Feel like more celebrities have become venture capitalists than ever before? You’re not alone.
Not a week goes by that another actor, athlete, musician, or internet celebrity doesn’t pop up on a cap table as an angel investor or via their family office-turned-venture fund. The media treats Ashton Kutcher as patient zero of the celebrity investing bug, but the truth is, celebrities have acted as minority partners in brands, businesses, and startups for decades prior. No disrespect to Kelso but if I’m being honest, it’s all become quite boring.
A decade ago, being a celebrity-turned-tech investor used to mean you were an early adopter, with rare connections into the new, exciting world of technology startups. Likewise, getting a celebrity investor in your company meant you were well-networked or that your product had the potential to catch the eye of the elusive glitterati. But with all the deal flow, advisers, syndicates and co-investment opportunities available to celebrities today, if you’re not at-least passively allocating some of your wealth into startups as an A-Lister, well, consider yourself B+ at best.
To me, there’s a new crop of startups that are way more intriguing than those merely ‘celebrity backed’ and I predict these companies will quickly grow in popularity — as barriers to start a technology company or consumer brand fall drastically, while the cost of digital customer acquisition continues to rise sharply.
It’s time to say “Hasta la vista, baby” to celebrity investors and “You had me at hello” to the age of celebrity cofounders.
Shining a Spotlight on Customer Acquisition
Google and Facebook’s combined vice grip over digital customer acquisition has already had a chilling effect on growth opportunities for burgeoning consumer products. Once all the rage in venture capital, direct-to-consumer (D2C) startups were hit especially hard as cost of customer acquisition (CAC) grew faster than customer retention and lifetime value (LTV). As a result, VCs foie gras’d promising young businesses with increasing amounts of private capital to try and seize market share.
D2C is a fantastic channel to grow an initial audience, test new markets, and iterate quickly on products but most investors missed the fact that there is nothing inherently defensible about a D2C distribution in itself. Aside from the first wave of D2C pioneers who leveraged cheaper digital ads to build lasting brand recognition, most of these companies that have raised obscene amounts of capital have not achieved venture scale exits.
Starting a consumer brand today, you ideally need a differentiated, wholly-owned, customer acquisition channel to break through the noise. Investors often point to Glossier’s Into The Gloss, as an example, where Emily Weiss developed a loyal following over 5+ years before merchandising Glossier into a $1B+ brand. Or they’ll cite Dollar Shave Club, whose founder Michael Dubin built a $1Bn grooming brand off his quirky, charming viral video ads on YouTube.
But let’s face it, you’re not as charismatic as you think, nor do you have 5 years to painstakingly build a cult media following to finally launch your app or product.
A Fame to Claim
The advent of social media ushered in the age of influencers. Whether on YouTube, Instagram, or via podcasting, these content creators primarily monetize their hundreds of thousands, even millions, of followers by hawking brands that supposedly “resonate” with them. But as the best influencers quickly become saturated (or overpriced), new brands are forced to move further down the celebrity stack which has lead to, among other oddities, the rise of nanoinfluencers.
Why move down the stack, when you should be moving on up!
In a melding world of investing, celebrity and social media, there’s never been more interest from celebrities to become technology entrepreneurs than there is today. Be it Maise Williams who went from slaying Freys and Lannisters to raising $2.5M for her talent discovery startup Daisie, or Rihanna who’s Fenty Beauty partnership did $570M last year after just 15 months in operation, or George Clooney who last summer sold his Casamigos tequila brand to Diageo for $1Bn after just 4 years. It would seem the celebrity-turned-founder story really resonates with fans, followers, and customers.
Compilation of notable celebrity cofounders and their companies, including both current and recently exited startups / brands.
Some venture firms are already leaning into this approach. Lightspeed’s Nicole Quinn in particular invested in celebrity shoutout app Cameo, Gweneth Paltrow’s lifestyle emporium Goop and was involved in the incubation of Lady Gaga’s new cosmetics brand Haus Laboratories.
