Introduction
The earliest use of the term “side hustle” appeared in a 1950’s edition of the Chicago Defender to illustrate an individual who held an additional job alongside their primary economical contribution to society. Given how niche it was during this period, “side hustle” rolled into the Times and mainstream society over the next two decades.
Many may associate the term with relative poverty as this class of people regularly participate in multiple jobs to keep pace with the never ending cycle of monthly bills. Since the onset of the 21st century, this term, now a social media buzzword, is commonly used to describe the various endeavors of the wealthy and famous. As actors become musicians, musicians become titans in the beauty industry, and industry titans become politicians, we have seen the rapid expansion of affluent individuals’ resumes. Through this element of celebrity culture, the phenomenon of celebrities leveraging their platforms and networks to enter venture capital investing as a “side-hustle” has emerged. The celebrity-to-VC pipeline may seem puzzling at first, as it warrants concerns regarding how a celebrity investor could possibly outcompete industry professionals with decades of experience and prestigious education. However, as it turns out, the proof is in the pudding. There are cases of celebrity investors that built up a reputation from a range of interesting to poor investments. That said, there are a convincing number of celebrity investors that were able to identify multiple unicorns, reeling in healthy return on investments (ROIs). When put into context their success is not exactly unexpected. Celebrity endorsements for consumer-based companies have lasted the test of time and are constantly implemented as an effective marketing tool due to the positive sentiment that follows. Startups would be amiss to not consider the positive network effects that could arise from having a celebrity on their cap table. In fact, we believe that for consumer startups this could soon become a principal differentiating factor when headhunting for investors, as the network and platform they acquire through the celebrity could lead them to outperform competitors.
Defining a Celebrity-led VC Firm Versus a Traditional VC Firm
VC firms that have high-profile individuals or celebrities as their founders and/or partners are considered celebrity-led VC firms. Some examples include Ashton Kutcher’s Sound Ventures, Jay Z’s Marcy Venture Partners, and Serena Williams’ Serena Ventures. These firms tend to leverage the personal brand and networks of their celebrity founders to access a wide range of investment opportunities that may not be available to traditional VC firms. By leveraging their network and reach, they can assist their portfolio companies in accelerating customer growth and obtaining more favorable supplier and vendor terms. Celebrity-led VC firms typically invest in industries they are closely interested in, including entertainment and media, consumer products, and consumer-facing technology. On the other hand, traditional VC firms that are not led by celebrities or high-profile individuals, rely on their track record and reputation within the industry to attract promising start-ups and secure funding. Examples of traditional VC firms include Sequoia Capital, Andreessen Horowitz, and Accel Partners. Traditional VC firms have a diversified focus, investing in wide-range of industries and some of these industries can be niche, which requires deep expertise and subject-matter experts, such as life sciences, bio-engineering, and more.
What Makes a Successful Versus an Unsuccessful Celebrity-led VC Firm?
We can look at the general principles that distinguish successful versus unsuccessful celebrity-led VC firms. A notable example of a successful celebrity-led VC firm is A-Grade Investments (2010) and Sound Ventures (2015), co-founded by Aston Kutcher. Both VC firms made over 280 investments, with their notable portfolio investments in Airbnb, Spotify, and Uber. As defined previously, celebrity-led VC firms tend to invest in the entertainment and consumer products & technology, similarly, A-Grade Investments and Sound Ventures investment focus is technology, consumer products, and digital media. Today, Sound Ventures manages more than $1 billion in assets, with a portfolio including companies such as Affirm, Airbnb, Chegg, SeatGeek, Duolingo, Nest, Pinterest, Spotify, Robinhood, and Uber. With the firm’s new $240 million AI fund, Sound Ventures has already invested in OpenAI, Anthropic, Stability AI, and most recently, Hugging Face.
Multiple factors contribute to the success of Sound Ventures. The first is the team, which is backed by ten individuals. Two team members, Aston Kutcher and Guy Oseary, are both well-known in the entertainment industry. The remaining eight individuals are either investors or part of the in-house business team: Effie Epstein, Adriana Tullman, Robert Yue, Lizzie Kline, Alexandra (Lexi) Burbey, Juliette Bolea, Zach Gronfein, and Lucas Sheiner.
