In Trends

From influencers to investors

Chiara Ferragni

Clean cosmetics brand Kosas has in the space of a year grown from the best-kept secret of beauty industry insiders to a buzzy makeup line with rapidly growing sales.

Founder Sheena Yaitanes says two recent investors deserve much of the credit: Man Repeller founder Leandra Medine and lifestyle blogger Arielle Charnas.

SEE ALSO : Are influencers worth the money?

The indie makeup range she started three years ago is one of an increasing number of fashion, beauty and lifestyle brands looking beyond Silicon Valley to the world of social media when raising funding.

They’re seeking a new kind of “social capital,” handing over stakes in their companies to influencers in exchange for a small cash investment – typically $10,000 to $50,000 – or sometimes, no upfront payment at all.

The payoff can be big for both sides.

The brands secure long-term commitments from celebrity backers who provide everything from industry contacts to real-estate advice to marketing expertise (and in some cases, enthusiastic promotion on Instagram). And if a brand takes off, early backers can find themselves sitting on stakes worth millions of dollars, far more than influencers can make through endorsements.

“It’s social proof that your brand has buzz,” Yaitanes said of including influencers in her latest funding round, which was led by CircleUp Growth Partners and included participation from M3 Ventures, Scooter Braun’s TQ Ventures, Medine and Charnas.

“It’s doing them a disservice to just call them influencers because they’re large scale business owners in their own right. It’s because of their business acumen [that I work with them].”

SEE ALSO : Remo Ruffini invests in a brand founded by influencers

Among the new wave of influencer-investors: Medine and husband Abie Cohen, who have also invested in makeup brand Drunk Elephant, direct-to-consumer activewear seller Outdoor Voices and underwear startup Lively, and Charnas, who owns a stake in activewear retailer Bandier, as does Nasiba Adilova.

Chiara Ferragni owns a stake in apparel resale site Depop, and Danielle Bernstein has invested in six companies in the fashion, tech, fitness and lifestyle spaces over the past two years. With the exception of Adilova, this group got their start fashion blogging almost a decade ago.

Ferragni and Charnas began chronicling their outfits on The Blonde Salad and Something Navy in 2009, followed by Medine and Bernstein, who started their Man Repeller and We Wore What blogs a year later.

They’re taking inspiration from the entertainment industry, where stars have forged deep and fantastically lucrative ties to Silicon Valley.

Ashton Kutcher and talent manager Guy Oseary put $500,000 into Uber in 2011 and count Warby Parker and Spotify as two of the dozens of investments they’ve made through their Sound Ventures fund.

In 2007, 50 Cent made an estimated $100 million off Vitamin Water when it was sold to Coca-Cola.

Leonardo Dicaprio, Tobey Maguire and Adam Levine are all investors in Casper, the direct-to-consumer mattress company.

Bringing influencers on board helps solve a problem faced by many new fashion and beauty brands: the high cost of acquiring customers, particularly as Instagram becomes crowded with startups going after the same pool of consumers.

Influencers can advise a new brand about the best approach to sell to their followers, and in some cases post about their investments on Instagram, exposure that would cost thousands of dollars through a standard endorsement deal.

“There is a reason why [brands] reach out to this particular talent. They aren’t just asking for money. They are asking for your involvement along with that cash,” said Ashley Villa, chief executive of Rare Global, an influencer management agency.

“These days, it’s so nuts you can’t launch a brand without some kind of face that has social influence.”

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Often, an influencer will join a brand as an “investor” or in an advisory capacity in exchange for equity with no cash required.

For instance, Charnas didn’t pay for her stake in Bandier, which amounts to a percentage of equity, and frequently mentions the retailer in Instagram Stories and posts to her feed.

She said she had no formal agreement to endorse the retailer to her followers.

Medine and Adilova take a more behind-the-scenes approach, offering expertise and connections rather than public endorsements.

Medine, whose media platform is known for its quirky take on fashion and its founder’s deeply personal essays, has invested in 15 companies with her husband.

Nasiba Adilova, founder of children’s brand The Tot, has invested in over 20 companies with husband Thomas Hartland-Mackie.

Adilova’s portfolio spans Christine Centenera’s apparel startup Wardrobe to fitness app Aaptiv and Monte Kids, an online education platform.

Because they have a direct dialog with followers, influencers have a pulse on consumers and know exactly what their fans want and need.

SEE ALSO : A roundup of Hong Kong’s top KOLs, bloggers & influencers

Adilova said a typical check she writes for a “very young company” raising at a seed level would start around $50,000, but this number jumps for later-stage investments.

She rarely posts about Bandier and other investments because she wants her social media to focus on The Tot, which just opened its first store in New York City.

Medine said she invests in brands that appeal to her as an editor, and sees herself and the founders she works with as “thinking partners.”

She said she might provide input on creative content or product development, introduce founders to her industry contacts and recommend financing partners.

But she said her role is strictly behind the scenes – no Instagram endorsements or steering coverage toward her investments on manrepeller.com.

“I keep Man Repeller, and my own social currency out of it,” said Medine, who maintained that she and Cohen invest as individual angels, not on behalf of Man Repeller. “There is never a contractual clause that I will promote the product. I take organic interest in certain brands as an editor and seek to deepen my relationship with the ones that really stand out by pursuing an investment opportunity.”

Medine said if Man Repeller does mention an item from a company she’s invested in and the writer is aware of it, it is disclosed.

However, Medine was clear that because she no longer oversees the day to day editorial functions of the property, some mentions get missed if a writer isn’t aware of the investment.

On social media, influencers are required under US law to note when they are investors in a product they endorse.

While disclosure in general has been spotty on Instagram, the law is the same as influencers having to disclose when a product is gifted or they’ve been paid to post about a brand.

Last September the FTC took action against gaming influencers Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell for failing to disclose joint ownership in CSGO Lotto, an online gambling service they endorsed.

Martin and Cassell, who wound up settling the FTC charges, also allegedly paid other influencers to promote the site on various social channels without requiring disclosures of payment on social media posts.

SEE ALSO : Virtual influencers : what about moral and legal issues?

Influencers risk a backlash for paid endorsements, but can turn an investment disclosure to their advantage.

“[It means] that you believe so much in the product that you would invest either your cash or your time or your social capital in a brand,” she said. “It’s more helpful to the brand because this influencer … stands by the product.”

Bernstein, who declined to disclose which brands she’s invested in, said she includes an ad disclosure when posting about brands where she owns a stake.

Her deals are split between financial investment and sweat equity, the latter of which has given her a seat on three companies’ board of advisors.

“I’m not posting about the ones that I just advise for at all,” Bernstein said of her non-cash investments. “But it’s important even when investing with social capital that I feel like I have some skin in the game with a financial investment too.”

Charnas has found the way to best communicative involvement in these companies is to be direct.

She and husband Brandon Charnas are said to own a low single digit percentage of Bandier – more than the standard fractions of a percent given to influencers – but Charnas said there’s no terms that dictate when, how or the amount of times she’s expected to post about the retailer.

She does regularly post content about the retailer on Instagram.

“It’s not just a paid, sponsored post. It’s partly mine,” she said. “On Instagram Stories I was completely honest. I said I invested in these companies because I use these products every day and I believe in the product…and I want to be involved in the growth of the brand. I give [followers] the heads up that it’s going to be something promoted on my account all the time.”

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