Executive Summary

Celebrity investment on the rise
  • Since 2007, the top 75 investors by number of deals have participated in over 350 funding rounds totaling around $4.6 billion.
  • In 2015, celebrities invested around $2 billion across 101 deals to private technology companies.
  • Of the top 22 most active celebrity investors, around half were from the music industry, while the rest gained fame from TV, movies, sports, or fashion.
  • Celebrities are now drawn to the space because Silicon Valley is sexy and involvement has become a status symbol—cash ebbs and flows, and tech investments don't affect their primary stream of income.
In what types of companies do celebrities invest?
  • Celebrities frequently invest in Series A or Series B companies. Series A is the most popular point for celebrities to invest since the audience has been established and the celebrities' personal brand can elevate the startup to the next level.
  • Cryptocurrencies, blockchain, and ICOs. Many celebrities have jumped on the cryptocurrency bandwagon. Recently, celebrity advocates such as Gwyneth Paltrow, Jamie Foxx, and Paris Hilton have joined in on the action. The hashtag #bitcoin now appears in more than 562,102 Instagram posts.
  • Esports. Many celebrities, professional athletes in particular, are also buying into the emerging phenomenon of esports. Esports is a booming global industry where skilled video gamers play competitively. Major capital inflows have come from the sporting world, including Shaquille O'Neal and Alex Rodriguez, Mark Cuban, Rich Fox, and Jeremy Lin.
  • More traditional startups. The startup that received the most celebrity support is mattress manufacturer Casper. The company is backed by Ashton Kutcher, Nas, Scooter Braun, Steve Nash, Leonardo Dicaprio, Tobey Maguire, and others. The largest funding round since 2007 with celebrity participation was ride-sharing company Lyft, which raised $530 million in a Series E round.
Models of celebrity involvement
  • Equity for endorsement. In this model, a celebrity investor agrees to provide publicity and connections in exchange for a percentage of the company. One of the first celebrities to leverage this model is rapper Curtis Jackson, known as 50 Cent, with Vitaminwater. He made $100 million when Coca-Cola bought Vitaminwater's parent company for over $4 billion in 2007
  • Creating their own VC funds. These include four-time Super Bowl champion Joe Montana, NBA all-star Carmelo Anthony and, most recently, NBA star Kobe Bryant. A successful example is Ashton Kutcher, who, along with billionaire Ron Burkle and music manager Guy Oseary, launched A-Grade Investments in 2010. Over six years, they've turned $30 million into $250 million, an 8.5x multiplier.
  • Launching their own companies. One of the most successful examples is rapper and producer Andre "Dr. Dre" Young's headphone company Beats Electronic, which launched in July 2008. In 2014, Apple acquired the company for $3 billion. It was Apple's largest acquisition to date, and Dr. Dre reportedly made $500 million off the deal.

When Hollywood and Silicon Valley Converge

Frederic Kerrest, co-founder of Okta, poses a simple question: Who would you rather have endorse your product: Colin Kaepernick or Ben Horowitz?

Today, there are many celebrities that have become investors and many investors that are borderline celebrities. One thing is clear: The division between Hollywood and Silicon Valley has become increasingly blurred. Though in the past it has been common for famous entertainers, musicians, or actors to grow their wealth through real estate, royalties, or restaurants, celebrities today are turning toward tech investments. There are now even businesses that specialize in connecting celebrity investors with startup opportunities. Perhaps it’s only natural; after all, celebrities have distinct personalities and presences, are innovative, and possess high quantities of investable capital.

This article explores why celebrities are drawn to Silicon Valley, the types of companies they invest in, different models of celebrity involvement, and commentary on how it impacts the tech industry.

Celebrity Investment Is on the Rise

According to a report by CB Insights, since 2007, the top 75 investors by number of deals have participated in over 350 funding rounds totaling around $4.6 billion. In 2015, celebrities invested around $2 billion across 101 deals to private technology companies. CB Insights found that, of the top 22 most active celebrity investors, around half were from the music industry while the rest had gained their fame from TV, movies, sports, or fashion.

