Web groceries, sock puppets, podcasting - Internet trends come and go. The trick is to know when the end is near and avoid doing something foolish, like paying $580 million for MySpace. Today, that means consumer Internet startups taking on celebrity investors.
The Benefits Of Being Famous
The temptation is understandable. Celebrities offer a startup many potential benefits. Bold-face names can attract instant attention and help draw paying customers. At the same, they can establish credibility with investors, who these days will fund consumer Internet companies only if they can demonstrate a customer-acquisition cost lower than Kim Kardashian's neckline.
Plus, the celebs are into it too. Ever since Ashton Kutcher and Bono got (way more) rich investing in startups like Foursquare and Airbnb (Kutcher) and Facebook and Dropbox (Bono), every Hollywood star and has-been wants in on a hot startup.
But if you have a consumer Internet company and you don't already have a celebrity investor, you've pretty much missed the bus. The startup-star marriage is over. Over like Tom Cruise and Katie Holmes. Over like Paris Hilton and DJ Afrojack.
Every Which Way But Loose
Trouble is, all the good celebs are taken. There are only a handful of stars like Kutcher, who invests serious money and, by all accounts, adds real value to the companies he funds. The rest are just into tech for the buzz. And you don't want people like that - or their hangers-on - getting their paws on your startup.
'This is typical monkey behavior of imitation and greed,' says Paul Kedrosky, a senior fellow at the Kauffman Foundation who focuses on entrepreneurship and innovation. 'We're all a bunch of apes and we see the other apes doing things that make them money and get them attention, so we imitate. And there's no place more full of imitative behavior than the entertainment industry. These people are acutely aware of being a fast follower and that currently involves this fondness for technology.'
Kedrosky says celebrities come with the same advantages and disadvantages as other angel investors 'but dialed to 11.' Some do have domain competencies that match the startups they pair off with - like Lady Gaga and Turntable.fm - but even then they tend to be fickle. They don't have the attention span for follow-on investments and they hit the exit at the first sign of trouble. 'It's the usual bipolar disorder you get when dealing with angel investors,' Kedrosky says, 'but way more exaggerated.'
Is Your Startup A "Winner"?
Worse, you could end up hitching your company to a Charlie Sheen or Amanda Bynes. 'You rise up with them but then they become embroiled in some goat-boy scandal and you fall with them, with no connection to the merits of your company.'
If you feel you must recruit a celebrity, aim for a star with a large Twitter following. 'If you are going to get an angel investor involved who's writing smaller checks, they'd better be able to bring a lot of Twitter followers,' Kedrosky advises. 'There's a correlation between people on Twitter with the most followers and the likelihood they'll become celebrity investors. I have no hard data but I'd argue that is absolutely the case.'
Make Sure The Stars Align
Also make sure your product aligns with the talents of the star, Kedrosky suggests. 'If you have some kind of enterprise application for building cloud services, good luck with that. Odds are you won't get an A-list actor to invest.'
Whoever you decide to pursue, you should hurry. The celebrity-investor craze is coming to a close. In fact, Kedrosky thinks it's time to get out of the consumer Internet business altogether.
'As soon as it becomes obvious to people that this is an easy way to make money, then it no longer is easy. So we're approaching the end of the current cycle. My guess is we're long past the peak of the consumer Web and the mobile/local/social cycle. It peaked at least a year ago and now you have a bunch of monkeys showing up at the end, not knowing that the meteor has already struck and the fire is coming across the landscape and they are toast.'
Hmmm. ToastedMonkey.com? Somebody get Billie Joe Armstrong on the phone!
Images courtesy of Shutterstock.
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