4 Lessons For Entrepreneurs In The New World Of Celebrity VCs
Serena Williams with her daughter Alexis Olympia. (Photo by MICHAEL BRADLEY / AFP) (Photo by MICHAEL … [+]
The number of celebrity VCs or VCs with a celebrity pedigree seem to be growing by the day.
Previously, I wrote about the exemplary VC track record of Andre Iguodala after a lifetime of excelling at basketball.
Now we hear about the fantastic track record of Serena Williams. After one of the greatest careers in tennis, Williams has been able to develop a very successful track record in VC. She started investing in businesses to help deserving entrepreneurs and has been able to invest in 14 unicorns out of 85 – in addition to the fact that 79% of the entrepreneurs she invested in were “underrepresented,”, i.e., black, women or Latino. This is truly impressive.
Joshua Kushner, brother of President Trump’s son-in-law Jared, was not a celebrity. But as the son of one and the brother of another, he has developed one of the great track records in VC starting at the age of 25. In addition to graduating from Harvard, Kushner has been able to get funding from Princeton and Yale universities. The officer from Princeton has stepped into a mentoring role, while the officer from Yale journeyed to New York to meet with him as he embarked on launching his VC fund. With this auspicious start, Kushner has quickly made inroads into the higher echelons of VC by being introduced to entrepreneurs such as the founder of Instagram.
These Celebrity-VC track records are unique because VC is a difficult area to succeed. Estimates are that the top 20 VC funds (about 3%) generate ~95% of the industry’s returns. Top 20 VCs need home runs – and there are very few home runs. According to Marc Andreessen, there are about 15 unicorns a year that provide most VC profits.
This means that these Celebrity-VCs have invested in multiple unicorns. The key question is whether they invested at very high valuations after the venture’s unicorn potential was proven. Or did they invest at very attractive valuations before the venture’s unicorn potential was proven.
4 Lessons for Entrepreneurs & The Bottom 98% of Aspiring VCs
Here are 4 lessons from the Celebrity VCs for unicorn-seeking entrepreneurs.
1. Get To Aha!
VCs invest after Aha! This means that entrepreneurs need to get there. And do it with skills and finance-smart strategies.
2. Seek Connections To The VC Hierarchy.
Given the limited success rate among VCs, entrepreneurs stand to benefit by seeking funding from the Top 20 VCs for traditional VC advantages. Conversely, if they aim to retain more control over their ventures while still accessing the benefits of VC, aligning with Celebrity VCs may prove advantageous.
3. Attractive Valuation: Willingness To Pay Up.
The Top 20 VCs are highly sought after by entrepreneurs and get better valuations than their lower-ranked peers. Do Celebrity-VCs demand less than traditional VCs, while buying at higher valuations that afford entrepreneurs the advantages of reduced dilution and heightened recognition?
4. Harness Celebrity Influence: Invest In VC Hype.
Credibility is key for a new venture to get an edge. Getting VC from the top 20 VCs does seem to add to the venture’s credibility. Does getting VC from the right Celebrity-VC add to a venture’s credibility? Bill Gates is supposed to have noted that if he had one dollar, he would use it to promote his business. VCs have very successful publicity machines and that gets them the right kind of hype for their ventures – especially their winners. The right kind of promotion can hype the value of their companies and get a faster and more lucrative exit for both the VCs and all the others with a stake in the venture. Invest in hype.
MY TAKE: Celebrity-VC is the hot trend. Get on the bandwagon. But do not lose control to them. For journalists, more details on stage and valuation can benefit your readers.