If you have lingering doubts about how popular celebrity tech investing has become, consider that Apple TV recently launched original content for the first time, including a show called Planet of the Apps. Think The Voice meets Shark Tank. On the show, celebrities Jessica Alba, Gwyneth Paltrow, Will.i.am and Gary Vaynerchuk sit on a panel and judge tech pitches.

So, why are celebrities compelled to invest in tech?

Silicon Valley Is Sexy

The tech world is red hot, and celebrities are not immune to its appeal. Similar to designer clothing or being mentioned in a rap song, being involved in tech has become a status symbol. NBA player Andre Iguodala said, “When I first came into the league…you just had to have a certain car, or two or three or four or five, and you had certain clothes, certain shoes, to let everybody know you were a basketball player.” Nowadays, players leverage tech to demonstrate their relevance and to brand themselves as more than just an athlete.

Still, it’s worthwhile noting that investing in, promoting, or becoming entrepreneurs outside of their primary cash stream is not a new concept. In the past, many celebrities have tended to focus on consumer products like sneakers, perfume, alcohol, and restaurants. In June 2017, George Clooney’s tequila company Casamigos sold for over $1 billion to spirits giant Diageo. Nowadays, there seems to be a shift where celebrities tout apps, online platforms, and general VC-backed startups.

An interesting case study is Jessica Alba’s Honest Company, which produces and sells consumer goods but is funded and staffed like a tech company. The Honest Company raised $228 million in five years and was previously valued at $1.7 billion. At one point, the company was in talks with Unilever about possible acquisition, but Unilever ended up purchasing competitor Seventh Generation. Since the Unilever fiasco and a slew of lawsuits, CEO Brian Lee was replaced and the company is now seeking funding at a valuation below $1 billion.

Cash Ebbs and Flows, and Careers Can Be Short-lived

Though typically associated with exorbitant wealth, many artists and professional athletes have inconsistent cash flow. That is, a large payment from something like a concert tour must be managed to cover everyday expenses and future endeavors. According to Morrie Reiss, a California-based financial planner, “It’s feast or famine…You don’t really know.”

Oftentimes, what makes a celebrity famous is not what keeps them rich. Despite soaring popularity during a certain time, financial dry spells are common and they must figure out how to continue building their wealth post-retirement. The average professional athlete’s career is over after age 33, but can be over as early as age 28 for physically demanding sports like American football. The same has become true for actors and actresses today: Up until the 90s, most broke out in their twenties and took on their defining roles in their thirties and early forties. Today, they break out in their teens, their twenties are their “prime acting real estate,” and 30 is the age at which women win their Oscars. As a result, celebrities need to seek ways to invest and make earnings continuous, with tech being the latest channel to invest in.

Tech Investments Don’t Affect Their Primary Income Stream

Unlike mainstream venture capitalists whose careers suffer if the startups they invest in fail, celebrities’ primary income streams and reputations do not take the same hit. Therefore, celebrities have more flexibility to take more of a risk without affecting their primary careers. Investing in startups and even serving as advisors requires less work than say, opening a restaurant or starting a clothing line.

In What Types of Companies Do Celebrities Invest?

There isn’t much rhyme or reason to the types of companies celebrities typically choose to become involved in. Still, below are a few patterns we can glean:

Celebrities Frequently Invest in Series A or Series B Companies

Celebrities typically prefer not to invest in seed funding, as those rounds are aimed at financially supporting the early stages of product development, including product design and iterating. Because celebrities get the most out of their investment when the targeted consumer aligns with their followers, Series A is the most popular point for celebrities to invest. At this point, the audience has been established and the celebrities’ personal brand can elevate the startup to the next level.

They Invest in a Diversity of Areas

While some celebrities choose to invest in the area in which they’ve made money, they often diversify. Some of the most popular areas of investment include the following:

Cryptocurrencies, Blockchain, and ICOs

Many celebrities have jumped on the cryptocurrency bandwagon. While Ashton Kutcher and Nas were early investors in the space, recently celebrity advocates such as Gwyneth Paltrow, Jamie Foxx, and Paris Hilton have also joined in on the action.

