The Deals of VIPs – Celebrity 4 Equity

Celebrity 4 Equity is a big trend in the venture industry but why? Being famous opens doors to events, people, media and wealth. The combination of access to a great amount of capital, a worldwide network and experience of dealing with the public view through media is very attractive for fortunate entrepreneurs. Big businesses have been using this for years, investing a lot of money in testimonials to align their brand with some star appeal – think of George Clooney and Nespresso. Celebrities and their public impact have proven to be one of the best marketing strategies, but it need not be remunerated in cash. Start-ups are usually in a constant shortage of cash, which makes them very creative when it comes to media impact, like guerrilla marketing for instance. Celebrity for equity is a concept where celebrities offer their media effectiveness as a testimonial, receiving equity (company shares) or a participation in sales in return. Convincing the right star, with significant impact in target groups and markets can lead to phenomenal results.

A recent example for this type of investment is given with the famous Rap-Super-Star “50 Cent”, who supported the Vitamin Water Glaceau as a testimonial. Glaceau was sold in 2007 for 4.1 Billion Dollar in cash. In exchange for his marketing and brand-building activities “50 Cent” received 10% in shares of Glaceau which resulted in a profit of almost 400 million dollars. Celebrities investing in start-ups may be seen as classical Business Angels, like Ashton Kutscher. Ashton has been investing in quite a few US and Berlin based startups yet.

Entrepreneurial Investments

In contrast to business angel investments some celebrities place conventional venture capital or private equity investments via associate companies. One of these famous companies is Elevation Partners founded by Bono (U2) in 2004. Apart from investments in media, entertainment and technology businesses Elevation Partners bought 2,3% of Facebook in 2009 for 90 million dollars. After the initial public offering IPO of Facebook the stake was worth about 1,5 billion dollar.

Another celebrity who turned into an entrepreneur is the television personality Kim Kardashian who founded a clothing brand D-A-S-H together with her sisters Kourtney and Khloe which leads to the so-called classical celebrity investments like restaurants, fashion-labels, nightclubs, record labels or fragrances. Probably these businesses are easier to understand and therefore celebrities feel more comfortable with them.

 However there are very few celebrities with such a strong commitment to the start-up scene like Ashton Kutcher but the demand for start-up-multipliers in Europe is rising. Nevertheless not every celebrity is capable of offering expertise to support a project with the so-called traditional way with funding, deep business know-how, the knowledge of classical management competences and network.

What about social entrepreneurship and celebrities?

Some celebrities are serial entrepreneurs like Victoria Beckham or P-Diddy. Both of them have built quite a decent amount of businesses, like Bad-Boy Entertainment , a holding for various companies or DVB Style, a fashion label by Victoria Beckham. Even so both use their fame to improve awareness for some social issues like funding a business school in Harlem or supporting a fashion campaign against skin cancer together with Marc Jacobs. Another example for social and clean-tech investment is Kevin Costner’s oil-water separator, which was used in the BP- Deepwater Horizon oil rig disaster in the Gulf of Mexico in 2010. Kevin Costner invested about 20 million dollar over more than a decade into the business.

How about failing?

Of course there are some celebrities who failed in business like “The Hills” star Heidi Montag who founded a clothing line called “Heidiwood” which failed poorly after one year on the market or the “The Fashion Café” which was established by the four mega supermodels Claudia Schiffer, Naomi Campbell, Elle McPherson and Christy Turlington, which had do be closed after three years of struggling.

To sum up the idea of uniting synergy effects between celebrities and start-ups is a very well-known and proved concept of investment even though these projects can fail. Generally spoken celebrity for equity can be a serious benefit for both sides.