Both Sides of the Table
ENTREPRENEUR TURNED VC
NOVEMBER 23, 2012
I live in LA. And I’m a VC. So you can imagine I see my fair share of celebrities looking to get into the technology industry. And equal numbers of startups seeking celebrity endorsements in exchange for equity.
But as ever I’ve had to have this debate in numerous company pitches and board meetings. So I guess it requires some explanation.
For Startups Wanting to Work with Celebrities
Don’t give up your hard-earned equity to celebrities. It is a waste. Here’s why:
1. Your product is mediocre or sucks: If your product isn’t amazing having a celebrity endorsement isn’t going to make it so. It’s going to get you some press buzz – sure. For 5 minutes. But customers will come to your website, realize your product isn’t amazing and will leave. So having a huge celeb who takes 10% of your company is – well – taking 10% dilution for 0% benefit.
Like many companies that launch an MVP product, you may eventually find your way and build a great product. But by then the celeb will be on to their next opportunity and you will be out some equity. They simply don’t get product / market fit and aren’t patient to stick around and help you find it.
2. Your product totally rocks. If your product rocks you don’t need a celeb to take 10% of your company. If your product is great and you are reasonable at marketing then customers will find you, you will get adoption, the press will build authentic buzz and celebrities will use your product. For free. See:Justin Bieber / Instagram.
If your product is great you can pay a celebrity a normal fee for a real endorsement. This can be in the form of cash compensation or performance-based warrants.
Wait, Mark. Didn’t Kim Kardashian help make ShoeDazzle?
Well, sort of. I think really Brian Lee made ShoeDazzle because without his entrepreneurial prowess the company wouldn’t have raised all the money they did, hired the tech talent that they did and had the original business model idea that they had. But Kardashian was the perfectly authentic spokesperson for a brand with this target customer audience.
And I wonder how ShoeDazzle feels about Kardashian now? I’m not sure being so closely tied to one spokesperson makes much sense in the long run.
But ever since Kardashian got behind ShoeDazzle and when all of LA thought ShoeDazzle was a guaranteed success (hint: nobody is saying that now) then every celeb in town was thinking, “if that bitch could get rich of an Internet company with no skills AT ALL then I should be making at least 2x what she’s making at ShoeDazzle.”
Thus my phone started ringing more. And I started cursing Kardashian. And all of the coattail-hanging agents in search of their next big money source.
If you DO want to do endorsements do them the old-fashioned way – trade what celebrities really care about (hint: $$$) in exchange for their endorsement of your product. And make sure you choose influencers who are authentic to your audience.
For Celebrities Seeking Their Fortunes Working with Startup
2. If you are amazing at what you do (read: an A-Lister) then you will make far more money sticking to your day job. If you make $5 million per movie – trust me you are not guaranteed that kind of return in working with a startup. The reason I hate working on tech deals with celebs is that when things get hard (hint: startups always get hard) it is far easier for them to disappear and go make another: Movie, TV show, hit song, whatever than it is to figure out how to make the startup work.
3. You risk your personal brand for no reason. If the product you’re endorsing isn’t a home run (in a startup chances are it will be yesterday’s news faster than your sex-tape video) your personal brand will be associated with it and that could hurt your day job. Why risk it? Startups aren’t all that.
What Should We Do if We’re a Celeb and Want to Do Startups?
1. You either need a real authentic desire to help build a company and the smarts and drive to pull it off (see: Jessica Alba – Honest Company)
2. You need to be extraordinarily giften in both vision and networking [and have deep pockets backing you] (see: Ashton Kutcher … yes, I will admit that I respect his judgment a great deal on tech startups).
And now that leaves 95% of the rest of you.
3. Put your money behind a fund that knows how to invest in startups. You could contactAdam Lilling who is rumored to be raising a new fund and has deep ties to both the tech world & Hollywood. Or back somebody like Chris Sacca who is also betting on the intersection of both.
4. Or just get paid a fee to endorse bigger tech co’s that are probably dying to work with you and already have lots of money. See: Spotify, Apple, Microsoft Surface. [but please don't do rookie moves like this or you'll just prove my point that you should stick to your day job]
And if We’re a Startup and Want to Work with a Celeb?
Build a great product that solves a real problem. The rest will sort itself out.