Anushka Sharma for D2C children’s snack brand Slurrp Farm, Rakul Preet Singh for Wellbeing Nutrition, KL Rahul for underwear brand XYXX. The list goes on.
The booming investor ecosystem and startup innovations have caught the attention of celebrities who are also financial powerhouses. In recent months, celebrities have become more interested in capitalizing on the growth in this segment by attracting investors to these new-age brands.
It’s not just Bollywood celebrities investing in startups, but also sports stars, content creators and social media influencers. Recent examples of celebs who have become investors and supporters of various startups include Anushka Sharma for Slurrp Farm, a direct-to-consumer (D2C) kids’ snack brand, and Rakul Preet Singh for Wellbeing Nutrition.
These celebs don’t just invest in D2C startups. In December 2021, siblings Zoya and Farhan Akhtar invested Rs 21 crore and Rs 10 crore respectively in Ola Electric owned by Bhavish Aggarwal. Gujarat-based underwear brand XYXX recently made headlines when cricketer KL Rahul brought them on board as an investor and endorser.
Marketer Jessie Paul, CEO of B2B consultancy Paul Writer, says: “The two main expectations of celebrity endorsers are reach and credibility. If the celebrity can change their behavior or get users to adopt the brand, that’s even better. To consumers, a brand that can afford a celebrity seems financially healthy. The celeb clearly did due diligence before recommending it to his followers.”
Aviral Jain, managing director of Duff and Phelps, says that connecting with a celebrity ensures instant visibility, a higher retention rate and better brand recall.
“These key ingredients help attract funds and generate a higher valuation multiplier. However, a celebrity can only be a catalyst and not the only way to increase sales. If a brand is unable to establish a relevant market fit, bringing in a celebrity brand ambassador may not do much to help. As such, a celebrity association should be viewed more as a way to build top-of-funnel recall and drive sales,” adds Jain.
It has to be mentioned that this trend has been seen in recent years, with celebrities not only limiting their connection to brands through referrals, but also becoming investors and strategic partners.
Flavored yogurt brand Epigamia was launched in 2015. In 2021, Deepika Padukone launched a new range of healthy chocolate spreads in collaboration with the brand (investment). Padukone’s investment in the brand not only helped gain media attention and popularity among the masses, but also expanded its distribution to a dense network of corner shops.
Most prominent investors also support these brands. There may also be exceptions to this. Sony’s business reality show Shark Tank India has taught its audience that investing in a startup for a prime equity result in the investor having more leverage in the game. Therefore, more can be expected from the celebrity than just promoting the product.
Duff & Phelps Celebrity Brand Valuation Report 2021
Saurabh Uboweja, managing partner of BOD Consulting, points out that a celebrity investing in a startup most often replaces the money the brand is supposed to pay as a support fee.
“If an old brand needs to get a big endorser they can charge around Rs 5 crore a year. While big brands can afford such a deal, the same celebrity won’t discount another brand just because it’s a smaller company or startup,” adds Uboweja.
Therefore, a deal is worked out where the celebrity will be paid in cash plus equity from the brand. However, this does not necessarily mean that all endorsers invest directly in these brands all the time.
Many types of deals can happen between celebrity endorsers and brands. Uboweja mentions that one of them is that the brand gives equity in exchange for endorsement. The other is when a celebrity becomes an angel investor for the brand.
If a celebrity has excess funds, investing in a brand is an option they can explore (e.g., in real estate). However, in this case, the celebrity may or may not become a brand ambassador, or it may be a mix of both.
Why do startups offer equity to their ambassadors? Paul argues, “Only brands that can’t afford money will divest themselves of equity. Overall, it’s a startup that’s willing to part with its valuable equity at a discount in hopes the celebrity will fuel future growth. Celebrities wouldn’t want involvement in the other type of company, especially one without cash.”
For the brand, the celebrity’s popularity, reach and resonance with the target audience offers the benefit of building consumer trust. Ashwani Arora, Executive Director of Marketxcel (a market research company) mentions that it often depends on the stature of the brand and the celebrity that determine the advantage they bring to each other’s table.
“Celebrities benefit from becoming investors because they are exposed to the growth that the brand may foresee. The startups looking for funding have found a way to raise capital through celebrity endorsements. The collective synergies between the celebrity and the brand contribute to the success of the latter. It’s a calculated risk for both companies.”
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