These eight individuals come from traditional business backgrounds, either through completing a business degree from renowned institutions and/or having earned roles in investment banking, traditional managerial roles. This brings together the unspoken balance and unity to the firm. Additionally, the firm has an established track record of making successful investments into high-growth companies. This is due to the firm having a defined investment strategy of focusing on high risk, high reward opportunities. This allows them to invest in startups with the potential of being a high-growth company. Although this strategy is commonly seen across traditional VCs, this contributes to the factor of why this celebrity-led VC firm is successful, as it mimics how a traditional VC would operate. The other investment strategy includes investing in competiting companies simultaneously. For instance, their recent investment was investing in competing companies: OpenAI, Anthropic, Stability AI, and Hugging Face, all operating in the artificial intelligence space. Companies that operate in the same sector usually move in the same direction because of the economic conditions, this strategy is risky and ties back to their investment strategy of high risk, high rewards. Therefore, the combination of having a balanced team of investors, track record of investments, and having defined investment strategies contribute to the success of a celebrity-led VC firm.
In contrast, an example of a failed celebrity-led firm is Project Panther Bidco. Project Panther Bidco was created for the sole purpose of investing into TIDAL. TIDAL is a music-streaming service, backed by Jay-Z. TIDAL was launched in 1998 by a Swedish public company, under the name Aspiro. TIDAL aimed to offer exclusive content, high-quality audio, and fair compensation for artists. The company experienced financial difficulties before Jay-Z bought TIDAL for $56 million through his company, Project Panther Bidco, and became the main shareholder. There were other notable celebrity shareholders, such as Alicia Keys, Beyoncé, Calvin Harris, and others. These celebrities may have been interested in investing in TIDAL for what it has to offer for them: fair compensation. Spotify, the direct competitor of TIDAL, does not pay artist royalties according to a per-play or per-stream rate; the royalty payments that artists receive might vary based on how their music is streamed or the agreements artists have with labels or distributors.
However, TIDAL was failing due to competing with other major streaming platforms, such as Spotify and Apple Music, who overpowered the music streaming industry. The platform had high subscription fees and lacked differentiation from its competitors. TIDAL was later sold to Square in 2021 for $297 million, with an initial valuation of $600 million. TIDAL failed due to a poor differentiation strategy that could not compete in an industry with established big players, like Spotify, and a non-profitable business model. Thus, Project Panther Bidco failed from a lack of diverse investments in its portfolio and the lack of a defined investment strategy.
The Impact of the Celebrity Name and Endorsement on Consumer Sentiment
There is also a psychological impact to consider when it comes to marketing, especially how celebrity-founded brands (e.g., SKIMS, Fenty Beauty, etc.) have an impact on consumers.
Familiar Faces = Trust
Naturally, humans are hardwired to recognize faces. When a familiar face promotes a product, it makes it seem as if the product itself is familiar, which makes people more likely to buy it. Even though we have never met them, the brain regards familiar celebrities the same way it does people who are actually familiar and trustworthy to us in real life.
Follow the Leader
An article appearing in Knowledge at Wharton, explains the usefulness of celebrity endorsements by focusing on the human tendency to look to authority figures when making decisions. “Both humans and primates will follow the lead of high-status, high-prestige individuals in their group by aligning their gaze or copying their decisions.”
The Halo Effect
The Halo Effect is a cognitive bias that causes positive impressions we have of one thing (a celebrity) to carry over into favorable perceptions of another thing (what they are advertising). For example, if we consider a specific celebrity beautiful and magnetic, we may associate a facial cream they are promoting with the same virtues.
These three factors can be applied to venture capital investing by celebrities. Celebrity influence is expanding at an incredible rate with the rise of social media. Consumers feel more connected to them daily and are engaged in what they do with their time. When a celebrity is willing to invest their own time and money into a company or product, it immediately adds a level of validity to it. An endorsement is an excellent way to get a brand out there and reach a vast audience. However, when said endorser is financially a part of the business, it shows their level of trust and commitment, which then trickles down to the consumer.
