Celebrities Lend Star Power to Venture Capital


NEW YORK (TheStreet) -- Sequoia Capital, Greylock Partners and Battery Ventures are all names that you'd expect to see on a venture capital transaction. But what about Ellen DeGeneres, Leonardo DiCaprio and P. Diddy? They've all made venture investments. In fact, celebrity VCs are becoming increasingly common these days. Actors, musicians and athletes are often participating in financing rounds alongside traditional investors.

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.

Ashton Kutcher is perhaps the most vocal celebrity investor. The actor, who rose to prominence on That 70s Show, has made his passion for tech clear. He was one of the early proponents of Twitter and even filmed a movie, starring as Apple co-founder Steve Jobs.

And he's participated in dozens of venture rounds. Well-known start-ups such as Path, Airbnb, Flipboard and Fab have all made the Kutcher investment list. He was also on the investment team for news summarizer, Summly, which sold to Yahoo for $30 million.

Investors who've worked with Kutcher offer praise.

Ben Lerer, managing director at Lerer Ventures, said: "In my dealings with Ashton, he's been very thoughtful about the companies and isn't just investing because he's got money to burn."

Lerer said Kutcher is "a really smart guy who loves technology and understands how the world is changing."

Metamorphic's Krall says people such as Kutcher "really add value and are not necessarily just brought on to increase word of mouth by who they are."

Still, not all of his investments are resounding success stories. Local service provider Zaarly is looking to drastically change its business model. And Sean Parker-backed video chat service Airtime has struggled to attract a strong user base.

Bono, leader singer of the Irish rock band U2 is also known for his charity work and global activism. After decades of success as a music star, Bono co-founded a private-equity firm, Elevation Partners, in 2004. The company was named after U2's song Elevation.

Elevation Partners has participated in growth equity rounds for tech and media companies like Facebook, Forbes and Yelp. In fact, Elevation bought $210 million worth of Facebook shares in the social network's pre-IPO days. (below Facebook's current share price). They also invested in Palm. Remember PalmPilots? Elevation just participated in a $38 million round for advertising analytics company MarketShare last week.

Many investors have had good things to say about Bono. Charlie O'Donnell worked with Bono when O'Donnell was at the GM pension fund. O'Donnell says he was "really impressed with how articulate and thoughtful he was about the state of digital media."

Former NBA star Magic Johnson isn't just another celebrity investor. He's actually an adviser and general partner at Detroit Venture Partners. The Michigan-based venture firm backs early and seed-stage technology investments. DVP recently participated in rounds for UpTo, Stik and Chalkfly.

Johnson was brought on board for his entrepreneurial experience and also his capital. Johnson said he wants "to have a positive impact on the biggest downtown in my home state. I believe strongly in the Detroit 2.0 movement."

Johnson also owns Magic Johnson Enterprises, which has invested in the NBA's Los Angeles Lakers (whom he played for), movie theaters and restaurants such as Burger King. He has also been a long-time advocate for HIV awareness.

Teen superstar singer Justin Bieber has capitalized upon his success to sell everything from toothbrushes to nail polish.

On the tech front, Bieber has invested in companies like Spotify, Sojo Studios and Tinychat. Bieber-backed social media platform Stamped was sold to Yahoo! last fall. (The "acqui-hire" was CEO Marissa Mayer's first acquisition). Other investors included Ryan Seacrest and Ellen DeGeneres. It's safe to stay that Stamped was star-powered. Bieber is said to invest in dozens of other private companies through his management team.

Although a Bieber shout-out can attract worldwide attention (he has 38 million Twitter followers), investors caution that it may be fleeting. Ben Krall of Metamorphic Ventures says "Justin Bieber tweets ... and all the girls check it out. But it doesn't matter if they don't end up coming back once or twice that month."

Other than e-commerce sites, where first-time visitors can make purchases, these preliminary visits aren't enough to constitute a "user." Users come back to the site again. Says Krall, "usually two or three visits per month counts." Coincidentally, Bieber's debut song was titled One Time.

There's another major pop star named Justin -- Justin Timberlake -- who also has been making venture investments. The superstar recently returned to the music scene with his new album The 20/20 Experience. That ended a seven-year hiatus from making music but Timberlake had been investing in music.

Timberlake backed music education software start-up Miso Media, alongside Google Ventures in 2010. The company teaches people how to play string instruments, using real-time feedback. Timberlake also invested in social shopping Stipple in 2010, alongside Kleiner Perkins. The triple threat, who played Sean Parker in The Social Network, currently co-owns MySpace. He may be able to "bring sexy back," but can he bring MySpace back?

-- Written by Katie Roof in New York

It's Official: Action Alerts PLUS beats the S&P 500 with Dividends Reinvested! Cramer and Link were up 16.72% in 2012. Were you? See what they are trading for 14-days FREE.

View Comments (0)