TikTok stars are known for setting trends on social media, but their latest isn't a dance sequence or popular video. More and more young TikTok stars are turning to venture capital investing as they turn their millions of followers and online popularity into massive fortunes.
On Tuesday, Josh Richards, who has more than 22 million followers on TikTok, became a venture partner at Remus Capital, an early-stage venture capital firm. Richards already serves as an angel investor and chief strategy officer for Triller, a rival app to TikTok. He even left his role as a collaborator within “Sway House,” a group of young, male TikTok stars who create content out of a Bel Air mansion, to focus on investing and other ventures.
Bryce Hall and Griffin Johnson, who are currently members of Sway House, have also invested in several start-ups, including LendTable, which offers cash advances that people can use to match their employer’s 401(k) contributions.
And earlier in December, 16-year-old Charli D’Amelio, TikTok’s most-followed star, invested in Step, a banking app that provides teens with an FDIC-insured bank account and a no-fee, debit-style card.
“I think investing in general is attractive to these stars, but I do think they have an advantage in the private markets,” said Anthony Pompliano, a co-founder & partner at Morgan Creek Digital Assets, who has worked closely with the members of Sway House.
“With public market investing, they’re no different than anybody else that is a retail investor," he continued. "In the private market, they’re able to align themselves with some of the best investors in the world, there’s asymmetry of information and so they’re able to get an advantage.”
Anis Uzzaman, founder and partner at Pegasus Tech Ventures, has invested hundreds of millions of dollars in over 180 start-ups. He said TikTok stars are gravitating toward venture capital investing because it’s a fascinating world with a lot of perks.
“You become very popular with a lot of people in a very short time because you can make a lot of very big decisions,” Uzzaman said. “It’s attractive because you get to talk to a lot of cool people who are going to become the next Mark Zuckerberg or Elon Musk. Plus, it’s an easy way to get more involved with your fan community and make money out of it if you’re investing in companies that become popular.”
He added that it’s relatively easy to become an investor in the U.S.
“Our rules and regulations actually encourage entrepreneurship, if you, for example, try to become an investor in some other countries, you have to qualify,” he said. “In the U.S., if you qualify on the capital side, you’re allowed to become an investor.”
But the appeal goes both ways. TikTok stars, like other celebrity investors, are an attractive partner for many start-ups.
“They welcome these partners because they know having money from bigger venture capital firms will give them the professional help they need to grow the company, but celebrities will help with the marketing side,” Uzzaman said. “It’s a good combination.”
Pompliano said TikTok stars can really help founders as they build their product and look to distribute it to consumers.
“They understand a demographic that many founders struggle to understand, which is the younger generation and things happening in culture and technology, and they bring a large audience,” Pompliano said.
The millions of social media followers these TikTok megastars possess are eager consumers of both the content these creators put out and the products and companies they back.
But as with any venture, the young investors should be aware of the risks.
For one, the decision about whether to invest millions in a company can make or break it, Uzzaman said. One big investment can mean a company’s employees keep their jobs, but a missed investment opportunity can lead to job losses and threaten people’s livelihoods.
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Then there’s the risk to the investors themselves -- one bad move can mean they end up losing everything and it’s over.
Pompliano, who co-hosts a financial literacy podcast, Capital University, with Hall, said influencers should be picky about their investments and use their fame as an advantage because it makes them valuable partners.
He said the members of Sway House have taken a thoughtful approach to investing that he would recommend other influencers follow. They’ve surrounded themselves with long-time investors and experts and are aware of what they don’t know and aren’t afraid to ask for help.
“[They realize] ‘Hey, I’ve got kind of an opportunity right now where I’m young, there’s a lot of attention on me, but I know that doesn’t last forever, so I want to position myself to be a successful entrepreneur and investor over a long period of time,'" he said.