Today, many celebrities have become investors, and many investors are borderline celebrities. One thing is clear: The division between Hollywood and Silicon Valley has become increasingly blurred. Though in the past it has been common for famous entertainers, musicians, or actors to grow their wealth through real estate, royalties, or restaurants, celebrities today are turning towards tech investments.
This article explores why celebrities are drawn to Silicon Valley, the types of companies they invest in, different models of their involvement, and commentary on how it impacts the tech industry.
Celebrity Investment Is on the Rise
According to a report by CB Insights, since 2007, the top 75 investors by number of deals have participated in over 350 funding rounds totaling around $4.6 billion. In 2015, celebrities invested about $2 billion across 101 deals to private technology companies. CB Insights found that, of the top 22 most active celebrity investors, around half were from the music industry, while the rest had gained their fame from TV, movies, sports, or fashion.
If you have lingering doubts about how popular celebrity tech investing has become, consider that Apple TV recently launched original content for the first time, including a show called Planet of the Apps. Think The Voice meets Shark Tank. On the front, celebrities Jessica Alba, Gwyneth Paltrow, Will.i.am, and Gary Vaynerchuk sit on a panel and judge tech pitches.
So, why are celebrities compelled to invest in tech?
Silicon Valley Is Sexy
The tech world is red hot, and celebrities are not immune to its appeal. Similar to designer clothing or being mentioned in a rap song, being involved in tech has become a status symbol. NBA player Andre Iguodala said, “When I first came into the league…you just had to have a certain car, or two or three or four or five, and you had certain clothes, certain shoes, to let everybody know you were a basketball player.” Nowadays, players leverage tech to demonstrate their relevance and to brand themselves as more than just an athlete.
Still, it’s worthwhile noting that investing in, promoting, or becoming entrepreneurs outside of their primary cash stream is not a new concept. In the past, many celebrities have tended to focus on consumer products like sneakers, perfume, alcohol, and restaurants. In June 2017, George Clooney’s tequila company Casamigos sold for over $1 billion to spirits giant Diageo. Nowadays, there seems to be a shift where celebrities tout apps, online platforms, and general VC-backed startups.
An interesting case study is Jessica Alba’s Honest Company, which produces and sells consumer goods but is funded and staffed like a tech company. The Honest Company raised $228 million in five years and was previously valued at $1.7 billion. At one point, the company was in talks with Unilever about a possible acquisition, but Unilever ended up purchasing competitor Seventh Generation. Since the Unilever fiasco and a slew of lawsuits, CEO Brian Lee was replaced, and the company is now seeking funding at a valuation below $1 billion.
Cash Ebbs and Flows and Careers Can Be Short-lived
Though typically associated with excessive wealth, many artists and professional athletes have inconsistent cash flow. That is, a large payment from something like a concert tour must be managed to cover everyday expenses and future endeavors. According to Morrie Reiss, a California-based financial planner, “It’s feast or famine…You don’t really know.”
Often, what makes a celebrity famous is not what keeps them rich. Despite soaring popularity during a certain time, financial dry spells are common, and they must figure out how to continue building their wealth post-retirement. The average professional athlete’s career is over after age 33, but it can be over as early as age 28 for physically demanding sports like American football. The same has become true for actors and actresses today: Up until the 90s, most broke out in their twenties and took on their defining roles in their thirties and early forties. Today, they break out in their teens, their twenties are their “prime acting real estate,” and 30 is the age at which women win their Oscars. As a result, celebrities need to seek ways to invest and make earnings continuous, with tech being the latest channel to invest in.
Tech Investments Don’t Affect Their Primary Income Stream
Unlike mainstream venture capitalists whose careers suffer if the startups they invest in fail, celebrities’ primary income streams and reputations do not take the same hit. Therefore, stars have more flexibility to take more risks without affecting their primary careers. Investing in startups and even serving as advisors requires less work than, say, opening a restaurant or starting a clothing line.
In What Types of Companies Do Celebrities Invest?
There isn’t much rhyme or reason to the types of companies celebrities typically choose to become involved in. Still, below are a few patterns we can glean:
Celebrities Frequently Invest in Series A or Series B Companies
Celebrities typically prefer not to invest in seed funding, as those rounds are aimed at financially supporting the early stages of product development, including product design and iterating. Because celebrities get the most out of their investment when the targeted consumer aligns with their followers, Series A is the most popular point for celebrities to invest. At this point, the audience has been established, and the celebrities’ brand can elevate the startup to the next level.
They Invest in a Diversity of Areas
While some celebrities choose to invest in the area in which they’ve made money, they often diversify. Some of the most popular areas of investment include the following:
CRYPTOCURRENCIES, BLOCKCHAIN, AND ICOS
Many celebrities have jumped on the cryptocurrency bandwagon. While Ashton Kutcher and Nas were early investors in the space, recent celebrity advocates such as Gwyneth Paltrow, Jamie Foxx, and Paris Hilton have also joined in on the action.
More specifically, many celebrities have submitted to the craze surrounding initial coin offerings (ICOs). ICOs help firms raise cash for the development of new blockchain and cryptocurrency technologies. Instead of issuing shares of ownership, they offer digital tokens, or “coins.” ICOs allow startups to raise money without dilution from private investors or venture capitalists.
In a tweet, hotel heiress Paris Hilton announced that she would be participating in LydianCoin’s ICO, which promotes itself as the “first AI big data marketing cloud for blockchain.” Boxing icon Floyd Mayweather has also bragged on Instagram about plans to make a “-hit t-n of money” on the Stox initial coin offering, an investment prediction project. Figures like Mayweather use their Instagram accounts to promote cryptocurrencies with pictures of literal money piles and luxury cars. This cryptocurrency promotion strategy has become increasingly common among “influencers,” as the hashtag #bitcoin now appears in more than 562,102 Instagram posts.