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How I Invest with David Weisburd
E143: From Fame to Fortune: How Celebrities Turn Fame into Billion-Dollar Brands
00:19:46
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- [00:00]
Interviewer
Tell me about your team.
- [00:01]
Scott Vandenberg
A bit about my team and myself. So we have been involved in 55 celebrity founded brands including some of the most successful ones. So I've worked with a lot of celebrities over the last couple of years to help them do equity deals with startups. And I've also been like an angel investor in companies of people like Selena Gomez, DJ Khaled. We are officially co investors in Jake Paul's Better and some others. And I also create a lot of content online about celebrity founder brands. So whenever like people are thinking about launching their own brand as a celebrity, oftentimes I'm one of the first people that they reach out to. And then the rest of my team consists of people like Ben Acott who co founded feastables together with MrBeast and that company is doing like $400 million in revenue in the second year of business. So one of the fastest growing consumer brands ever. Another one on my team is actually one of the co founders of the Honest Company, Christopher Gaffy Gunn, which he started with Jessica Alva and IPO'd in 2021. Honest Company and Feastables are two of the most successful celebrity founder brands. So we like to think that Bey Capital, we can also add expertise to these portfolio companies.
- [01:05]
Interviewer
How did Ryan Reynolds sell mint mobile in three years for $1.35 billion?
- [01:11]
Scott Vandenberg
The company was founded in 2015 and Ryan Reynolds was actually an early customer and he absolutely loved the product. And they were able to strike a deal in 2019 where he became like a co owner of the brand and also got like a 25% equity stake. And this allowed Mint Mobile to leverage Ryan Reynolds millions of followers to basically promote the product for free. And this is something that traditional brands have to pay millions of dollars for.
- [01:36]
Interviewer
When it comes to Ryan Reynolds, he not only did it with Mint Mobile, he also did it with Wrexham Football Club and Aviation Gin. What is his unfair advantage?
- [01:46]
Scott Vandenberg
I think his real unfair advantage is actually the way how he looks at business in comparison to other celebrities. So to be honest, like having a celebrity nowadays involved with a company is quite of a commodity. There's like thousands of startups that have like a celebrity, co founder, co owner, creative director, whatever title you want to give it. And if you also look at the type of companies that they want to align themselves with, it's often like luxurious products or aspirational products. That type of companies often in saturated markets. And then Ryan Reynolds had like a click and said why am I not focusing on unsexy, highly practical companies? So that's why he's focused on telecommunication. He's involved with 1Password, a password protection company. Those companies still have like high acquisition costs. So thinking hey, can I leverage my platform? So instead of being a walking billboard today promoting this and then tomorrow promoting something else, he works together with four or five companies on a day to day basis and promote those companies for the next five to 10 years. That's what he does. He's not working with 20 or 30 companies at the same time.
- [02:48]
Interviewer
You help startups partner with celebrities in order to found and scale brands. What's important when you think about combining a startup with a celebrity.
- [02:59]
Scott Vandenberg
These companies always have to be product first. Obviously having a celebrity on board will help sell the product, but they might help sell the first product. But the quality of product is actually going to determine that people buy a second, third and fourth product. They always have to be product first and instead of like celebrity first. It's also really important is that there's an authentic fit between the celebrity and the brand. We call this celebrity product market fit where basically the brand is aligned with the celebrities Persona, content and audience. Before you actually make a jump in making this person like a co owner or co founder of the brand. We call this like dating before you get married. So you first get dating, then you obviously get in a relationship, then you get engaged and then you get married and this also makes it much more authentic. I think it's always so random when a new celebrity launched like a new hot sauce brand while they never talked about this openly and you're like okay, why are you an authority in hot sauce? And they're like oh, I ate it with every dish. And I'm like okay, but you never talked about this openly. Whereas like if you have been working together with this brand and after six months you say hey, let's partner up and become like a co founder. The audience is like oh this makes so much sense because there's a deeper alignment there. Lastly I would say is having a strategy. You need to have a clear plan in order to make sure you can leverage the celebrities platform, Persona and networks to accelerate the growth of your company and make sure your product is part of their story as well.
- [04:19]
Interviewer
There's a lot of celebrity startup partnerships that haven't worked. What are some partnerships that have worked?
