Danger Zone Ahead
When our team speaks with potential clients regarding celebrity endorsements, there is one area where I get more than a bit concerned – when the client wants to give away any part of their company to a celebrity partner. And while I see massive red flags, I also do know it can make perfect sense to do so. With the right celebrity partner. And when they’ve actually earned it.
As an entrepreneur and small business owner, I know how much work goes into creating a company. Blood, sweat and tears along with a dose of countless hours of hard work. And quite frankly, no one, no business partner of any type, including a celebrity, is typically going to work as hard or give the same level you do towards that company. In this blog, Hollywood Branded shares ten insights of the red flags to be aware of when considering giving a celebrity equity in your company.
Celebrities With Business Sense
I’m not saying that gifting equity to a celebrity absolutely should not be ever considered. But it should only be a last consideration, and only provided if very specific levels of participation are met. Celebrities are typically not in positions to play a massive role in a company. Their roles are what you see on screen – as actors, as fan builders, and as the face of advertising campaigns.
There are exceptions - like these celebrity men:
- Robert DeNiro (Nobu).
- Justin Bieber (Tinychat app, Stamped app, Sojo Studios and Spotify).
- George Clooney (Casamigos Tequila).
- 50 Cent (Vitamin Water).
- Ryan Reynolds (Aviation Gin).
- Sean “Diddy” Combs (Ciroc vodka and DeLeón tequila).
- Dwayne Johnson (he has an empire!).
- Ashton Kutcher (so many investments it’s hard to keep up now but his A-Grade Investments supported Uber and Airbnb.).
- Jay Z (Sovereign Brands, Tidal music, Armand de Brignac champagne, Roc Nation).
- Magic Johnson (LA Dodgers, Burger King, T.G.I. Friday's, Starbucks franchises.
- Kevin Costner (Ocean Therapy Solutions).
- Jared Leto (over 50 investments in tech startups including Nest, Airbnb and Uber.
- Nasir “Nas” Jones (investor in Dropbox, Lyft, and Coinbase amongst others).
And these celebrity women too, including:
- Beyonce (Ivy Park and Sidestep app).
- Lady Gaga (Backplane).
- Ellen DeGeneres (real estate of all things).
- Rihanna (Fenty).
- Kim Kardashian (KKW Beauty, KKW Fragrance and Skims).
- Serena Williams (Maven, HSN fashion line, investments in The Miami Dolphins and UFC).
- Carrie Underwood (Calia).
- Jessica Simpson (Jessica Simpson Collection footwear, clothing, jewelry, handbags, and more).
- Gwyneth Patrow (Goop).
- Kate Hudson (Fabletics).
- Sarah Jessica Parker (SJP by Sarah Jessica Parker).
- Reese Witherspoon (clothing line Draper James).
- Jessica Alba (Honest Co.)
- Mark-Kate and Ashley Olsen (The Row)
The Equity Stake – And Dilemma
While the celebrities mentioned above traditionally invested in other companies with their own money, or built startup companies from scratch, there is a 3rd way a celebrity can get ownership. And that’s by using the value of their own celebrity persona to obtain equity stake of the brand partner.
But buyer be warned. Not every celebrity is going to bring stardust to your brand. Nor are they typically going to “perform” to the level of your expectations.
No celebrity should obtain equity in a company by simply aligning their name to it and doing a few social posts. Any contracted deal should have the same detailed thought process as a traditional celebrity endorsement, where every ask and expectation is placed in writing – with minimum levels of participation defined, and possible 'step ups' in shares for going the extra mile. That’s not to say a celebrity partner may want to over perform – and want to help grow your brand by providing additional time and effort including social posts, shoot days for print or TV ads, press interviews. But it’s quite frankly not the commonality in celebrity endorsement equity deals, and the bare minimum is often the end result.
What Are You - And They - Worth
There is another problem that many start-ups and Silicon Valley tech ventures encounter. What to put company valuation at. Not only do you not want to over pay the celebrity partner, taking money from your own pocket in the long run – the celebrity and their team are going to want to make sure they get tremendous value as well. And it’s hard.
The brand needs to make sure they put together a comprehensive plan to explain their value – and make it easy to understand the projections and growth potential. You have to truly figure out brand positioning and how to sell in a new company, especially if you have not had a comprehensive advertising campaign in place and are a virtual unknown in the market. It’s unlikely your company will have historical income levels to report. And with new brands, really no known longevity – yet.
