Slow Ventures invested $2 million into a YouTuber with 600,000 followers...but was it a smart investment?

At first glance, the math doesn't add up.

Woodworking YouTuber Jonathan Katz-Moses of KM Tools’ metrics:

Slow Ventures invested $2 million into his business. Standard venture terms would be to take 20% of a company, which would value him at $10 million, but Slow has said in the past that they invest for 10%, which means he could be valued at as much at $20 million.

Does $2 million for 10%-20% of a 500k view-per-month YouTube channel with 600k followers make sense?

Obviously not.

But here's what I didn't tell you:

He clears $10 million a year in woodworking tool sales through his business KM Tools. They sell over 1,000 products including over 100 that they manufacture themselves.

If their average order value is $100 (educated guess), that means they sell something to 1.7% of their total views in a year ($10M / $100 = 100k sales / 6M views = 1.7%). That conversion rate is fantastic. That means that every 100 views they add makes them $170.

The average Earnings Before Interest and Taxes (EBIT) margin for the Appliance & Tool Industry is 21.81% - so that's $2.181 million in EBIT profit.

Average multiples are 1.94x revenue or 16.64x EBITDA...and he's still growing.

So now does the $2M investment make sense? Absolutely.

But then I guess the question is...Did Slow Ventures really invest in a Creator? Or did they invest in a tool company?

In this case, it’s the same thing.

That’s what I mean when I say the Creator Economy is becoming the Economy.

Last week at the Slow Ventures Summit, Jonathan spoke to an exclusive room of executives and top Creators about how he built this business. I was there, and when he explained his process for launching and fulfilling pre-orders, I knew I had to share it with you…Which I will do below after a word from our sponsor.

Most people think about launching a physical product backwards. They try to raise money, find manufacturers, build inventory, then hope people buy.

Jonathan did it differently. He used pre-orders to de-risk everything.

Here's the process he shared:

Phase 1: Design and Validation

Start with $2,500-$5,000 to design a product and hire an engineer to optimize the design for manufacturing.

You're not building anything yet - you're just developing the product idea and making sure it can actually be made. Yes, I know $5,000 is a lot of money, but if done correctly, this is the most you will spend out of pocket (as opposed to the hundreds of thousands or millions needed to buy inventory).

As part of this process, you should poll your audience to try to understand how many of your product you might actually sell. You’ll need a quantity estimate for your manufacturer in order to get a sense of your costs and back into your product pricing.

Phase 2: Find Your Manufacturer

Look at similar products on Alibaba and ImportYeti to find manufacturers. Most likely you'll end up manufacturing in China. That's just how the global supply chain works, for better or worse - even with the tariffs (more on that in a second).

Pro Tip #1: Negotiate to have the 100 first products off the line sent to you as samples before full manufacturing, to check quality. This is your safety net - most manufacturers offer to send you the first one or two, but often they will pick the best of the first run and send it your way to hide larger quality issues. You want to see 100 of whatever it is so you can be as sure as possible that you are selling a quality product.

Pro Tip #2: You should also make sure to negotiate for Delivered Duty Paid (DDP) in the deal. This term means that the manufacturer pays import tariffs, not you. Although the cost will end up getting passed to you, manufacturers somehow tend to end up paying a lower tariff than importers. How or why is something you don't want to know - you just want it to be on them, not on you.

Phase 3: Launch Pre-Orders

This is where most people mess up. Launch your pre-order campaign before you manufacture anything. Price the item such that:

You'll have to do some research on this stuff ahead of time, but it will save you a lot of headache.

Phase 4: Manufacturing and Fulfillment Here's the most important part: DO NOT SPEND PREORDER MONEY UNTIL PRODUCT IS SHIPPED TO CUSTOMERS.

Why? Shipping will be an additional significant expense on top of manufacturing and import, and there may be other unforeseen costs if something goes wrong. If you spend the pre-order profits before you’ve fulfilled your pre-orders, you may end up in trouble.

You may also have a good problem: too much demand. If your pre-order quantity goes much higher than you estimated with your manufacturer, it's likely to take longer to manufacture everything and get it out to customers. In that case, do the following:

Phase 5: Scale Intelligently

Find a good factory and stick with them, but test a new factory every 3-4 products to avoid dependency risk. You don't want to be stuck if your main manufacturer has problems or decides they want to jack up prices on you.

Jonathan's approach removes almost all the risk from product creation. Instead of gambling your own money on whether people will want something, you let them tell you by putting money down first.

It’s important to keep in mind, though, that selling anything only works if you have an audience that trusts you and wants what you're making.

Jonathan spent years building credibility in the woodworking space. When he says a tool is good, woodworkers believe him because they've seen his work. When he designs a tool, they want it because they know he understands their problems.

The pre-order strategy is just the secondary part of KM Tools’ execution; the primary is their content and the relationship with the audience that its’ enabled.

That's what Slow Ventures really invested in - not a YouTuber, and not really a tool company. They invested in a direct connection between a trusted expert and a passionate audience, with a scalable product offering that turns that connection into profit.

What do you think - are you sitting on a similar opportunity? And what would you sell if you could? Let me know - [email protected].