Did the pursuit of venture capital millions lead to a shocking pivot by OnlyFans? The creator platform surprised the online world on Thursday when it announced that it would ban sexually explicit content from its site starting in October after such content propelled the site to cultural relevance — and runaway sales growth — during the pandemic.
The move came as a surprise for the sex workers who had come to depend on OnlyFans as a source of income. It also happened amidst a BBC investigation that OnlyFans was looking the other way about illegal content. And hours before, Dan Primack at Axios reported that the company was struggling to find name-brand investors that would bolster its credibility – even despite a reported run-rate of $1.2 billion in revenue in 2021 and doubling, and free cash flow of about half of that. “In short, OnlyFans has a porn problem,” Primack wrote.
But was venture capital a realistic option for OnlyFans, and does that equation change given its move? Conversations with venture capitalists who met with OnlyFans or have knowledge of its meetings paint a picture of limited, but at least lukewarm interest — and challenges that would face any would-be startup successor leaning into the adult content the company’s abruptly abandoned.
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The vice clause
To understand OnlyFans’ VC prospects, one must first consider the “vice clause,” or covenant, that venture capital firms make with the investors whose money they deploy (venture capitalists typically only play with a relatively smaller pool of their own cash, in exchange for a somewhat larger share of the upside). These agreements limit how venture firms can invest away from their core focus. (Such restrictions on holding public equities and cryptocurrency investments, among others, are a big reason name-brand firm Andreessen Horowitz moved in 2019 to re-designate itself as technically not a VC firm.)
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Larger and more established VCs seek out universities, endowments and non-profit institutions as backers of their funds. And for those organizations, the nightmare scenario is this: a headline like “Cornell University Early Investor in Massive Online Porn Firm: Report,” one of several that ran after a deep dive into PornHub’s owner by The Financial Times added to the scrutiny on the porn site last winter, and swiftly forced major changes to what content the company kept on its site. As such, the most common such clauses make taboo any investments in areas such as sex, tobacco or historically illegal drugs.
Some firms have no vice clause. Even then, such investments can face extra scrutiny due to the potential for government investigations, crackdowns by payments processors, and backgrounds that don’t fit the pattern matching of Silicon Valley software businesses. (Forbes has previously reported on OnlyFans’ majority owner Leonid Radvinsky’s roots in adult entertainment’s sketchy early era online.)
Chasing dollars
OnlyFans met with some of venture capital’s biggest names in its early days (it was a fledgling site when Radvinsky bought control in 2018). One firm passed when it became clear that the site’s future appeared to be mostly porn, says an investor with knowledge of the meeting; at Founders Fund, a firm with no vice clause, former investor Cyan Banister, now a partner at Long Journey Ventures, remembers the firm meeting with OnlyFans and passing because of concerns about its lack of record-keeping on its performers and creators, from age verification to tax information.
“A lot of companies with user-generated content, think that because they are community-driven, they are not responsible, but they are,” Banister says.
OnlyFans did not respond to a request for comment.
More recently, firms have met with OnlyFans during its boost in cultural relevance and a sense from investors of its fast pace of growth, sources say. But many were more interested in meeting OnlyFans out of curiosity, speculates a partner at one top-tier firm. “I’ve met with companies because I think they’ll be really cool meetings, knowing there is 0% chance I’d want to invest,” that investor says. “Some VCs just love business stories, hearing how it happened and what they were thinking.”
OnlyFans 2.0
If OnlyFans is yielding the adult content category — something Banister isn’t so sure of, noting that the company’s announcement gave itself plenty of time for sentiment or decisions to change — would another startup be able to capitalize on VC interest to take up the mantle?
At Vice Ventures, firm founder and former 30 Under 30 callout Catharine Dockery invests explicitly in vice companies that make other firms shy away. While Dockery disagrees with some VC investors who told Forbes that such a company would have limited possibilities to find buyers, she notes that OnlyFans follows in a history of other companies like Snap and Tumblr of clamping down on adult content over time.
“A company of their size and scale would usually have a lead for their round with minimal fuss,” Dockery says. “Why are profitable businesses leaving the space and pivoting to unproven business models?”
The history of venture capital investing in such businesses 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 that could live on the social media platform. Arsenic raised $3 million in seed funding in 2016 from Crosslink Capital and CrossCut Ventures. The investment appears defunct now: the venture partner who led the investment for CrossCut, Clinton Foy, didn’t respond to a request for comment; Omar El-Ayat, who talked up the investment at the time for Crosslink, is no longer with the firm. He declined to comment.
Interest is there from entrepreneurs, says Dockery, but little substance so far. “I’ve been pitched about 100 different OnlyFans 2.0 startups,” says Dockery. “We would definitely invest in something like that, but OnlyFans is truly the only one with market share.”
Banister, who once ran a website for pin-up photography, says she has gotten countless messages in the past several days asking her to launch her own version. “If I had the stamina and the energy to start another company in the space, and certainty I wouldn’t go to jail, I would do this in a heartbeat,” she says.
The bet
OnlyFans’ investment options may have opened up with its announcement, while paradoxically shrinking due to their pending loss of growth by shutting off a major vertical on the platform. The biggest risk factors to a business like OnlyFans remain the likes of Visa and MasterCard cutting it off, as well as a high level of charge-backs and fraud — not Sand Hill Road cutting a check.
But for now, those suffering most from the announcement are creators, especially sex workers, who find themselves scrambling after the sudden news. “They are good people, they are adults, and this cuts them off at the knees,” says Banister. “I am not sure where they go next after this.”
Would anyone back OnlyFans now, without its problematic golden goose? The company may struggle to overcome its reputation, even if growth rebounds, investors say. But several investors said they were confident that enough peers would be interested in its financial upside to accept its history, provided it can show a path for growth again. “Anyone who would back [vaping business] JUUL would back OnlyFans,” one quipped.
By Alex Konrad, Forbes Staff
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