We recently reported on the unfortunate downfall of investment in startups this year (despite AI related startups seeing an increase in investment).

The harsh realities facing creator economy startups are getting even harsher, prompting a stampede of founders looking for exits as they struggle to find growth and funding for their businesses. 

“The reality is that the vast majority of creator economy startups never had traction,” Sarah Kunst, managing director of early-stage venture firm Cleo Capital, told The Information. “They will and should consolidate or go out of business.”

Fanhouse, a subscription startup for creators and their fans, found more traction than many of its peers, but Khoi Le, the CEO and a co-founder of the company, decided to sell it anyway. Fanhouse had raised about $22 million in total funding from Andreessen Horowitz and other investors, of which more than $10 million remained in the bank. It returned that money to its investors.

“In tough market conditions, there’s less growth, and a lot of founders ask themselves, ‘Is this what we want to do?’ That’s essentially what happened with Fanhouse,” said co-founder Rosie Nguyen, who had stepped away from the company months before the deal.

The shakeout among creator startups is a classic case of what happens when too much venture capital chases too few good business ideas. Still, the popularity and relevance of the people that caused all of the hype in the first place—the creators themselves—remain as high as ever. Individual creators’ incomes are holding up surprisingly well, and spending on influencer marketing, a key way online creators make money, continues to rise. But most of those creators simply didn’t find enough value in the software tools and services creator startups were pitching to them, especially when more generalized and inexpensive alternatives were available to them.

That leaves many startup founders with not much choice but to seek buyers. They often have little leverage in those discussions, which ensures the sales aren’t happy ones for the sellers. For example, FaZe Clan, an esports company that went public through a special purpose acquisition company merger last year at a $725 million valuation, was acquired by GameSquare Holdings in October for just $17 million. 

It has become commonplace for investors in creator startups to get nothing or almost nothing out of the acquisitions of their companies. That includes the backers of Popshop Live, a live-shopping startup funded by Benchmark that sold its assets to e-commerce firm CommentSold in August; Swapstack, a newsletter advertising marketplace that Beehiiv bought in September; and Moment, a live streamed events startup that was running low on funds when Patreon acquired it in October, according to people with direct knowledge of these deals.

Regardless of why companies decide to sell, the wave of acquisitions isn’t likely to cause much disruption to most creators. But for the ones who became loyal customers for certain products, the deals can be a big headache, especially when acquiring companies shutter features or entire products as a result.

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