How Startups can Leverage the Celebrity Network
One of the main things that celebrities bring to the table is being a strong marketing tool—helping to increase visibility, credibility, and brand reputation. Celebrity involvement can raise the profile of the VC/PE firm they join and attract more attention from their network of high-net worth individuals and institutional investors. Celebrities also receive massive numbers of inquiries from brands, potentially leading to a larger investment pipeline. When a startup is struggling to raise funds through conventional channels, investments from celebrities help to break down the barrier they face. In the past, celebrities focused on consumer products, but there's now a shift towards apps, online platforms, and general VC-backed startups. Celebrities often invest in Seed, Series A, or Series B stages; this may be due to those start-ups being more willing to take on risks. Celebrities get the most out of their investment when the target consumer group aligns with their followers. Hence, early-stage investing is most popular, since the audience has been established and celebrities’ personal brand can elevate the startup to the next level.
Furthermore, celebrities can bring unique industry insights as investors beyond a marketing boost. Celebrities bring valuable advice where startups are working to disrupt industries, in which celebrities already have experience in. For instance, APEX Capital founded by Antonio Cacorino and is backed by celebrities, like Lando Norris (F1 driver) and Raphael Varane (professional soccer player). The VC firm invests in media, entertainment, and most importantly the future of sports. These two stars are able to bring their unique insights in the sector by being able to validate real issues faced in the industry.
Balancing Act–Celebrities Partnering with Industry Professionals
Having a single celebrity as an investor can pose risks, but celebrities partnering with industry experts helps bring that balance. Some of the risks that can arise when only having a celebrity as the investor is their over reliance on their personal brand. Celebrities may only offer marketing exposure for the startup which in itself is hard to quantify without strong data. Additionally, their lack of expertise in the VC space may not be productive for the startup as they seek business advice.
Devil’s Advocate: Increased publicity by a celebrity can also prove to be a double-edged sword in cases when a celebrity is involved in a scandal. This can potentially damage the reputation of the firm and negatively impact its ability to attract investors.
However, what helps create a stronger balance is when the celebrity is an expert in the area, which helps to add value–beyond just drawing attention. Many of the celebrities typically have knowledge and experience among tech or health and wellness industries. It is typical for celeb-backed startups to have at least one conventional investor on board. A common theme is celebrities investing in business-to-consumer (B2C), to ensure that the target consumer group aligns with their followers. For example, we can look into SKKY Partners–the product of Kim Kardashian’s partnership with Jay Sammons, former partner at Carlyle Group, Inc. Although SKKY Partners is a private equity firm, we can note the balance that this partnership brings; Kim Kardashian, an established celebrity and entrepreneur, partners with an industry professional in the private equity space. The balance that comes out of this partnership is that SKKY Partners makes investments in areas of expertise, such as consumer products, hospitality, luxury, digital commerce and media. Kardashian has gained entrepreneurial success through her companies, SKIMS and KKW, largely attributed to her popularity in show business and large social media followings. Sammons is an experienced disruptive brand investor. Both individuals add value to the firm, by bringing in their expertise of knowledge on what consumers want, as a result building a ‘consumer investment firm’.
Conclusion
The VC space continues to evolve and bring in new players and strategies. From actors to professional athletes, celebrities are increasingly entering the VC arena by tapping into their entrepreneurial side and scaling their personal brand to be culturally relevant. Celebrities continue to bring elements that a traditional investor may not be able to bring: their social status and unique industry insights. Over the years, we, as consumers, have seen the rise of social media, and the impact it has on consumers when a celebrity creates endorsements and influences consumer sentiment. It is proven that celebrities partnering with experienced investors brings a symbiotic relationship in changing the landscapes of the VC space. With the nature of the VC space continuing to evolve, we may eventually see all VC firms to have some kind of celebrity endorsement, whether to bring in monetary or brand value to the firm.
