semafor for a wide-ranging interview on the state of the airline industry, including a defense of pandemic aid.

• Things are generally trending well for the carrier post-pandemic, and Bastian thinks economic uncertainty is overblown. (Check it out: Semafor)

Thanks for reading, catch you guys next week. Drop a line with any feedback or scoops (just reply here; kept anonymous).

— Sam