Likewise, talent agency powerhouse, CAA has taken a key role in incubating startups on behalf of their A-list clients, starting with Will Ferrell’s Funny or Die, which raised $18M from Sequoia Capital among others, up to and including the 2017 launch of their CAA Venture Creative Labs which funded Belletrist, a next gen. book club cofounded by actress Emma Roberts.
Reaching for the Stars
While you might be inclined to write off celebrity cofounded startups as just “passion projects”, over $10B+ in combined enterprise value vehemently begs to differ.
Ask Dr. Dre about his ‘Beats by Dre’ collab with Jimmy Iovine which yielded a $3Bn sale to Apple in 2014, or Kylie Jenner, who just last week sold 51% of her billion-dollar beauty brand Kylie Cosmetics to Coty for $600M. Though they aren’t all unicorn exits, even more “modest” successes like Edward Norton’s Crowdrise (acq. by GoFundMe in 2017) and Kim Kardashian’s Shoedazzle (acq. by JustFab in 2013) should make you think about the disproportionate hit rate of celebrity or athlete founded startups.
Any consumer investor will tell you, it’s imperative for their startups to have distinct, unique advantages in an increasingly crowded market. For the best startups these advantages evolve into strong moats in customer acquisition (i.e. not Google or Facebook), distribution channels, brand identity, engaged community, network effects, or cost savings due to scale.
By virtue of their recognizibility and fan affinity, celebrities cofounding startups have helped dig not just one, but many moats. Their personal brand unlocks more cost-effective customer acquisition, whether on social or via earned media/PR, and the powerful draw of celebrity association makes it easier to access new distribution channels. After all, it’s a much easier sell for bars to feature Ryan Reynold’s Aviation Gin over Jay Kapoor’s signature whiskey.
Distribution advantages quickly feed a user base hungry for engagement with celebrity, building a community strengthened by network effects and perpetuating consistent user growth and better retention, all without needing the injection of excessive outside capital.
At a time where spend on digital marketing yields diminishing marginal returns why chase venture capital for customer acquisition. A celebrity cofounder is out there and she brings with her the many advantages of fame that money just can’t buy.
The Downsides of Stardom
You know the name of Honest Company’s founder, Jessica Alba, but not her cofounders Sean Kane and Christopher Gavigan. You know Yankees-legend Derek Jeter launched The Player’s Tribune but you don’t know his cofounder Jaymee Messler. You might’ve had a Skinny Girl cocktail (or six) thanks to Bethenny Frankel but you’ve never heard of her business partner and alcohol industry veteran David Kanbar.
In partnering with celebrity cofounders, you take on the duality of their existing success and fame. One clear downside is that, at least externally, this company’s success will be credited to your more famous cofounder while your involvement gets relegated to a footnote. For some founders, this is a Faustian bargain worth making every time, while for others, toiling for years under their notable cofounder’s shadow is more than the human ego can take. Beyond attribution, another key challenge stems from getting active involvement or engagement from them when they are busy on tour, in the middle of production or deep into the playing season. Remember, this startup may be your primary source of income but for most celebrities, monetarily, it’s a distant second.
Yet I don’t want to paint with too broad a brush. Between my time at the NFL and MSG I’ve been fortunate enough to advise quite a few athletes hoping to refashion themselves as tech entrepreneurs in their post-playing careers. The vast majority approach this new challenge off-the-field with the same high level of dedication, diligence, and discipline that brought them such success on-the-field. The best ones remain highly coachable and look to partner with quality, experienced CEOs willing to guide them on the business but still involve them in day-to-day decision making.
To me, this is the core difference between a celebrity-invested startup and a celebrity cofounded one, and why I welcome the latter: skin in the game. When a celebrity VC backed startup folds, that’s just venture portfolio theory at work. On to the next one. But when a company cofounded by a celebrity falters, it’s their name, pride, and brand — not just their money — on the line. If you don’t believe me, ask Fyre Festival’s cofounder Ja Rule.
In the coming decade, many more billion-dollar brands will be built in concert with celebrity cofounders, and critics too eager to dismiss the power of stardom are simply missing the plot.