When Troy Carter first came to Silicon Valley from Los Angeles, he had to become bilingual.
The tech companies and venture capitalists spoke in a different way than people in Hollywood, Carter told Business Insider in an interview.
In the music industry where Carter had spent his time as Lady Gaga’s former manager, Silicon Valley was seen as something that destroyed the livelihoods of his friends as piracy became rampant and downloads went online.
Carter, now one of the top celebrity investors, didn’t even know what the term venture capitalist even was until five years ago.
“I just felt like there were these built in stereotypes where the guys in LA kinda felt like the Valley was full of pirates that didn’t respect content. And the guys in the Valley felt like it was a bunch of dinosaurs in LA who just wanted to sue their way out of their problems,” Carter said of the tensions between the two. “When you start speaking the same language, you get the Beats By Dres.”
Celebrities don’t stop at endorsements
The New York Times credited the beginning of celebrity startup tie-ups back to 2004 when rapper 50 Cent joined the board of Vitaminwater as an equity partner. When it sold to Coca-Cola in 2007, 50 Cent reportedly made more than $100 million off the deal, according to the New York Times.
Nearly 10 years later, many celebrities are moving beyond the traditional endorsement and trying their own hand at startups or apps. Kim Kardashian worked with developers to create a choose-your-own adventure style game. It was an instant money-maker and is on track to rake in more than $200 million.
Other celebrities, like Carter, Ashton Kutcher, Nas, and Bono, are hopping into hot investment deals and fighting with traditional venture capitalists over equity and board seats.
After all, Carter, who is still a music manager for Meghan Trainor through The Atom Factory, is an investor in some of the biggest recent hits in tech: Uber, Lyft, Dropbox, Spotify and Warby Parker. He’s even gone as far as opening his own accelerator, SMASHD Labs, to continue his work with entrepreneurs.
- CB Insights
“When I started investing, I approached it from a position from humility, kinda going into it knowing that I didn’t understand, knowing that I didn’t have a deep level of experience in technology. But, I was very confident in the things that I did have experience in: brand building, narrative, marketing, story telling, how to manage a business, how to scale a business,” Carter said. “As I sat down and I talked to founders about what their issues were and where I could be helpful, that was the area where I felt there was a void in venture capital investing and I could provide differentiated capital.”
That doesn’t mean celebrity investors are only good at branding. During a Q&A on Product Hunt, Ashton Kutcher said that’s really only a “small portion” of what Kutcher and his investment firm, Sound Ventures, do.
“In fact if I feel a company is only interested in that I generally choose to not invest. Celeb endorsement isn’t gonna make anyone’s product better,” Kutcher said, adding that he tends to focus heavily on growth. “…I think where the celeb thing comes in handy is in being vocal when companies come up against regulation or simply getting a return phone call from a strategic BD situation.”
When Uber was facing a ban from New York City, celebrities from Neil Patrick Harris to Kate Upton started jumping in and tweeting about it as well. Carter doesn’t give celebrities the credit for keeping Uber in New York – “Uber should thank Travis who would drive a mac truck through a cul-de-sac to see that company succeed,” he added – but it did help to have that network to activate when it was needed, Carter said.
The good, the bad, and the ugly
While it may be great to have Kutcher call up his friends to have them tweet, many investors and entrepreneurs are still wary of the Hollywood touch and rightfully so. Every celebrity investment isn’t necessarily good or for the right reason, and founders should evaluate a celebrity investors much like they would a traditional VC or even someone they’re hiring.
For one, many apps that celebrities have poured money into have never taken off. The first three investors in Mobli, an Instagram competitor, were Leonardo DiCaprio, Tobey Maguire and Serena Williams. In later rounds, Lance Armstrong joined in.
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Even when celebrities launch their own startup, it’s not a guaranteed hit. Jay Z’s heavily anticipated Tidal music is floundering, no matter how many celebrities are crowded on the stage.
Some celebrities just want to be associated with the next big hit, and don’t mind sending a tweet or two in support. However, these may be less active investors and can also hurt your startup if you’re at a critical juncture where you need help from your network to go to the next level. Also, it may cause more confusion if a celebrity like Justin Bieber invests in a cloud infrastructure company – it’s incongruous to both brands.
A celebrity can also shoot a startup in the foot if they promote a product that isn’t ready yet, and the users leave because of it. Or celebrities end up in the headlines themselves and brands have to drop their endorsements.
Still, that’s not to knock all celebrity endorsements. The category is too broad, and all celebrities shouldn’t be excluded from venture capital circles just because of their fame, Carter said. There is a difference.
“You can’t put Ashton Kutcher who is a real product guy and who has a real deep understanding of tech in the same category as a sitcom star who wants to develop their own app and didn’t invest the time,” Carter said.