More specifically, many celebrities have submitted to the craze surrounding initial coin offerings (ICOs). ICOs help firms raise cash for the development of new blockchain and cryptocurrency technologies. Instead of issuing shares of ownership, they offer digital tokens, or “coins.” ICOs allow startups to raise money without dilution from private investors or venture capitalists.

In a tweet, hotel heiress Paris Hilton announced that she would be participating in LydianCoin’s ICO, which promotes itself as the “first AI big data marketing cloud for blockchain.” Boxing icon Floyd Mayweather has also bragged on Instagram about plans to make a “-hit t-n of money” on the Stox initial coin offering, an investment prediction project. Figures like Mayweather use their Instagram accounts to promote cryptocurrencies with pictures of literal money piles and luxury cars. This cryptocurrency promotion strategy has become increasingly common among “influencers,” as the hashtag #bitcoin now appears in more than 562,102 Instagram posts.

Image of the Instagram post from Floyd Mayweather
Source: Instagram

Esports

Many celebrities, professional athletes in particular, are also buying into the up-and-coming phenomenon of esports. Esports is a booming global industry where skilled video gamers play competitively. In the same way that traditional sports have competitions in baseball, basketball, and football, esports encompasses competitions across a variety of video games. Its first major capital inflows have come from the sporting world, including Shaquille O’Neal and Alex Rodriguez, Mark Cuban, Rich Fox, and Jeremy Lin.

More Traditional Tech Startups

Of course, celebrities are also investing in startups that fall into other categories. The startup that received the most celebrity support is mattress manufacturer Casper. The company is backed by Ashton Kutcher, Nas, Scooter Braun, Steve Nash, Leonardo Dicaprio, Tobey Maguire, and others. The 22 most active celebrity investors have also backed numerous unicorns including Spotify, Gusto, Docusign, Zenefits, and Airbnb.

The largest funding round since 2007 with celebrity participation was ride-sharing company Lyft, which raised $530 million in a Series E round. A portion of the backing came from the band Linkin Park through their fund Machine Shop Ventures.

Types of Celebrity Involvement in Startups

Equity for Endorsement

In this model, a celebrity investor agrees to provide publicity and connections in exchange for a percentage of the company. One of the first celebrities to leverage this model is rapper Curtis Jackson, known as 50 Cent, with Vitaminwater. Instead of a typical cash endorsement deal, Jackson’s manager indicated that they wanted to invest. In 2004, the then-head of marketing at Vitaminwater, Rohan Oza, brought 50 Cent on board as an equity partner. Jackson’s stake in the company graduated over time and escalated if the company hit certain metrics. Jackson’s manager is rumored to have negotiated close to 10% of the company’s value.

A key to the successful partnership was its emphasis on authenticity, as Jackson genuinely loved the product. Growing up around alcoholics, he didn’t drink; in fact, he exercised daily and ate healthy. Bored of drinking plain water every day, Jackson regularly imbibed Vitaminwater. According to Oza, “He integrated it into his life, the brand blew up, and he made an enormous amount of money.” The company even created a flavor named after him, Formula 50. When Coca-Cola bought Vitaminwater’s parent company for over $4 billion in 2007, Jackson made $100 million. Since then, many others have adopted this model, including Kim Kardashian with Shoedazzle and Tiger Woods with Fuse Science.

Image of advertising material for Vitaminwater
Source: Rap-Wallpapers.com

Regular Investment, Minimal Endorsement

Still, there are some celebrity investors that choose only to provide the capital, with minimal disclosure or promotion. Pop star Justin Bieber is one such individual. Bieber’s first, undisclosed investment came in 2009, which has led to a slew of tech investments in companies like messaging platform Tinychat, gaming outfit Sojo Studios, music streaming service Spotify, and others he won’t reveal. Spotify wouldn’t even discuss Bieber’s investment. A typical deal will require around $250,000 of Bieber’s money at favorable pricing generally reserved for smart money. Bieber’s manager Eric Braun revealed that the size of Bieber’s portfolio represents between 2 and 5% of his total net worth.

