Lady Gaga, Justin Bieber, 50 Cent, Ashton Kutcher: A-list celebs, sure. But they're also members of a Who's Who of new-age venture capitalists and product developers. That is, at least according to public perception.
In recent years, an increasing number of startups and big-name companies have looked to celebrity backers to boost their brands and street cred: Investors in Airbnb and Spotify include Hollywood stars and chart-topping artists; Beats Electronics has created headphones for Diddy, David Guetta, and LeBron James; and Justin Bieber recently graced the cover of Forbes under the the headline, "Venture Capitalist." But what they get depends on how much these celebrities are actually involved in their investments. What makes celebrity investment better than a traditional celeb endorsement of, say, McDonald's or Pepsi?
For a number of reasons—the generally sensitive nature of investments, sharp-elbowed celebrity publicists, and so forth—rarely does the public get insight into this area. But certainly the perception, at least in the press, is that certain celebrities have an innate business sense. Speaking with a range of entrepreneurs in the space, we look to see whether this reputation is warranted, or whether it's just Hollywood marketing 2.0. Below, a cheat sheet for you to tell the difference.
For most entrepreneurs, it all comes to what celebrities represent the right fit for their startups, and whether they are authentically interested in the products themselves. Sure, popular celebrities can bring much attention to a startup, but they have to engage with a startup's products in order for the relationship to be effective. For one entrepreneur, with backing from several A-list celebrities, it's incredibly important that a celebrity actually believe in a product before investing in it. For example, the entrepreneur says, the celebrities interacting with the product, whether on TV or elsewhere in the media, brings an attention that is unrivaled so long as it's genuine. "There's kind of an intangible value to that," the entrepreneur says. "That's something you almost can't put a price on."
Robert Brunner of design firm Ammunition LLC, which has notably developed the Beats by Dre headphones, agrees that authentic involvement is crucial, though acknowledges it varies from celebrity to celebrity. "It always works best when the celebrity is involved for reasons other than economics—where there's an actual passion there. With Dr. Dre, he's been fairly involved with the physical design, and really gets involved in the tuning and the sound. This is personal to Dre; it's a reflection of him," Brunner says. "Some other [celebrities] though, well, I've never met, and only get feedback through three levels of channels."
One startup founder, who has myriad celebrity investors, argues that a celebrity's involvement must be mutually beneficial to both brands. "You don't want someone making an investment just like they're selling some new bottled water," the founder says. "It's not like signing a deal with Pepsi where you have to do three events and a commercial. Are they really emotionally invested—and not just financially invested—in the product?"
In that sense, it doesn't matter how many followers a celebrity has on Twitter or how much engagement they could potentially create. If they're not the right fit for your startup—and your product—then it won't matter. In other words, microloan platform Kiva might not want Charlie Sheen as an investor. Inversely, Lindsay Lohan might not have been the right fit to have invested in enterprise social network Yammer before it was acquired. "[Celebrities] probably shouldn't go investing in productivity tools," the founder jokes.
Talk to entrepreneurs about celebrity backers and you'll inevitably soon be talking about press attention. "If you look across TechCrunch once a day, you're likely to see at least five companies with big-name angel investors," the startup founder says. "But I don't feel it's all that useful to have a name—to just have a vanity investor. It's not just a matter of getting any celebrity X, Y, Z."
Brunner too contends that it works much better when "it's more than just a name play," when it's not just "hollow celebrity branding." He cites doing design reviews with Pharrell and Lady Gaga, who get involved with the product development to provide feedback and inspiration.
"Name recognition hasn't meant anything to us," says the entrepreneur with A-list backers—a celebrity endorsement can't mask a poor product. The product has to be able to stand on its own.
Having celebrity investors is beneficial beyond what headlines their names can generate, most argue. "They're involved in the product itself, the decisions we're making, giving us input on what they think we should be doing across the board," the entrepreneur says. The startup founder agrees, explaining that celebrities are also very "helpful with introductions, with campaign and promotional ideas."
Still, as much as celebrities might boost engagement among fans, provide feedback and marketing prowess, as well as generate media buzz, the fact remains that celebrities are not exactly venture capitalists or product gurus, at least in the traditional sense. Sure, Bieber might be slated a new-age VC, but as the startup founder told me, "It's not like he understands liquidation preferences or how to structure a term sheet."
So be warned: Don't expect Kim Kardashian to lead your Series B round. But also remember that celebrities entourage—for every Vincent Chase, you're likely going to get an Ari Gold. "They have smart managers, smart lawyers, and smart agents—they're looking to bet on companies and categories that are going to be winners," says the startup founder.
One source deeply involved with the celebrity investment community describes the downsides of working with artists and actors: "The problem is most of the higher-level celebrities do not know or understand good design. They kind of know what they think is cool or looks cool, but it doesn't necessarily translate into good products. Another thing dealing with musicians is that in the music industry, you can change a recording until the last second it's published. You really can't do that on a product. So the problem I constantly run into is people wanting to go fuck around with this stuff late in the process, which is just catastrophic on a development schedule."
"It's a real problem if you put someone in a position where they can wield power over decisions, yet they have no clue," the source adds. "After all, celebrities are not used to hearing, 'No.'"
[Image: Photo mashup by Joel Arbaje]