Inside OnlyFans Limited Venture Capital Options – and How VC Would Run an OnlyFans 2.0

Did the pursuit of millions of venture capitalists lead to a shocking OnlyFans pivot? The creators’ platform surprised the online world on Thursday by announcing that it would ban sexually explicit content from its site starting in October, after such content propelled the site to cultural relevance – and growth. galloping sales – during the pandemic.

The move came as a surprise to sex workers who had come to depend on OnlyFans as a source of income. It also happened in the midst of a BBC investigation that OnlyFans was turning a blind eye to illegal content. And hours earlier, Dan Primack at Axios reported that the company was struggling to find brand investors who would bolster its credibility – even despite an execution rate of $ 1.2 billion in revenue in 2021 and double that, and a free cash flow of about half. this side. “In short, OnlyFans has a porn problem,” Primack wrote.

But was venture capital a realistic option for OnlyFans, and does that equation change given his move? Conversations with venture capitalists who have met OnlyFans or are aware of its meetings paint a picture of limited, but at least lukewarm interest – and the challenges any potential startup successor leaning towards content would face. for adults that the company suddenly abandoned.

A version of this story first appeared in our Midas Touch newsletter on Saturday. register here be part of the conversation first.

The Defects Clause

To understand OnlyFans’ venture capital outlook, one must first consider the ‘vice clause’, or commitment, that venture capitalists make with the investors whose money they deploy (the companies venture capitalists usually only play with a relatively smaller pool of their own money, in return for a slightly larger share of the upside). These agreements limit how venture capital firms can invest outside of their primary focus. (Such restrictions on owning public stocks and cryptocurrency investments, among others, are a major reason the Andreessen Horowitz-branded company moved in 2019 to re-brand itself as technically not a capital company. -risk.)

Larger, more established venture capital firms seek universities, foundations, and nonprofit institutions as their funders. And for these organizations, the nightmarish scenario is this: a headline like “Cornell University Early Investor in Massive Online Porn Firm: Report,” one of many that were released after a deep dive into the owner of PornHub by the Financial Times added to the porn site’s scrutiny last winter, and quickly forced major changes to the content the company kept on its site. As such, the most common clauses of this type make it a taboo to invest in areas such as sex, tobacco or historically illegal drugs.

Some companies do not have a vice clause. Even then, such investments may be the subject of further scrutiny due to the potential for government investigations, repression by payment processors, and experiments that do not match the business models. software from Silicon Valley. (Forbes has previously reported on the roots of majority owner of OnlyFans, Leonid Radvinsky, in the early years of online adult entertainment.)

Chasing dollars

OnlyFans met some of the biggest names in venture capital in its early days (it was a fledgling site when Radvinsky bought control in 2018). One company died when it became apparent that the future of the site appeared to be predominantly pornographic, said an investor familiar with the meeting; At Founders Fund, a flawless company, former investor Cyan Banister, now a partner at Long Journey Ventures, recalls the company’s meeting with OnlyFans and his passing over concerns about his lack of performance. records on its performers and creators, age verification of tax information.

“A lot of businesses with user-generated content think that because they’re community-driven, they’re not responsible, but they are,” Banister said.

OnlyFans did not respond to a request for comment.

More recently, companies met OnlyFans during its increased cultural relevance and investor sentiment of its rapid growth rate, sources say. But many were more interested in meeting OnlyFans out of curiosity, speculates a partner of a leading company. “I have met companies because I think they will be really cool meetings, knowing that there is a 0% chance that I will want to invest,” said this investor. “Some VCs love business stories, hearing how it happened and what they were thinking.”

Only fans 2.0

If OnlyFans cedes the adult content category – something Banister isn’t so sure about, noting that the company’s announcement has given itself plenty of time for feelings or decisions to change – another Would a startup be able to capitalize on the interest of the VC to take over?

At Vice Ventures, Catharine Dockery, founder of the company and former representative of the 30 under 30, explicitly invests in vice companies that scare other companies away. While Dockery disagrees with some venture capitalists who have said Forbes that such a company would have limited opportunities to find buyers, she notes that OnlyFans follows the story of other companies like Snap and Tumblr in cracking down on adult content over time.

“A company of their size and scope would generally have a lead for their tour with minimal hassle,” says Dockery. “Why are profitable companies leaving space and turning to unproven business models? “

The history of venture capital investment in such companies remains limited. Perhaps the most notable example is Arsenic, billed as a Playboy for the Snapchat era and full of suggestive photos and videos of models who could live on the social media platform. Arsenic raised $ 3 million in seed funding in 2016 from Crosslink Capital and CrossCut Ventures. The investment now appears to be gone: the venture capital partner who led the investment for CrossCut, Clinton Foy, did not respond to a request for comment; Omar El-Ayat, who spoke about the investment at the time for Crosslink, is no longer with the company. He declined to comment.

Interest is there from entrepreneurs, Dockery says, but little substance so far. “I was introduced to a hundred different OnlyFans 2.0 startups,” says Dockery. “We would definitely invest in something like this, but OnlyFans is really the only one with market share.”

Banister, who once ran a website for pin-up photography, says she’s received countless messages over the past few days asking her to launch her own version. “If I had the stamina and the energy to start another business in space, and the certainty that I wouldn’t go to jail, I would do it in a heartbeat,” she says.

The bet

OnlyFans’ investment options may have opened up with its announcement, while ironically narrowing due to their looming loss of growth by closing a major vertical on the platform. The biggest risk factors for a company like OnlyFans remain the removal of Visa and MasterCard, along with a high level of chargebacks and fraud – not Sand Hill Road cutting a check.

But for now, those suffering the most from the announcement are the creators, especially the sex workers, who find themselves scrambling after the sudden news. “They are good people, they are adults, and it cuts them off at the knees,” Banister explains. “I don’t know where they go next after this.”

Would anyone support OnlyFans now, without their problematic goose that lays the golden eggs? The company could struggle to beat its reputation even if growth rebounds, investors say. But several investors said they were confident enough peers would be interested in his financial potential to accept his story, provided he can once again show a path for growth. “Whoever would support [vaping business] JUUL would support OnlyFans, ”one joked.

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