Jellysmack and Spotter are worth billions and minting creators' millions

Derek Deso's talent for making viral prank videos paid off soon after he quit his job at Foot Locker in 2016 to become a professional YouTuber. A high school graduate who grew up in a trailer outside Las Vegas, Deso was suddenly earning a six-figure income as a creator.

But his real introduction to internet stardom came a few years later, when he agreed to let a company he’d never heard of edit his videos, optimize them for advertising revenue, and handle distribution across YouTube, Facebook and Snap.

Within a month, Deso says his income jumped 10X—"I was in disbelief." Today, Deso's partnership with Jellysmack is a close collaboration that has spanned more than 2,300 videos, and helped the 34-year-old earn $3.9 million last year, he told Fortune.

Jellysmack is among several firms that have emerged alongside some of social media's most recognizable faces, working behind the scenes of an increasingly lucrative creator economy.

If creators are the rockstars of the 2020s, then it makes sense that their creations—whether that's 30-second videos of pranks or clips of makeup tutorials—have become valuable assets with ever expanding earning potential. As with a band's collection of music, creator's content catalogs and new releases are getting snapped up by specialized businesses with industry know-how that maximizes revenue and exposure.

Jellysmack was recently valued at $3 billion, and has raised more than $991 million in funding, according to PitchBook. Spotter, which buys the rights to creators’ back catalogs of YouTube content, has raised $755 million and has been valued by its investors at $1.7 billion.

"YouTube has built an algorithm that's very very predictable," Spotter CEO and founder Aaron DeBevoise told Fortune. "We can combine that prediction with the need for capital from creators to create an amazing business opportunity and solution for creators."

Spotter writes creators checks up to $100 million to own their catalogs for a set period of time. In exchange, Spotter takes up to 100% of the AdSense revenue and runs the content promotion strategy. Today the company is profitable, paid over $600 million to creators and has grown from 20 employees in 2021 to over 120.

DeBevoise derived the idea for Spotter after seeing the platform's ability to multiply creator earnings. In 2006 DeBevoise, then fresh out of Williams College, founded Machinima, a company that built programming for video gamers. He watched as talent on the platform struggled between supporting themselves financially and balancing the hours of required ideation, shooting and production to make it as professional creators. Once YouTube came out with AdSense in 2008—which allows creators to take revenue shares from pre- and mid-roll ads—he knew the creator economy could scale.

Venture capital firms agreed.

"We, as a firm, have always been obsessed with companies that are unearthing new asset classes," Ali Hamed, the CoVenture partner who led Spotter's Series A explains. "And we view the YouTube ecosystem as creating a new investable asset class that had never existed before. So from a pure finance perspective, Spotter is a really really interesting company."

Like Spotter, Jellysmack emerged from the idea of forging creators’ distribution strategies with data. Sports entrepreneur Swann Maizil launched a soccer fandom YouTube channel called Oh My Goal and started measuring its success with quantitative analysis. It boomed, and he realized the AI-centric approach to content production could work for any other growing YouTuber. The Paris-born entrepreneur enlisted his buddies Robin Sabban and Michael Philippe as cofounders to raise Jellysmack's first $2 million.

The videos Jellysmack has worked on have garnered so many views that the company could be considered the #3 media company in the U.S.—just behind Disney and ViacomCBS—according to research by Tubular Labs. Jellysmack's creators have gained 445 million subscribers, 145 billion views across Facebook, Snap and YouTube and made $175 million. And 50% of Jellysmack's roster is earning over $500,000 annually.

The next act for creators

Spotter and Jellysmack share an investor in SoftBank's Vision Fund 2 (CEO Masayoshi Son led the firm's investment in Jellysmack). While the Japanese investor gives the companies a big name on the cap table, it also begs the question of how these creator giants factor into SoftBank's $23.4 billion third-quarter loss. Spotter, Jellysmack and Softbank declined to comment on the companies’ third-quarter valuations.

One possible cause for concern is the creator companies’ dependence on YouTube, Meta and Snap algorithms and ad revenues—a situation that leaves their businesses beholden to platforms with their own interests and agendas. And the slowing economy means that advertisers may cut back on spending.

Executives at Spotter and Jellysmack say they’re not concerned. "We’re partners with these platforms. They want great content; we want to bring them great content," says Lauren Schnipper, Jellysmack's VP of corporate development, who previously led entertainment creator partnerships at Facebook. "We’re in constant communication with them."

And while an economic slump could potentially shrink the pool of customers, as less established creators call it quits, Spotter and Jellysmack may have limited exposure to that demographic. Because Spotter and Jellysmack only work with creators who boast major bona fides (the world's highest-paid creator MrBeast has contracts with both), an introductory Zoom with either company is untenable for 99.99% of YouTubers.

That's fine with investors. "The creator economy is about small creators and allowing them to make a living; it's a fantastic social project, right?" says Boris Golden, partner at Partech who led Jellysmack's Series A. "What we do is focus on the wealthy creators–the big ones."

For Deso, the viral prankster with 12.6 million followers, being a creator is a full-time profession that becomes all the more structured by working with a partner.

"They have 100% access to what I see," Deso says of Jellysmack. "We have a lot of meetings—pretty much every other week—just to base, go over analytics, talk about content—what's going to work."

Still, Deso has stayed true to his kooky roots. "I was always the guy you had to watch out for when you were sleeping or make a joke or prank and mess with somebody just for fun," said Deso. "It just snowballed into a huge fun circus."

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