Latest / Influencer Marketing with Fexingo: Creators, Sponsorships, and Modern Endorsement Deals / Why Brands Now Pay Influencers in Equity Instead of Cash
Transcript
- Lucas: So there's a deal that closed a few weeks ago that I think captures where influencer marketing is heading — a mid-tier beauty creator, about 400,000 followers on Instagram, signed a sponsorship with a direct to consumer skincare startup. Usual rate would have been around 30,000 dollars for a six-month campaign. She took 25,000 in cash and the other 5,000 as equity — a tiny stake in the company. Luna: Interesting. So instead of just cashing the check and moving on, she's betting the brand grows. How common is that now? Lucas: It's still new, but it's accelerating fast. I've seen data from a few talent agencies that say roughly 12 percent of influencer deals over 50,000 dollars now include some equity component. That's up from maybe 3 percent two years ago. And it's not just the MrBeasts of the world — it's happening at the mid-tier level too. Luna: Right, MrBeast is the obvious big example. He took equity in Feastables, and that brand is now worth hundreds of millions. But how does that work for someone with 400,000 followers? How do you even value that equity? Lucas: That's the tricky part. For a private startup, the valuation is whatever the latest round says — or, if there's no round, the brand and the influencer negotiate a valuation. In the deal I mentioned, the startup had just done a seed round at a 10 million dollar valuation. So 5,000 dollars of equity was effectively 0.05 percent of the company. Luna: So she's getting a lottery ticket. If the brand hits 100 million, that stake is worth 50,000. But if it flops, it's zero. Lucas: Exactly. But the key insight is that it changes the incentive structure. When an influencer has equity, they're not just posting a one-off video. They're more likely to do ongoing content, to actually use the product, to give feedback to the brand. One agency told me they've seen engagement rates double on equity-backed campaigns compared to straight cash deals. Luna: It also changes the risk profile for the brand. They're diluting ownership instead of burning cash. For a cash-strapped startup, that's huge. Lucas: Right. And brands are getting smarter about how they structure it. Some are using something called 'capped equity' — the influencer's stake is capped at, say, 2 percent of the company, no matter how much they promote. That way the brand limits dilution. Others are using 'vesting schedules' tied to performance metrics, like views or sales. Luna: So it's almost like a mini employee stock option plan, but for creators. I wonder how the SEC views this. If an influencer is effectively selling unregistered securities to their audience by promoting a brand they own equity in… Lucas: That's exactly the can of worms that's starting to open. The SEC has already signaled interest. There was a case last year where a celebrity promoted a crypto project without disclosing they had equity. But for now, most of these deals are structured as straightforward compensation — the influencer gets equity as payment for services, so it's not a public offering. But the line gets blurry when influencers start telling their followers to buy the brand's products. Luna: Which brings us to the big question: does this actually work? Is there evidence that equity-backed influencers drive better returns than cash-only ones? Lucas: Early data says yes, but it's noisy. A study from a marketing analytics firm looked at 50 DTC brands that used influencer equity deals over the past two years. They found that, on average, the customer acquisition cost was 22 percent lower for equity-backed campaigns. The theory is that influencers are more authentic because they have skin in the game. Luna: But there's also a selection bias, right? Brands that are confident enough to offer equity are probably better-run to begin with. And influencers who accept equity are probably savvier and more engaged. Lucas: Absolutely. Causality is hard to pin down. But the trend is unmistakable. I've talked to three talent agencies in the past month, and all of them said they're building equity deal templates. One of them has a dedicated 'equity negotiator' on staff now. Luna: That's a big shift. So how do influencers actually evaluate these offers? If a brand says, 'We'll give you 1 percent equity instead of 50,000 in cash,' how do you compare that? Lucas: The smart ones are using a framework I've seen called 'expected value with a risk premium.' They estimate the probability the brand succeeds — say, a 10 percent chance it becomes a 100 million dollar company — and then discount the equity value by that probability. So 1 percent of 100 million is 1 million, but with a 10 percent chance of success, the expected value is 100,000. That's better than 50,000 cash, but much riskier. Luna: And then they have to consider liquidity. Even if the brand succeeds, they can't sell their shares until an exit — acquisition or IPO. That could be years. Lucas: Right. Some influencers are getting around that by negotiating 'liquidity provisions' — the brand agrees to buy back their shares after a certain period or if certain milestones are hit. I saw one deal where the influencer has the right to sell back her shares at the