Image of Forbes cover featuring Justin Bieber's VC efforts
Source: Forbes

Creating Their Own VC Funds

Many celebrities have actually started their own venture capital funds. These include four-time Super Bowl champion Joe Montana, NBA all-star Carmelo Anthony, and most recently basketball legend Kobe Bryant. Bryant will be partnering with Jeff Stibel, launching with $100 million, and will focus on investing in technology, media, and data companies.

Perhaps one of the most notorious celebrity investors is Ashton Kutcher. Though he’s known for playing goofy characters on TV, in reality he has a background in biomedical engineering. He, billionaire Ron Burkle, and music manager Guy Oseary launched A-Grade Investments in 2010. The three put $2.5 million into Airbnb, which is now worth $90 million. They also placed $500,000 in Uber, which is now worth over $60 million. Over six years, they’ve turned $30 million into $250 million, a multiplier of 8.5. Their success has prompted notable investors to pour money into the fund, including Andreessen Horowitz, Mark Cuban, Marc Benioff, and Liberty Media.

Another notable celebrity venture capitalist is rapper Nasir bin Olu Dara Jones (Nas), who launched QueensBridge Ventures in 2014. The fund typically invests $100,000 to $500,000 in a company’s early rounds. To date, it has invested in 127 companies with 23 portfolio company exits, including the acquisition of Fitmob, a cross-network fitness membership acquired by ClassPass, and Synata, an enterprise cloud search engine acquired by Cisco.

Chart 1: QueensBridge Venutre Partners Investments, with Highlights

Launching Their Own Startup Companies

Some celebrities have even created their own tech companies. One of the most successful examples is rapper and producer Andre “Dr. Dre” Young’s headphone company Beats Electronic, which launched in July 2008. In 2014, Apple acquired the company for $3 billion. It was Apple’s largest acquisition ever, followed by the 1997 $404 million purchase of NeXT. Dr. Dre reportedly made $500 million off the deal, placing him as the second richest hip hop artist in the world.

Chart 2: Beats Electronic is Apple's Largest Acquisition to Date

Rapper and producer Jay Z has also tried his hand at tech entrepreneurship with Tidal. In 2015, Jay Z bought a Norwegian music streaming service for $56 million, vowing to turn it into a company rivaling Spotify and Apple. Unfortunately, the company has since experienced issues ranging from technical difficulties to changing leadership. While Tidal had amassed only 4.2 million subscribers by May 2016, Spotify boasts more than 100 million active users, 50 million of whom pay for the service. Apple Music, a distant number two among streaming services, had 27 million subscribers.

Spectrum of Opinions on the Trend

While some view the influx of celebrity capital as negative and indicative of a tech bubble, others are much more positive about it. Below, we represent a few of these thoughts and rationales:

The Negative

Influx of “Dumb Money” and an Indication of a Tech Bubble

“You know there’s a bubble,” the saying goes, “when the pretty people show up.” According to Josh Lerner, a professor at the Harvard Business School, celebrity investing could be indicative of a “market top – where uninformed people are piling into a hot investment area.” Many experts fear it’s yet another indication of a tech bubble.

With funding money starting to dry up as VCs become more discerning about where they place their bets, startups have had to become more creative with their funding methods. According to Aswath Damodaran, a professor at the Stern School of Business, “It’s been happening for a couple of years. It’s not as easy to raise capital and VCs are demanding better terms.” This is partly because of a slowdown in companies going public—last year was the slowest for US IPOs since the recession.

Therefore, those who are more cynical in the space view this recent trend as an influx of “dumb money.” To be clear, the “dumb” does not refer to the intelligence of the celebrity investors. In fact, many are clearly conversant with financial terms and business. However, people can be smart and savvy at their chosen profession and still act unwisely with asset allocation. Many warn of the danger of when people get outside their core competency. Andreas Antonopoulos, an early Bitcoin investor, called celebrity involvement in ICOs a modern-day “shoeshine boy moment,” referring to the famous Joe Kennedy quote describing the stock tip he received from a shoeshine boy before the 1929 Wall Street crash.