Figuring Out How To Get Someone To Say Yes
Yet another hurdle you are going to have to figure out is the fact that unless you get directly to the celebrity and are able to whisper in their ear (much harder than you truly understand – they have ‘people’ to do that) is how to work around the celebrity’s management teams's needs too.
A celebrity does not pay their agent a retainer. That agent receives a percentage of what the celebrity does – commercially or theatrically. And if the celebrity is being paid in equity, then there really is not a commission or percentage that is going to be able to be figured out easily – as that money is actually going to be vested for a period of time. You really need to show the strength of your company, the amount of funding that you have in place, because your brand’s future just cannot – should not - be dependent upon the celebrity making the company successful.
You will fail if that is your plan.
Issues You Will Run Up Against
The problem you're going to run into looking for people to work on equity is not that the celebrities are willing to do it, but that their talent manager, their agents, their lawyers all like being paid money and they don't work on equity or percentages of equity. Cold hard cash is the rule of the game.
As a brand if you are knocking on doors, you are most often going to hit crossroads where the points of entry are going to shut you down. Or they will at the least ask for a percentage of that equity as a guarantee up front, in cash.
Quite frankly, that’s fair. You are asking a celebrity to say no to working with brands that are of similar category. Even if YOU are OK with their working with another app, another clothing line, another hair care product – the brand category that you are part of is going to be considered as a high likelihood of being exclusive for that celebrity because competitor brands don’t want to be associated with a celebrity already being seen supporting a competitive product. And you are also asking that celebrity to spend their time, their looks, their voice on your brand – with their not having knowledge if your brand is truly going to be successful or not.
It's a risk for both of you.
Now you have to understand, even if you have an awesomely cool product, and I'm not saying it can't be done, but even if you have that truly stand out awesome product, when you door knock in Hollywood, their doors are being knocked on so much by companies of all types all around the world (trust me, we get approached often, so very very often with this request) who think ‘oh, equity… that is cheaper than investing with actual real dollars up front” that those doors are going to stay closed. That’s because many celebrity management teams and agents are just a little over equity, and don’t trust it. There are ways to foolproof your brand and make the celebrity's agent want to work with you... but it will take some work, thought and real dollars.
What You Will Really Get From The Partnership: Reality Vs. Expectations + Wishes
And then there you are. You’ve launched your brand. You have angel investors, or a Series B funded, or are self funded or.... however you have done it. Congrats. You have money coming into your company to allow it to grow.
And since you know you don’t have endless dollars, you decide you want to have a good celebrity face associated with your brand because you have heard the wonder stories of how successful some companies have become.
You think to yourself “Oh, we'd love to work with a celebrity, give them equity, have them actually have a piece of this business. Have them really get involved in company." And you perhaps want to use their voice or likeness in campaigns. Participate in media interviews. Have them do social media posts. Actually, get involved in the marketing planning of it (in all that free time they have!) Give them the title of Creative Director. Have them use their network to get the company’s name out there. Participate in media interviews. Maybe it's their voice that's part of the brand marketing. Or they will use their own social platforms and networks to get your brand messaging out there.
I'm assuming these are similar to what you're thinking about right now if this is a path you are on - because that’s how many many brands think.
But it’s not really like that. In fact, it is pretty tough in general to have a celebrity agree to equity without a fee baked in as a guarantee. And it is also a very poor idea to think that this very busy person is going to be charged up all the time to support your brand. It’s more likely they will dip in, and dip out. And not exactly when you may want them to.
And the same by the way goes for social influencer equity partnerships. You need a celebrity - or social influencers - who really wants to have their foot in the game.
Other Alternatives To Gifting Equity
If you do decide to go down the road on equity, there should be milestones in place before payments are paid out. And there are other potentially more affordable ways to open the door to a celebrity partnership – or implied endorsement - and give away less of your equity.
Many entrepreneurs feel like getting a celebrity on board is going to be the end-all-be-all make it or break it for them. And truthfully – it is not.
You can have a very successful business with a celebrity as an equity partner. And you can have a very successful business by leveraging celebrities and content partnerships – without having them have an equity stake at all.
