Three billion dollars for YouTube videos with nursery rhymes and basic animation?
That’s how valuable capturing kids’ — and parents’ — attention can be.
You might want to sit down for this…
Not only is the children’s streaming entertainment deal I’m about to tell you about an incredible bellwether for the broader media industry, but it’s also an amazing story of how everyday investors can use private investing to build lasting wealth.
In today’s Venture Capital Digest, I’ll tell you that story.
Even better, I’ve got two such stories today.
As we’ve been discussing here at VC Digest, private investing is one of the best ways to build generational wealth for you and your family. But until recent changes to federal regulations, the chance to invest in private companies was reserved for the ultrarich.
Now, everyday investors can grab their share of the wealth.
In the first of today’s two stories about that topic, it all started with some amateur cartoons and kids’ songs…
YouTube Is Minting Children’s Entertainment Moguls
It all started in 2006 when a tiny company started producing children’s videos and posting them on YouTube. Using low-quality animation and simple nursery songs, these free videos were made for anyone.
After years of creating and posting videos, this tiny company rebranded to “Cocomelon” in 2018. If you’re a parent of or have been around young kids in recent years, you’ve likely seen these videos.
Even if you’re not… you still may have seen Cocomelon.
That’s because it’s the second-largest YouTube channel, with over 120 million subscribers and well over 100 BILLION views.
To put that number in perspective, here are YouTube subscriber numbers for the world’s largest media outlets:
- BBC: 11 million subscribers
- CNN: 12.9 million subscribers
- Fox News: 8.3 million subscribers
- ABC News: 12 million subscribers
- Al Jazeera: 8.3 million subscribers
Cocomelon has more YouTube subscribers and views than the Top 5 major news outlets combined.
Those tens of millions of subscribers are why, in July 2020, Moonbug Entertainment Ltd. acquired Cocomelon, along with another popular kid’s channel, Blippi, for $120 million.
Since last year, Moonbug has been able to create partnerships with major streaming platforms such as Netflix (NASDAQ:NFLX), Hulu and Roku (NASDAQ:ROKU). Internationally, Cocomelon is now on a variety of different platforms in multiple languages, including Mandarin, German, Spanish, Portuguese and Arabic.
Here’s the part where you should sit down:
Last week, Moonbug Entertainment agreed to a deal where it would be acquired by two former Disney (NYSE:DIS) executives in a deal valued around $3 billion.
Remember, Cocomelon and Blippi were bought by Moonbug just a year ago for $120 million. Although Moonbug already owns multiple other brands, Cocomelon is by far the standout of the company’s portfolio.
If this deal goes through and Moonbug is acquired, the return on capital for private investors who backed Moonbug will be enormous.
Do you know what company owns the most single-family residences in the United States? With more than 80,000 homes in its residential real estate investment trust (REIT), Blackstone (NYSE:BX) takes that prize.
And Blackstone backed the $3 billion deal to purchase Moonbug.
Which brings me to our next story of early-stage private companies’ profit potential…
Blackstone’s Bet on Electric Trucks
Founded in 2009 by CEO R.J. Scaringe, Rivian has already raised more than $10 billion from some of the world’s top private equity investors. That list includes… Blackstone.
If Rivian’s IPO moves forward as planned, the company would be worth around $70 billion. For comparison’s sake, Ford and GM both have market capitalizations of around $80 billion.
With a legitimate U.S.-built electric truck, Rivian could disrupt the automotive industry.
Although Rivian will be a competitor for both GM and Ford, only one of these legacy automakers really needs to worry…
That’s because Ford has already invested around $1.3 billion into Rivian, making Ford and Amazon the largest investors in the startup company. It’s estimated that Amazon owns up to one-quarter of the company at this point.
Let’s be clear. That doesn’t mean that Ford or Amazon owns Rivian. What it does mean is that they will have significant influence and most likely first rights to acquire or partner with Rivian in the future.
But the real winners?
The real winners here are the early investors in Rivian. Let’s do some of the math here to see what a seed investor in Rivian might be walking away with…
Let’s be conservative and say Rivian’s seed round was valued under $70 million (most company’s seed rounds are valued at far less than $10 million). If that’s true, then Rivian’s seed investors would be eligible for up to 1,000 times their initial investment.
A simple $10,000 investment in Rivian’s seed round now could be worth more than $10 million.
However, as it goes with startups in fundraising stages, early-stage investors experience dilution during each funding round. That means that an investor’s equity becomes less and less each time the company raises money.
The best way to think of this is if you picture a giant pie. Each funding round decreases an investor’s slice of the pie. But… each funding round increases the total size of the pie. So, even though your pie slice is becoming skinnier, the total size is becoming larger.
I’ll cover private investing in more in-depth here at Venture Capital Digest in the coming weeks and months, including how you can find the next Moonbug or Rivian for yourself.
(Plus, you can find three private investments you can act on right now in your free special report: Top 3 Private Company Investments for 2022.)
For today, I think you get the picture:
Early investors in groundbreaking companies can make life-changing gains.
And here at Venture Capital Digest, that’s what we aim to do.
Editor, Venture Capital Digest
On the date of publication, Cody Shirk did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
By focusing on megatrends that will shape the future, Cody Shirk uncovers generational wealth in the private investing space. To make sure you never miss Venture Capital Digest, click here to subscribe.