In recent years, there has been an increase in celebrity investing of tech startups. Although official statistics are hard to come by, as a group, these investors are putting in tens of millions of dollars to work each year. From Hollywood stars to professional athletes, market participants have included Ashton Kutscher, Leonardo DiCaprio, Lebron James and Shaquille O’Neill. There have also been tech startup investments made companies that are involved in the production of entertainment, like Disney, Comcast, WME Ventures and CAA.
A question I often hear from entrepreneurs is whether taking in such money really provides any additional value?
In the past several years, I have been fortunate enough to get a front-line view on this very topic as I have been active in startups which have received investments from a range of performers and public figures such as Beyonce, Troy Carter, Carmelo Anthony and Barbara Corcoran. Given the choice, private companies that can secure celebrity capital can benefit in five ways.
1. Market awareness
By definition, many celebrities have prominent public profiles and substantial social media followings that can number in the millions (Ronaldo has 48MM Twitter followers alone). Generally speaking, when they disclose an investment, it tends to get covered in the business and tech press. This can help a startup that’s trying to make a name for itself gain market recognition and provide PR value that would be expensive or difficult to achieve otherwise. Such heightened awareness tends to get noticed by many of the company’s important stakeholders, including potential business partners, customers, investors and employees.
2. Closing a round
If a celebrity investor is perceived as strategic, his or her involvement can also help a company close its round, either by helping lure other celebrity investors (as they say, birds of a feather flock together) or financial investors. Even if the strategic value of the investor is not obvious, don’t underestimate the drawing power a celebrity investor has with potential co-investors who’d like to get a seat at the table, and who want to chat up the fact that they have co-invested with Bono or Ashton Kutcher. While it likely won’t help them get tickets to a concert or a dinner party invitation, it can help bolster their profile in the investment community by increasing their “cool factor”.
3. Commercial opportunities
Since many of these types of investors generate tons of media impressions and have a social network that tends to be made up of other influencers, they can be helpful in terms of opening up doors to folks in your industry. Imagine a sports drink or the latest social networking or communication app that have mass appeal. Many celebrity investors, and their business managers, have access to television networks, advertisers, agencies and other business organizations that they regularly interact with. For the right company, these relationships can open up new doors or may even help accelerate discussions.
4. Traffic explosion
Many celebrities invest in consumer products or tech because this is what they’re familiar with the most, and it’s an area where they can have real impact. If your company sells a product to consumers, a celebrity can help drive bursts of traffic to your web and mobile sites. This can drive short-term sales and be good for SEO and the collection of consumer information, like email addresses. Entrepreneurs should understand that the organic reach that this can provide is not a substitute for a sustainable and effective marketing strategy. But it does tend to yield consumer interactions that should be capitalized upon.
5. Employee morale
It may be a bit more subtle, but an investment by an individual or firm that is widely recognized can also boost employee morale. In addition to serving as another form of validation, it provides a sense of momentum that sometimes can make employees feel like they are part of something special. The more the celebrity associates him or herself with the product, the stronger the affinity that employees may feel. Although this will not offset deeply-rooted problems with company culture or morale, it can provide a timely, albeit temporary, rallying point for staff.
So, if you are in the hunt for capital, and spark interest from a celebrity investor, once the flattery wears off, keep in mind the different ways their involvement can help your business hit a new chord.