When you watch the show Shark Tank – every deal that is being brokered is for a percentage of the company in exchange for some set of dollar investment. But it is more than the dollar investment that makes these deals valuable. Typically the deals being discussed are $50k to a few hundred thousand dollars. That is not a lot of money. What those entrepreneurs are actually looking for is the celebrity status of those investors, the doors they can open, the relationships they can introduce and their guidance.
That TV show gives many people the idea that they understand what a celebrity is going to do for their brand. But the reality is that is not the case.
What Celebrities Are Hired For
Most celebrities are hired by companies to serve as the face of a brand. To show up, be shot for print or video content. To share social media content that is produced by the brand (or their agency). To become part of their advertising campaign. To introduce their product line to a whole new audience – very warmly.
The majority of celebrities are entirely different from social influencers – who direct, produce, shoot, script, design, layout, edit and post their content on their social platforms. Celebrities are not typically hired to be the brains behind that marketing campaign. To brainstorm and produce content. To peddle the product. That’s not saying they don’t want to be consulted. But they are more so the canvas than the actual driving force of a CMO or marketing director your company has who gets things done.
To give an individual - whether a business partner, an employee or a celebrity - equity in your company, is a massive giveaway of your precious baby that you have spent so much time building. It is a major decision you need to make to decide if it is worthwhile, and truly a game changer – whether for positive or negative - for the future of your company.
You Need To Know This
Realize that being part of your company is not going to be a make it or break it for a celebrity. It’s a cool thing. It’s a way for them to broaden their portfolio and own financial worth. It is not about sweat equity. And your company is not going to be their daily driving force to stand behind. It will be part of their obligations and part of their team’s job to execute on. And the deal is not going to make it or break it for them – which means they are never going to be as invested as you hope they will be.
As long as you go into considering partnerships with this knowledge and understand that you need to very specifically outline what the requirements are for that celebrity partner to be part of your company, then you will find success. It is when the details are not included in contracts that brands may find failure. You want to include that the celebrity has to do X amount of posts, X amount of press conferences, X amount of photo shoots or video shoots, X amount of event attendance, X amount of conference calls with investors. Everything needs to be spelled out.
Fee Deals As An Alternative
So if you are not ready to part with equity – know this. You never NEED to give equity away. Your alternative is to move forward with a more traditional celebrity endorsement fee.
You outline the deliverables, you pay the fee. It’s really that simple and there are no long-term obligations to bind yourself into perpetuity with that celebrity endorser. In fact – it can be a better way to start a relationship, and at least provide a test case to ensure you both want to work together.
And THEN move forward with equity. IF the celebrity is willing to do a smaller partnership to start. Some will. Some won't. And the biggest names in the celebrity world - especially when it comes to tech, may require equity to be on the table as part of the deal.
Yes – you can build in safeguards with a vesting plan to ensure they meet deliverables. But there are a lot of expectations that will be in place and that celebrity partner is going to have a team that ensures they walk away with something in hand even if it all falls apart.
Just as you are wanting to make sure that the celebrity delivers, the celebrity’s management is going to cautiously enter into a relationship. Talent agents and the bigger named talent get deal offers every week if not every day with equity requests. And they have seen many of those brands go up in smoke. In fact, those agents typically prefer cash fees versus equity for two reasons. For one, they are used to working with traditional public companies that use celebrity endorsement as part of marketing efforts who don’t work in equity and are safer bets. And secondly, they don’t want to go in and spin wheels and spend time, when there is not guarantee the company is going to be around at the end of the deal term.
Learn More About Celebrity Endorsement Partnerships
Our team has written a blog or dozen about celebrity endorsements including how to do them to a wide variety of case studies.
Check out a few of the following:
- 8 Steps To Leveraging Celebrity Talent To A Brand's Advantage
- How To Create A Safety Net With Celebrity Endorsement Investment
- How Red Nose Day Uses Power of Celebrity Endorsements
- Celebrity Ads Paired With Unexpected Brand Categories
- Athletes As Brand Celebrity Endorsers High Reward And Low Risk
- Cause Related Marketing Campaigns Getting The Celebrity Treatment
- 12 Steps To Celebrity Event Sponsorships
- 8 Steps To Inviting A Celebrity To Your Event And Saving Some Money In The Process