Another popular opinion is that celebrity investing can be counterproductive. And, while some entrepreneurs are excited to bring famous people on board for publicity, sophisticated investors tend to shy away from it. According to a Forbes piece, “VCs often discourage the involvement of celebrities because such investments often come with egregious demands for Hollywood-style ‘sweeteners,’ such as ‘Advisor Options,’ which reduce the cost of the celebrity’s investment while diluting the other investors.”

The Favorable

Better Funneled into Startups Than Spent Frivolously

There are some venture capitalists who welcome the new trend. Anshu Sharma, a venture partner at Storm Ventures, said that he is pleased to see wealthy people invest in companies rather than sit on their money: “If more rich people were helping people start companies and fewer people were chasing $100 million condos to buy in New York, we would have a better world.”

If celebrity endorsements are genuine, they can be effective in creating market awareness, help to close a round, and even raise employee morale. Professor Lerner mentioned that celebrity VC could be viewed as “a natural extension” of celebrities’ inherent ability to influence the public—enhanced in recent years by Twitter and other social media—directed toward selling products.” Beyond selling, celebrities can serve as powerful advocates for the product or service. According to Ashton Kutcher, “I think where the celeb thing comes in handy is in being vocal when companies come up against regulation or simply getting a return phone call from a strategic BD situation.” When Uber was facing a ban from New York City, Kutcher, with over 18 million Twitter followers, leveraged the platform to address the issue. While it might not be accurate to credit Uber’s eventual success, it was helpful to have a network to activate.

Image of a tweet from Ashton Kutcher in 2015, saying 'Mayor Bill de Blasio supports NYC bill that destroys job opps for over 10,000 New Yorkers by placing strict limits on new for-hire vehicle licenses'
Source: Fortune

Our Take

First and foremost, not all celebrity investors are created equal. According to Troy Carter, “You can’t put Ashton Kutcher who is a real product guy and who has a real deep understanding of tech in the same category as a sitcom star who wants to develop their own app and didn’t invest the time.”

Ultimately, the broader trend of celebrity investing is neither good nor bad; rather, potential celebrity investments must be judged case by case. As the collaboration between 50 Cent and Vitaminwater demonstrates, a celebrity investment can work out well. Other times, there will be defeat, as with Justin Timberlake and his failed attempt to revive Myspace. Perhaps what’s most important is how the investor evaluates and employs the involvement.

To properly evaluate the value of a celebrity investor, one should consider:

  • How high profile the investor is. Generally, the more high profile the investor, the more difficult it will be to reach or connect with them. Therefore, even the most well-intentioned high profile investors can become disengaged.
  • The amount of energy it takes away from your venture. Energy can be drained by gratuitous updates, lengthy and unhelpful “strategy” conversations, and time spent coordinating schedules with the investor for tasks like obtaining signatures. Finding an engaged investor who can provide strategic guidance and attention will always be preferable over somebody who spins your wheels.
  • Alignment with and risk of the celebrity’s personal brand. The most effective equity-for-endorsement partnerships occur when the celebrity and the product are aligned. For example, it may be confusing if a celebrity like Justin Bieber invests in a cloud infrastructure company. One should also evaluate the risk of the celebrity ending up in the headlines themselves and causing bad publicity.

Parting Thoughts

Bubble or not, boom or bust, celebrity VCs are likely here to stay. In an environment with low interest rates and high valuations, it only makes sense that those with large amounts of capital will put some aside for attractive opportunities in startups. At the end of the day, “Laugh all you want. Celebrity V.C.s are…a sign that perhaps the skill-set most valued in Silicon Valley is not what you know, but who. It’s a skill that may work for now, but is something that dooms Silicon Valley to a cycle of booms and busts.”

Understanding the Basics

How much money did 50 Cent make off of Vitaminwater?

When Coca-Cola bought Vitaminwater’s parent company for over $4 billion in 2007, 50 Cent made $100 million. He was one of the first celebrities to employ the equity-for-endorsement model.

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Comments

Henry Motyka
Excellent article and very informative. Thanks. It really shows how investing has changed over the last several years.
Melissa Lin
Thanks for reading, Henry! Glad you enjoyed it.
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