Star Power: Is a Celebrity Investor Right for Your Tech Startup?

June 15, 2013

10:00 am

These days, being “rich and famous” isn’t just about penning the top song on the radio or starring in a blockbuster film. Now, it’s about investing those profits in a stellar underground tech startup and doubling your net worth when you help break it into the mainstream.

Is this rare? Hardly. After all, Bono made more money investing in Facebook than he did with U2, according to Rolling Stone. Since that news went viral in the entertainment industry, funding, creating, and investing in startups has become trendy and popular — and known as a fast track to some serious profits. That’s why tech and celebrity partnerships are cropping up everywhere, from Priceline and William Shatner’s partnership to Ashton Kutcher’s relationships with Foursquare, Skype, and Airbnb.

There’s a problem, though: The entertainment world works differently than most Silicon Valley startups. Mixing a tech startup with an entertainment company can create a formidable culture clash. For one thing, people in Hollywood are used to taking bigger cuts in business deals. Talent managers don’t understand that 1 percent of a startup the equivalent of Twitter could be a steal — some might charge as much as half of a startup’s ownership for access to their A-list clients. This is dangerous, and it doesn’t make sense for most startups: After all, what incentive does a founder have to grow a business if she’s no longer the primary shareholder?

But that’s not the only problem. It’s also rare to find someone in entertainment who truly understands technology — let alone how a technology startup works. Before you choose a famous name to sign on with your brand, make sure that a celebrity investor will provide something for your business beyond just cash or a few tweets here and there.

The Best Fit for Your Company

Are some companies a good fit for celebrity investors, and some not? It depends on the product, as well as what the investor brings to the company. Usually, celebrity investors bring a very particular set of assets: an association with a popular voice, access to introductions and key partnerships, and a strong influence over a wider audience.

“Influence” isn’t just tweeting to a million followers, though; celebrity investors can help you reach a wider audience that can usher your brand into the mainstream spotlight through their high-powered relationships and media influence. Through their efforts, they can convince people to make the leap from discovering to purchasing or downloading. That’s a sign of true influence: the ability to convert interest into sales.

A successful partnership doesn’t just depend on the celebrity you’re collaborating with. It depends on who’s really investing in your company — in other words, the power behind the name. Celebrities rarely invest directly in startup businesses. Usually, their management teams are the investors; sometimes, they’ll pull in their celebrity clients to spread the word. These managers can provide entertainment, marketing, and PR connections, but they can’t replace Silicon Valley investors, operators, or leaders.

Hitching Your Wagon to the Right Star

People in Hollywood are looking to invest in startups, and startups can benefit from the influence a celebrity investor can provide. The key is forming partnerships that are the right fit and that offer good terms for both the startup and the celebrity.

Here are a few steps you’ll want to take before you partner with a star:

  • Find the right fit. Define what benefits a celebrity investor could bring to your brand beyond simple cash and notoriety. Search for investors based on your company’s needs, brand, and audience. The celebrity you choose should appeal to the people who use your product.
  • Choose someone who embodies your brand. The celebrity you attach to your company speaks volumes about your brand. Britney Spears’ work with beauty startup Beautylish makes sense because it’s a company in an industry she is passionate about. The celebrity you choose should love your product, and the best partnerships are those where the celebrity can integrate your product into what he or she does.
  • Seek unique collaborations. Think beyond an endorsement video on your website to more natural interactions with your product/service. For example, I’m advising Skycatch — a company that produces drones capable of shooting real-time HD footage — to develop a partnership that will lead to press coverage for both the product and the production using the technology.
  • Develop a clear proposal. Make sure that the celebrity partnership articulates the value proposition and potential return on investment. It should also include enough resources for several individuals, including the celebrity: Remember that this collaboration is a team effort on the celebrity’s part.
  • Make an introduction. Keep in mind that you’ll only have one chance to make a good impression. Simplify your pitch, be concise, make sure the timing is right, and show these celebrities visually, if possible, why a partnership with your company can bring value to them. It’s always smart to get advice from other startup founders who have partnered with celebrities to get advice on your approach.

Celebrity investors can be helpful for branding your company, generating PR, developing partnerships, and adding mainstream appeal to your startup. However, a celebrity won’t guarantee overnight success — if your product isn’t what people want or need, a famous investor isn’t going to change that. It’s important to be thoughtful about the timing to make sure you’ve figured out product/market fit before approaching a celebrity to begin with. That way, you’ll know which celebrity to target for your product’s audience, and your product will have been fine-tuned to optimize results.

Falon Fatemi is the co-founder of Liason, where she builds strategic partnerships for the world’s most innovative startups with investors, brands, and entertainment leaders. A native of Silicon Valley, Falon started working at Google at the age of 19 and went on to consult startups and VCs. She is passionate about growing tech startups and their founders into mainstream influencers and enhancing emotional intelligence in business. Connect with Falon on LinkedIn, Twitter, and Facebook.

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