Celebrity Investments in Tech Start-ups: Fad or Future?

Once we get past the burning question on most people's lips - who gives a s...? - the amazing thing is that this is becoming a seriously debated issue.

Celebrity endorsements are as old as celebrity itself. The premise has always been that if someone who is known by more people than you are likes your stuff enough to buy it, advertising that fact ought to be good for more sales.

And what does the celebrity get? Some economic reward and, perhaps much more importantly in this case, some reputational burnishing. Young celebrities operate in a market where the speed of irrelevance and obsolescence is exponentially faster than it is in tech. Having your investment in some electronic-related product suggests you are savvy, hip and sort of smart. All good from a personal branding standpoint.

The product gets some attention, which is useful, particularly in the app space where new entries are appearing faster than zits after a candy bar. Oh, and the company that makes it gets some money, which is always helpful.

So is this good, bad, indifferent, a trend, a farce, a benefit, an outrage?

All of the above is the logical answer. But, in truth, with the wealth gap being what it is and the need for investment in new ideas so important, any redistribution of income to more productive uses is welcome. JL

Hunter Walk reports in GigaOm:

Some might snicker upon hearing that Disney singer/actress Selena Gomez has Angel- invested in a photo app but I think it’s great, and makes total sense. The trend of ‘celebrity angels’ doesn’t surprise me at all, and with correct expectations on both sides, it can provide great value to both sides. But this still leaves the question — why are we suddenly seeing celebrities become more involved in tech investing?

We forget that any celebrity under the age of 30 isn’t too different from any of us. They grew up in a world of mobile phones, game consoles and the Internet. While I might wax nostalgic about the first time i fired up a Mosaic browser, Ashton Kutcher has similar memories of his 2000 StarTAC and original AOL buddy list. They are digital natives who use technology as professionals and people
Investor Peter Lynch once suggested that most of his great ideas came from walking around a mall and seeing where folks were shopping. Well, celebrities are much the same way — they see what technologies their fans are using; their managers are showing them the latest and greatest; companies are sending freebies. I’d be more skeptical if Justin Timberlake was studying up on currency hedging — the idea that he might have an insight or two into how to turn MySpace around is reasonable.

2. Celebrities now have direct connections with their fans
Before YouTube, Facebook, Twitter, Google+, etc brand endorsements by celebrities essentially meant a TV commercial or billboard featuring the face of a movie star or musician. The conversion event (buying the product) was still separated from the advertising — you needed to later decide to hit a store and recall that Halle Berry thinks Revlon is swell. Now an influencer can often drive a conversion event directly and efficiently through social media. A tweet from a celebrity creates more product trial than an article in a major newspaper. It’s the new PR, the new sales channel. And celebrities are empowered like never before to directly build and talk to their audience. So for products they believe in why not move upstream and invest in the entity itself? Sort of like how musicians wants to own their recordings, not just get paid by the record company.

3. Traditional investments suck
Any time you are looking at a possible investment you need to judge the opportunity cost — what else could you be doing with that money. Over the past decade traditional investments like stocks have been risky and returning lower than historical rates. Just as pension funds seek to diversify into alternative classes such as venture capital or private equity, celebrities are thinking the same. I wouldn’t be surprised to hear that there has been an increase in venture funds bringing on celebrities as investors. Soon ‘LP’ might mean something very different to Lady Gaga (for anyone born after 1990 that’s a joke about an earlier form of music delivery called ‘an album’). And clearly these angel investments — sometimes at preferable terms due to the value they can bring above and beyond the money — round out a portfolio. So founders love celebrities, but do fellow angels? I asked some top consumer internet moneymen whether they had concerns about investing alongside celebrities:

Rob Hayes, First Round Capital: ”It’s all about distribution and if _any_ investor can help with that I am all for it.”

Chris Sacca, Lowercase: ”I don’t have qualms, but they need to pay market. No free stock.”

David Lee, SV Angel: “It’s great if they add value — particularly getting hands dirty.”

Dave McClure, 500 Startups: ”There are advantages & disadvantages, but on avg fame should help on cust acq.

Shervin Pishevar, Menlo Ventures: ”[Happy to invest alongside celebs but] no investor should be in name only. We all need to add value.”

Greylock Partner David Sze (might have a mistaken view of who the world considers to be a celebrity): ”No. I’d invest with @quixotic and @johnolilly all day! ;)”

It seems as long as celebrities are willing to work on behalf of their investments (like every other angel!) this should be a sustainable trend. A startup gets not only some cash but distribution and buzz. The celebrity gets the chance for financial outcome but also access to products which might become pivotal to their future success — the celebrity early adopters of Twitter & YouTube for example built substantial followings. will.i.amwith an Angellist profile? Perhaps not too crazy.