Spotter raises $200M to invest $1 billion into YouTubers’ back catalogs

How do YouTubers make a living? Usually, through a mixture of merch sales, membership programs or maybe even a custom product. But YouTube ad revenue makes up a sizable chunk of the pie chart.

A YouTuber’s back catalog becomes a financial asset — every month, they know they’ll get a payout from ever-increasing engagement on their past content. Now, the Los Angeles-based startup Spotter wants to help creators scale their channels faster by offering them large sums of upfront cash in exchange for the future ad revenue from their existing uploads.

Since its launch in 2019, some of YouTube’s biggest creators like MrBeast and Like Nastya have struck deals with Spotter. The company says that across its roster of clients — which also includes Dude Perfect, Aphmau, Smokin’ & Grillin’ wit AB and others — Spotter has licensed content that generates over 40 billion monthly watch-time minutes.

Today, the company announced that it raised another $200 million in Series D funding from SoftBank Vision Fund 2, valuing the startup at $1.7 billion. Before that, Spotter raised $555 million across three undisclosed funding rounds. Funders across these three rounds include Access Industries, HighPost Capital, CoVenture, GPS Partners and Crossbeam Venture Partners.

Spotter’s business model is a contemporary interpretation of the “Bowie Bond,” which is becoming more popular among creator economy startups. It’s not dissimilar to venture capital investments — you give a promising company (or person) the money that they need to grow, assuming that eventually, you’ll recoup your investment and turn a sizable profit. Another creator-focused startup funded by Softbank Vision Fund 2, Jellysmack also just earmarked $500 million to license back catalogs on YouTube. Jellysmack’s licensing of back catalogs expires after five years, the same length of Spotter’s contracts, and uses an algorithm to determine whether or not to invest in a creator.

Spotter claims to be on track to reach a cumulative total of $1 billion invested in creators by mid-2023, four years after the company was founded. In 2022 alone, COO Nic Paul told TechCrunch that Spotter plans to spend $500 million to license creators’ back catalogs. So far, Spotter has done about 200 deals of this nature — some creators, like YouTube’s top U.S.-based creator MrBeast, have done multiple deals with Spotter over the years.

“Creators have done second and third deals with us, so it’s not a one-and-done type of situation,” Spotter founder and CEO Aaron DeBevoise said. “Six months later, they [do another deal] because they see the success of reinvesting in themselves.”

According to Spotter, MrBeast used his upfront cash to finance a Spanish-language channel, where his viral videos are dubbed to reach a Spanish-speaking audience. Spotter said that since they started working with MrBeast a few years ago, he has grown his viewership by over 300%, amounting to 1.35 billion monthly views across all of his channels.

If a creator wants to work with Spotter, the company will analyze their channel’s metrics to make them an offer for their back catalog. DeBevoise said that engagement metrics are most important to Spotter, including how much time viewers spend watching a creator’s content and what percentage of a video viewers actually watch before dropping off. Spotter also considers metrics that the YouTube algorithm directly rewards, like the number of likes, shares and comments. Another consideration is the kind of content — Spotter won’t invest in YouTubers that make videos about news and politics, for example.  

Then, once a creator inks a deal with Spotter, the company will use those analytics to give them advice about growing their channel. This benefits Spotter as well, since more traffic on a creator’s channel could lead to more ad revenue from the back catalog that the company licensed — even better, the creator might want to license even more of their content to Spotter, which might perform even better than their past uploads.

“So that could be, ‘Hey, let’s focus on what’s your retention rate on videos,’ right? And if you were to improve the retention rate, what would that mean for the value of those videos and the amount of money you make?” DeBevoise told TechCrunch. “So us helping them build the business and reinvest the capital is really critical.”

Spotter’s average size of a deal is around $1.5 million, yet some deals with smaller channels can be as low as $15,000. These payouts are not loans — Spotter provides upfront cash, which the creators don’t have to pay back. But in exchange for this fast capital, creators have to be willing to license their content to Spotter for five years. While Spotter won’t take copyright or intellectual property — that would be a huge red flag for creators — the company is buying ownership of any future ad revenue that the videos generate.

“Our target return, in terms of getting the money back, is around four years,” said DeBevoise.

So, Spotter clients are presented with a challenging business question: Do you want to earn about four years of ad revenue upfront, but then never see another penny from those videos again, or would you rather bet on earning more money over a longer period of time, but sacrifice some growth potential?

The answer to that question is different from creator to creator. MrBeast needs exorbitant amounts of money to make his stunt videos, where he often gives away six figures in cash, so this upfront capital helps him produce content faster, since he doesn’t have to wait for his old videos to yield enough ad money. But not every YouTuber is running a business like MrBeast’s. While cash advances could help any creator quickly expand their resources and grow their channel, it’s hard to bet on whether or not you’d be better off growing your business more slowly while retaining all of your future ad revenue.

Before founding Spotter, DeBevoise was an executive at Machinima, where he worked between 2006 and 2014, per LinkedIn. Once a power-player among YouTube’s gamers, Machinima shut down in 2019 and deleted over a decade of content on its channel, which hosted thousands of videos. Machinima operated as a multi-channel network, meaning that creators would partner with the channel in exchange for the exposure of their network. Multiple former Machinima creators claim that their contracts often had unclear end dates, locking young, naive YouTubers into long-term deals.

“The result of Machinima’s closure further showed me how important it is to provide creators the resources and capital necessary to grow and remain independent through all stages of the creator journey,” DeBevoise said. “I saw firsthand how providing creators with enough capital allowed them to transform from creating as a hobby to creating fulltime and that got me excited about accelerating that movement even further. I also learned how important it is for creators to remain independent, both in their creative process and in the transformation to the enterprise level.”

In a recent conversation about the creator economy at large, lawyer Quinn Heraty told TechCrunch, “What a lot of these young creators don’t realize at the beginning is that when you receive a contract, that contract is 100% written for the benefit of the company who’s giving it to you, and not to your benefit.”

DeBevoise’s new venture Spotter advertises itself as a company that chooses “people over profits,” acting with partners’ best interests in mind. But as more venture capitalists and venture-backed startups invest in the creator economy, it’s always a good idea for creators to make sure they understand what they’re getting into when they strike a deal.

Currently, Spotter only makes deals with creators that it deems big enough to grow from their infusion of capital — right now, they want to see potential partners get about a million views per month.

“I don’t think we would ever do a deal that wasn’t mutually beneficial to everyone,” DeBevoise said.