- [04:25]
Podcast Host
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- [05:11]
Scott Vandenberg
T A great example is a company called Divi Hair. It's founded by an influencer called Danny Austin. She's like a lifestyle content creator who talks about her whole life online. And it got to a point where she was like, experienced a lot of stress and that lead to like a lot of hair loss. And then she got to a point where like, I don't want to talk like in front of the camera anymore because I'm a little bit insecure. After a month, she was like, why don't I share this as well with my followers because I've been open about my whole life. So she started to talk openly about it. Tens of thousands of women were like, wow, thank you so much for being open. Because normally influencers are just showcasing the good and never the bad. And yeah, really helping her followers be more comfortable. And then she was like, hey, why? I'm actually not going one step further. Why don't I work together with like an R and D team for 12 months to find like a solution? So that's where she actually created Divi Hair, which is a hair serum which helps you fight hair loss. First year, that company did $40 million in sales and this influencer only had 2 million followers. So I think a lot of time people are mistaken the follower count thinking, oh, the bigger the better. But sometimes it's just about community and finding that perfect audience fit with the product that they're selling.
- [06:21]
Interviewer
If I'm a founder and I start a consumer brand, that may make sense to partner with a celebrity. Walk me through the process. I would go about finding the right celebrity for my brand.
- [06:30]
Scott Vandenberg
Recruiting first. So like going through multiple profiles to understand who would be the right fit. Obviously first have to also create a Persona. So what are you looking for from this person who's your audience and make sure that that audience is overlapping with the celebrity, also finding out what is their personal mission, how much do they still have left in the tank? A lot of celebrities, they're very successful. They've made hundreds of millions of Dollars. Are they still going to care about your little startup wanting to make it another success working for the next five to 10 years, really understanding also the celebrities mission. And then you just have to connect with them. So whether it's like a direct connection or fire the management agencies. And if they're interested, you can basically go to the recruitment process where you're like interviewing them, understanding their personal missions, understanding if they're a fit, having them test the product and then doing that multiple times. The big mistake is that people always fall in love with a celebrity. They're able to get in touch with celebrity and then, yeah, they're kind of starstruck because this person has 20 million followers. And then they're like, what if only 5% of this 20 million followers will buy the product? I'm going to be like a billionaire. But that's not the way I should think about this. You should really think about, okay, who's the right person not only from an audience perspective, but also from a personal perspective. Who can help my company move forward?
- [07:47]
Interviewer
What are the most common mistakes that brands make when partnering with celebrity?
- [07:52]
Scott Vandenberg
Not doing enough due diligence on the celebrity. They're able to get in touch with a celebrity or via talent management agencies. They're being proposed to celebrity after one meeting, they're like, okay, we really have to work together with this person. Instead of actually looking at their audience and seeing if it makes sense, they immediately jump to the gun and they say, oh, let's become like co founders here. You have a 20% stake in my company and let's work together. Then they do a couple posts and they find out it's not leading to anything. And now you have a disappointing startup and a disappointed celebrity who's also not motivating to keep on promoting the brand. Another person is like an equity owner in your company. So it makes it really hard to get rid of each other. So that's why it's really important to date before you get married. And another like, mistake that a lot of these starters make is actually that they're kind of becoming too dependent on celebrity. So they're taking a celebrity first approach instead of a product first approach. Let's say you partner with an actress and that actress has to shoot a movie for the next two months in Hollywood. She's not going to be as involved with your company as before. So you see these spikes in revenue and that is definitely something that you want to avoid. We always kind of should build your company that is supported by the celebrity instead of dependent on when you're dealing.
- [09:02]
Interviewer
With celebrities, you're not only dealing with them, you're dealing with their managers, with agencies. What is it like dealing with these gatekeepers?
- [09:09]
Podcast Host
Thank you for listening. To join our community and to make sure you do not miss any future episodes, please click the Follow button above to subscribe.
