The rise of the celebrity funding round among direct-to-consumer brands
Brands are actively seeking out funding from celebrities. Beyond the star-studded press releases, what value do these investors offer?
Direct-to-consumer brands have been busy schmoozing with the rich and famous.
In February alone, probiotic soda brand Olipop announced a $30 million raise from a gaggle of celebrity investors, including Camila Cabello, Gwyneth Paltrow and Priyanka Chopra Jonas. Cleaning company Blueland added Justin Timberlake to its list of investors, while Ashton Kutcher announced that he was backing Uni, a just-launched sustainable body care brand.
These brands join a growing list of consumer products including dog food brand Jinx, vegan nuggets maker Simulate and mattress firm Casper that have won the support of some of the world’s best-known celebrities.
In a past interview with Thingtesting, the founder of men’s fertility brand Legacy Khaled Kteily even jokingly referred to his brand’s October 2021 raise not as its Series A, B or C funding round — the lingo usually used to describe the different stages of funding a young company goes through — but its “celebrity round.”
In the monkey see, monkey do world of direct-to-consumer brands, celebrity investors are clearly the latest must-have.
Brands court celebrities
“We’re seeing a crescendo of brands and operators interested in all things talent, and that’s equity investments included,” says Sherif Hamid, the director of talent ventures at Endeavor, the parent company of talent agencies WME and IMG. His team was established in 2020 to offer a formal service to celebrity clients looking for investment opportunities. “And [they] are becoming even more open-minded and gravitating towards new pockets of growth in the consumer landscape.”
Celebrity investors have been keen supporters of high-growth tech firms, providing financial backing to app-based businesses like Uber, Clubhouse and Calm — but now consumer goods brands are firmly in their sights, as they seek to provide more than just product endorsements.
This shift comes at a time where, on the one hand, top venture capitalists appear to have a subdued appetite for investing in direct-to-consumer brands and, on the other, the media is spoiled for funding announcements to cover, making it harder to secure coverage for a smaller rounds. That is, unless you can stick the name of a celebrity people love to read about in the headline.
This development isn’t to say that brands are looking for a quick win when they get celebrities on board, however. As with so many things in the world of direct-to-consumer brands, all roads lead back to customer acquisition costs — that is, how much a brand has to spend in order to get a customer to make that first purchase, a metric that is supremely important for brands that have started their life online.
Hamid says the primary reason brands are interested in getting celebrities on board is because of their ability to “supercharge awareness,” making it cheaper to market their products in the long run. “Naturally, the ultimate goal is reduction in acquisition spend through organic communication and amplification of the story and the product.”
In proximity to popularity
The introduction of celebrities to a young brand’s cap table can therefore signal a mindset shift, indicating that a brand has found its product-market fit and is now focusing on going seriously mainstream.
Having a celebrity commit to an ongoing relationship with a brand at this stage, “if you do it right, is the most efficient and authentic way to reach a mass audience,” says Steven Vigilante, Olipop’s head of business development, who worked closely on the brand’s February funding round.
“In 2021, we expanded aggressively outside of California, had a humming e-commerce business, and were at this inflection point where we were really trying to become a mainstream brand,” explains Vigilante, adding that Olipop had recently launched in Target, and has a deal with Walmart going live in the next few months. “Reaching [a mass audience] in those retailers is more challenging than reaching moms who shop at Whole Foods and probably follow a lot of the same wellness and lifestyle bloggers on Instagram.”
Cabello is a celebrity that can help them do that. The Cuban-born singer moved to the U.S. at age six, where the family scraped by on modest salaries, saving up funds to set up their own construction business. She has gone from modest means to becoming one of the world’s biggest pop stars. “She has an amazing family story, and she’s built this empire. She’s open about body positivity and mental health, all stuff that’s important to us as a brand. She has an album coming out next year, and she’s never got involved in startups before,” says Vigilante, listing her credentials as an investor. “And the cherry on top of all of this — she was photographed at Erewhon last summer, and she had two Olipops on the table in front of her.”
Ryan Fritsch, the cofounder of bamboo toilet paper and paper towel brand Cloud Paper, says that the potential to take his brand mainstream, fast, was the most appealing aspect of working with celebrity talent. The brand has raised $8 million over three rounds of funding, with big names such as Ashton Kutcher, Mark Cuban, Gwyneth Paltrow and Robert Downey Jr. on board alongside more traditional investors.
“This is a very overlooked product. People don’t spend too much time talking about their toilet paper products,” he says. This presents a communications challenge for his business that celebrities can solve — how can he get people to stop scrolling for a toilet paper ad?
Alongside capital and the occasional Instagram posts, Fritsch says this area is where a celebrity’s innate talents can be put to use for the brand. Throughout his 20-plus acting career, Kutcher has honed his ability to tell stories and to authentically advocate for the causes and brands that he is interested in, Fritsch says.
“He’s built a career shifting culture,” he says, adding that Cloud Paper routinely runs marketing campaigns past its celebrity investors for input on how to create as much noise as possible. “With our Earth Day campaign last year, Ashton was a big part of helping us plan the execution. It was incredibly valuable — he knows how that stuff works.”
Dealing with the stars
Celebrities are not the easiest people to get ahold of, particularly if you’re asking them for money.
Third parties are often need to broker introductions between brands and celebrities. Firms such as Endeavor, which has a number of celebrities on its books, can do this, or a brand can tap up its own personal network to see who knows who.
“There are a lot of investors and VCs now who have relationships in the talent management world, because there has been such an interest over the past couple of years in talent investing into consumer startups,” says Vigilante, adding that Rocana Capital, a venture capital firm which participated in February’s fundraising, provided the introduction to Chopra Jonas and other celebrities. The connection to Cabello came through Hamid — Vigilante had mentioned over a lunch that he was keen for her to consider investing in the brand.
Fritsch says Cloud Paper secured an introduction to Kutcher’s investment firm, Sound Ventures, through Greycroft, a venture capital firm. From there, the brand was connected to other potential celebrity investors.
When it comes to actually securing the deal, Hamid says his clients are typically looking an equity compensation package that “will pay out a premium relative to a talent’s all-cash rate for a similar set of services,” with the risk of the brand not making it to an exit or other liquidity event also factored in.
But how much exactly celebrities are paying into brands can be opaque. Hamid says that “sweat equity” in exchange for “creative expertise and content creation” can be a good deal for both the brand and the celebrity. Other celebrities may prefer to simply write a check, meaning they have less obligation to promote the brand’s products on a regular basis. High-profile deals where a celebrity takes on an active role in the business — such as Kin Euphorics bringing on Bella Hadid as a cofounder — would have required “a larger arrangement” in terms of equity on the table.
The celebrities themselves can drive hard bargains. Vigilante says that one very famous actor — who he declined to name — offered to invest in the business, on the condition that they could get twice as much equity as their proposed financial contribution would have entitled them to.
Olipop declined. “They were a person who certainly could have moved the needle, but we weren’t going to play that game.”