Celebrities Lend Star Power to Venture Capital
This trend is happening for a variety of reasons. First of all, high-net worth individuals often like to diversify their investments. Instead of having money sit in a low interest rate bank account, the stock market, real estate and venture capital are all ways to increase returns. Venture capital can be high risk, but it can also be high reward. And some stars believe that they can use their influence to help a start-up grow.
From a start-up's perspective, having "A-list" names attached to a project can help for branding and publicity reasons. A popular musician's endorsement of a digital music platform could be invaluable.
Ben Krall of Metamorphic Ventures says that traditional venture capitalists are more open to investing with celebrities these days because of their "social reach through Facebook, Twitter, Instagram. ... A lot of times there will be clauses in the contract that they have to tweet it or mention it in a interview a certain amount of times per month."
Stars can be rewarded for their clout.
James Robinson IV, managing partner at RRE Ventures, says that "for consumer deals, they can really help a brand ... as long as that brand actually has real products that people like."
But don't expect celebrities to replace conventional investors.
Charlie O'Donnell, founder and partner at Brooklyn Bridge Ventures, says that although he's been impressed with some of the celebrities he's worked with, "they might be good for some networking connections, but to really build value in your company, you need someone who is going to be your 'go to.' That's not usually someone who has two to three other jobs."
Krall adds that "sometimes there are unrealistic expectations." People think that "just because sometime tweets, it is going to rocket-ship." Not every celebrity-backed start-up launches. Robinson says that "in hot markets they show up, then go away. One or two have a hit here or there."
Regardless of their effectiveness, many celebrities have waded into venture investing. Others have more than a little bit of skin in the game. And sometimes a star's investments are hard to identify, because they invest through their management team. Here is a list of celebrities who have made multiple venture investments.