Only Fans vs Revolut: What’s the better investment?
Without the porn industry, we might not have had Mark Zuckerberg (good thing?). A long time before Mark noticed kids at Harvard liked to share photos of themselves, hard-nosed porn industry veterans in Las Vegas and The Valley (LA) had appreciated how significant the internet was for their industry.
For them, it was the biggest disruption to how their business worked since the transition from movie theatre to video, a theme portrayed in Boogie Nights. In fact, it was the porn industry that drove the early years of the internet. They were the people who developed key web technologies like picture formats and file sharing and a lot of the internet business models that exist today.
Although the niche has always been profitable, the numbers from Only Fans the other week were outrageously good. It did close to USD$1bn in sales. That’s huge when you think Canva did USD$1bn in sales as recently as 2021.
From an investment point of view, it ticks a lot of boxes for venture capital. It’s a classic two-sided marketplace with strong network effects. If it continues to be successful, it should establish a dominant market position as the whole thing becomes self-reinforcing. This in turn means the company will be able to charge very large profit margins. It’s basically the dynamic that has kept eBay the primary way of doing auctions online for over two decades.
Unfortunately for Only Fans, most VCs steered clear because of their Vice clause. Venture Capital firms raise money from Harvard endowment and the like. Harvard doesn’t want a headline saying it invested in a porn platform to come out one day.
Instead of porn, venture capital firms have continued ploughing money into fintech, albeit at a slower pace. In 2021, according to CB Insights, USD$1 out of every USD$5 of funding flowed into fintech start-ups. Pitchbook data suggested fintech start-ups collected USD$53.5 billion in the 1H of 2022, behind 2021’s pace but already surpassing 2020s totals.
This brings us to Revolut, the UK’s crypto-friendly neo bank. It would seem that it’s in trouble with a UK financial regulator over a “material misstatement in auditing.” It’s another example of why fintech is the most hyped area of venture. Not only did a survey of 25 of the biggest neo banks show that only two of them reached profitability (most earn less than USD$30 in revenue per customer ANNUALLY), but there have also been a lot of oversight issues.
The believers defend the failure of Australian neo bank, Volt, because of the lack of scale in the Australian market and because the incumbents have a decent digital presence already. But are we sure the scale argument is really true? Has there been one that works really well in the US yet? And aren’t one in three neo banks effectively a digital project by an incumbent anyway?
The vice argument is also worth thinking through when comparing porn and fintech. The author thinks internet porn should be taxed heavily along with high frequency trading, internet ads and sugar, but can fintech really take the moral high ground? Haven’t most of the applications served to help people with no money spend more of it? BNPL? Let’s not pretend it’s always pursued for a virtuous reason. Andreesen Horowitz changed their fund rules to participate in token sales, not to help humanity. President Xi has made a lot of mistakes but preventing Jack Ma from getting his golem like hands on the country’s consumer credit industry was not one of them.
The author believes fintech will prove to be ephemeral and not much of it is going to change the way banking works in the end. Despite all the hype, haven’t ATMs had more of an impact on banking than blockchain?
Instead of fintech, venture and private money would be wise to focus on the real issues facing humankind right now. They are things like shelter, education and maybe even entertainment. Young men playing fantasy games about hobbits or looking at nude pictures, or heavens forbid, a combination of the two, is not going to build the next generation we need! And it’s doing nothing for their sense of self-worth with so many young men tragically taking their lives. Something is gravely wrong. Let’s think bigger. Let’s go!