- [09:16]
Scott Vandenberg
That's kind of a love hate relationship. It's a great question because kind of their business model is not really aligned with my business model, whereas I'm really focusing on long term equity value. The traditional business model of these talent managers is that they get a 10 to 20% cut of whatever the celebrity makes. And unlike a celebrity who has a lot of money and can say, hey, I don't care about my next pay cut but I want equity or I want to build my own company. A lot of these talent management agencies, they have to pay their employees, they have to pay rent, they have to pay you utilities. The individual managers, they have targets. Those targets are based on cash that they bring in, which gives them bonuses, which gives them promotions. So naturally they have a tendency to focus on cash over equity deals. Slowly these talent management agencies are getting a little bit more entrepreneurial. But yeah, they're kind of still stuck in the old way of thinking. So whenever you approach them with like an equity deal, they're like oh, we want equity plus cash. And then you're like okay, let's hope they just say 25 or 50k just as a sign of goodwill. And then they're like no. In addition to the equity, we want to get like a high six or even a seven figure cash check. No seat or series. A startup just have a million dollar laying around for a celebrity not knowing what they're going to get in return. So that is just quite frustrating to be respectful. A lot of them are talent managers, they're not venture investors. So they don't know how to analyze these companies. The questions that you get in these calls, it's like the first question without actually having any context. It's like when are you going to exit your company? And I'm like, well maybe we should start with the mission and understand what the mission is, why they're doing this, what is unique about the company and then talk about the exit later because we're talking about early stage companies. And also if you approach them and you have like doa, which is like a very high growth company, they have product market fit but they only want to offer equity and they have dop. A normal startup, I would say don't have product market Fit, but they're willing to pay equity plus cash. The managers influencing the celebrity to do the ob. And what is very frustrating is three years down the line, company three goes bankrupt of B goes bankrupt. And then internally the management firm is like, oh, we shouldn't do equity deals because it's not paying off. And I'm like, yeah, of course, because you're not picking the right companies. Because if you pick company A, you actually would have been very successful even without the celebrity involvement. But luckily a lot of them are now getting more entrepreneurial. The largest ones even get their own venture departments, but it's more like an exemption to the rule and they're kind of being forced to as well. Their clients, their celebrities are like, hey, my peers have been very successful in the space, so can you actually get me similar deals? So are they being forced to search for these deals and if they can't find them, the celebrity is going to walk out of the door including their 10 to 20% cut that they normally get.
- [11:54]
Interviewer
It's interesting because there's this effect of seeing your neighbors or your friends get big exit. In Silicon Valley, nobody really believed in equity until their next door neighbor got 10 million or $20 million as an engineer from Google or Facebook. And then it started to become real, it started to become visceral. And I think same thing is happening in the celebrity world where you mentioned all the successful startups. The more than that proliferate, the more celebrities will take equity.
- [12:22]
Podcast Host
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- [13:10]
Scott Vandenberg
Yeah, there's like FOMO going on like all the celebrities are now, oh wow, okay. I also have to start my own company and unfortunately there's like a lot of bad players in the space who are like taking advantage of that. Just saying, okay, I have this white label product, let just put your name on it and try to sell it. It doesn't add any value. Or solving any problems. So it's just more superb products and oversaturated markets. So hotstar VC is a new fund from which we are investing in brands founded by celebrities and creators. And what has been interesting is that they have started to build their own audiences online and are now creating businesses on top of it. And it all has to do with their competitive advantage in company building. As they have a built in audience, they can basically drive near instant traction to their companies for free by simply posting on their social media channels. And that is something that traditional brands have to pay millions of dollars for. But not only that, it can also help you with retail, it can help with investors, it can help you with pr. So there's a lot of benefits to these celebrity brands and it has already resulted in companies like Skims by Kim Kardashian which is set to IPO this year for $4 billion. Min Mobile by Ryan Reynolds, we got like acquired for $1.35 billion and prime from Logan Paul and KSI, we did like $1.2 billion in sales in the first two years of business and many more. Seeing growth that traditional consumer brands have never seen before. And this is just the beginning. Literally every single celebrity is thinking about launching their own brand after seeing the successes of their peers. That leads to a lot of deal flow. We don't really care about the next celebrity tequila or beauty or apparel company. We don't care about celebrities launching products in oversaturated markets. We care about celebrities launching innovative products and services that solve real customer problems. Those are the types of companies that we would like to invest in.
- [14:50]
Interviewer
Tell me about your team a bit.
- [14:52]
Scott Vandenberg
About my, my team and myself. So we have been involved in 55 celebrity founded brands including some of the most successful ones. So I've worked with a lot of celebrities over the last couple of years to help them do equity deals with startups. And I've also been like an angel investor in companies of people like Selena Gomez, DJ Khaled, we are obviously co investors in Jake Paul's Better and some others. And I also create a lot of content online about celebrity founder brands. So whenever like people are thinking about launching their own brand as a celebrity, oftentimes I'm one of the first people that they reach out to. And then the rest of my team consists of people like Ben Acot who co founded feastables together with Mr. Beast and that company is doing like $400 million in revenue in the second year of business. So one of the fastest growing consumer brands ever. Another one on my team is actually one of the co founders of the Honest Company, Christopher Gavigan, which he started with Jessica Alba and IPO'd in 2021. Honest Company and Feastables are two of the most successful celebrity founded brands. So we like to think that beyond capital we can also add expertise to these portfolio companies.