next funding round's valuation, minus a discount. Luna: That's clever. It's basically a put option. So the influencer gets downside protection while still having upside. Lucas: Exactly. And then there's the pooling approach. Some influencers are forming what are basically special purpose vehicles — SPVs — to pool their equity stakes. Let's say five mid-tier creators each get 0.5 percent in different brands. They put those stakes into a joint entity, which then has more negotiating power with investors or acquirers. Luna: So they're acting like a mini venture capital fund. That's a whole new layer of financial engineering in influencer marketing. Lucas: It is. And it's creating a new type of intermediary — firms that specialize in structuring these equity deals. One I spoke to charges a flat fee of 5,000 to set up the SPV and then takes 10 percent of any future exit proceeds. They're basically the lawyer, the banker, and the agent rolled into one. Luna: That reminds me — we've talked on this show before about influencers building their own ad networks and data clean rooms. This feels like another step in the professionalization of the creator economy. Lucas: It really does. And it's not just small brands. Larger consumer packaged goods companies are starting to experiment. I've heard that a major beverage company is piloting a program where top-tier influencers get a tiny equity stake in a new product line instead of a flat sponsorship fee. The numbers are small — like 0.1 percent — but it's a signal. Luna: So where does this go? Do you think equity becomes a standard part of influencer contracts within the next few years? Lucas: I think for certain categories — DTC, startups, new product launches — it will become common. For established brands with stable cash flows, cash will still dominate. But the genie is out of the bottle. Creators now know they can ask for equity, and brands see the incentive alignment benefits. I'd predict that within three years, 25 to 30 percent of deals over 100,000 will include some equity component. Luna: And if the SEC steps in with clearer rules, that could either accelerate it or slow it down, depending on how they regulate. Lucas: Exactly. But for now, the innovators are running ahead. And it's creating a fascinating shift in how we think about influencer compensation — from a transaction to a partnership. Luna: Before we wrap, one thing we haven't touched on: what about the tax implications? If an influencer gets equity as compensation, that's taxable income at the time of receipt, based on the fair market value. But if the equity later becomes worthless, they can't easily deduct the loss. Lucas: Yeah, that's a real risk. I've heard horror stories of influencers getting big tax bills on equity that never materialized. Some are now insisting on a 'tax gross-up' clause — the brand gives extra cash to cover the tax liability. But that's rare. Most just accept the risk and hope the brand pops. Luna: Quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these deep dives possible. If these conversations have sparked something you've actually used, that's the only reason we can keep doing them ad-free. Lucas: Yeah, it's a small group that makes it work. And it means we don't have to chase sponsors or compromise on topics. So if you've gotten value from episodes like this one, that's the direct line to keeping it going. Luna: Anyway, back to equity deals — one last angle I want to explore: the potential downside for the influencer's audience. If a creator has equity in a brand, they have a financial incentive to promote it, even if it's not the best product. How do they maintain trust? Lucas: That's the critical tension. The whole premise of influencer marketing is authenticity. If an audience feels like a creator is just shilling their own investment, trust erodes. The best creators are transparent — they disclose the equity stake, they talk about why they believe in the brand, and they're willing to criticize if something goes wrong. Luna: So full disclosure is key. But does that actually hurt their effectiveness? If a viewer knows the creator has equity, do they discount the recommendation? Lucas: Initial research suggests that disclosure doesn't significantly reduce engagement if the creator is seen as knowledgeable and honest. In fact, some studies show that disclosure can increase trust, because it signals transparency. But it's a delicate balance. One misstep — like hiding the stake — and the backlash can be brutal. Luna: So we're moving from an era where influencers were essentially walking billboards to one where they're part-owners. That changes the whole dynamic of the relationship between creator, brand, and audience. Lucas: It does. And I think it's ultimately a good thing for everyone — as long as the incentives are aligned and the disclosures are clear. The best case is when a creator genuinely loves a product and gets to benefit from its success. That's a win win win. Luna: All right, Lucas. I think we've covered it. Any final thought? Lucas: Just that if you're a creator and a brand offers you equity, do your homework. Get a lawyer who understands startup valuations. And don't bet the farm — it's still a lottery ticket, even if it's a better one than a flat fee. Luna: Good advice. Thanks, Lucas. Lucas: Thanks, Luna.