- [15:54]
Interviewer
Why do so many celebrities launch tequila brands?
- [15:57]
Scott Vandenberg
So let's start with a statistic. So in 2018 there were 40 celebrity liquor brands. Today there's more than 800. And probably as we ask like a celebrity why they say yeah, we like to align ourselves with like high quality brands that showcase style and sophistication and that aligns well with premium spirits. I think that's bs. I think the real answer is something along the lines of the celebrities saw the successes of Casimiros from George Clooney, a main aviation gin of Ryan Reynolds, Theramana, Tequila of the Rock, Conor McGregor, JC they were all very successful in the space thinking that they can replicate the successes. They're like, oh, I have a similar amount of followers so probably I will be as successful or even after half of the followers. So maybe in four years time I can get half of the billion that George Clooney got.
- [16:44]
Interviewer
George Clooney famously sold Casamigos for a billion dollars. Why was he able to pull that off his team?
- [16:51]
Scott Vandenberg
So George Clooney was just one of the components but he actually had a very experienced team who did it before in industry. So yeah, fire that network. They were able to get in all the distributors and then also it took them like more than 10 years to do it. Like obviously they sold their company within four years but there was a contract that for the next 10 years George Clooney has to be associated with the company. So it's more for like an earn out like where they got like 300 million upfront and 700 million has to be earned over the next 10 years. It's not just a quick flip and that's it.
- [17:22]
Interviewer
When you go about investing into celebrity brands, what stage do you like to invest in and why?
- [17:27]
Scott Vandenberg
We like to invest as early as possible so we focus on like pre seed and seed opportunities. This just allows us to yeah really be aligned on strategy from day one and make sure that we have like a concrete plan on how we're going to launch this. Our team has a lot of experience in starting and scaling these celebrity founder brands and it's important that they are structured the right way from day one. That's why we like to align ourselves from like day one.
- [17:49]
Interviewer
What is your unfair advantage?
- [17:51]
Scott Vandenberg
I would say it's our access and expertise and I have like a lot of working relationships with celebrities so oftentimes whenever they're thinking about launching their own brands, I'm one of the first people to know. I'm also a content creator in the space or create a lot of content about celebrity founded brands which has helped me to gain more than 10 million views in the last year. Our team has been involved in 55 celebrity founded brands including some co founding some of the most successful ones like the Honest Company and Feastables so we can pass on our learnings working with celebrities, turning their companies into billion dollar brands and hopefully replicating the same successes for our portfolio company.
- [18:26]
Interviewer
What do you wish you knew before starting in the celebrity investment space three years ago?
- [18:31]
Scott Vandenberg
Great question because the industry is not very mature, so the word influencer didn't even exist 10 years ago. And I was thinking that these celebrities were very sophisticated when it came to investing and that type of stuff. But most of them have no idea what a series a round is, let alone if you're talking about preferred equity or common equity or or pro rata and that type of stuff. So you have to do a lot of handholding to help them understand what is equity, how does it work, how do you build a company, what is a cap table, how do you divide equity and that type of stuff? They're like okay, I want to get 10%. And I'm like but you don't even know what the value is of 10%.
- [19:08]
Interviewer
There's an old VC joke. You give me the valuation, I give you the terms. Celebrities may learn the lesson over time. What would you like our audience to know about you, about hotstar VC or anything else you'd like to shine a light on?
- [19:22]
Scott Vandenberg
Maybe a little bit of self promotion. If you're interested in celebrity founder brands and would like to stay up to date in the space, feel free to connect with me on LinkedIn. I would love to connect there. Awesome.
- [19:32]
Interviewer
Thank you Scott.
- [19:33]
Scott Vandenberg
I appreciate it.
- [19:35]
Podcast Host
Thanks for listening to my conversation with Scott Vandenberg. If you enjoyed this episode, please share with a friend. This helps us grow and also provides the best feedback when we review the episode's analytics. Thank you for your support.