Investors are rethinking how they assess celebrity brand pitches
Fatigue around celebrity and creator brands has set in.
While there continues to be a steady stream of new celebrity brand announcements, the bankruptcy of other companies like Hello Bello and Forma Brands have left some more skeptical of the space. Reed Duchscher, CEO of Night — MrBeast’s management firm until their split this month — recently told the Hollywood Reporter that there is a lack of “investable businesses” in the creator space in particular. Duchscher said that he’s seeing more creators raise money for a startup just for the sake of raising money — without coming up with a concrete business plan first.
One of the big selling points of creator and celebrity-led startups has long been that their large followings can help a brand acquire new customers more quickly and build deeper loyalty. But now, more investors recognize that having a famous face is just a starting point for building a sustainable business. In turn, investors are more closely scrutinizing celebrity-backed brands. They want to know more about product development, distribution plans, and the experience of the team operating the business day-to-day.
Still, the appetite is there for investors looking to strike gold in backing a brand with a famous face. A select group of brands continue to perform well despite inflation and customers pulling back on spending. In March, the Business of Fashion reported that Selena Gomez’s Rare Beauty is exploring a sale or IPO having just crossed $400 million in net sales. Hailey Bieber’s Rhode, meanwhile, also continues to grow its following. Last year, Rhode reportedly hit eight figures in sales in its first year. Beauty appears to be an outlier category. According to NIQ tracking, in 2023, 43 celebrity beauty brands collectively generated $1.1 billion in annual sales, surpassing the billion-dollar mark for the first time. There is also a growing trend of celebrities, like Dua Lipa and Oprah, foregoing starting their own brand and instead investing in existing products they already love.
But even with these successes, investors are upping their scrutiny.
A focus on gathering more data points
Jocelyn Florence, partner at Parallel, a celebrity talent partnership studio & strategic investor, said that her firm gets “pitched on a lot of talent incubator brands.”
Florence explained that when it comes to investing in celebrity-backed brands, historically there’s not enough emphasis on data, leading to mismatched product launches that don’t work out. “It’s been very much about vibes, and more so a feeling that it’s a good idea,” Florence said. And while the public persona is important to consider, Florence said investors now want to know in concrete terms how that will impact CAC, customer trial and repurchase rates. As an example, they may want to know how a post from the celebrity founder typically performs compared to a standard brand post.
Other investors are also taking a closer look before taking equity in a celebrity’s next venture.
In the last few years, Springdale Ventures has cultivated a portfolio of brands founded by Hollywood stars. These include Gal Gadot’s Goodles, Melissa McCarthy’s Big Nose whiskey and supplements brand The Absorption Company, which debuted at Erewhon earlier this year.
Genevieve Gilbreath, founding partner at Springdale Ventures, said the firm is currently doing diligence on three new celebrity-led brands.
“But we’ve also passed on a bunch of celebrity brands recently,” Gilbreath said. Sometimes, she said, it’s just because the product is not solving a real problem. Gilbreath also said the firm has tried to steer clear of incubated brands out of fear that these brands lack operating founders who are “crucially important.” Last year, for example, Springdale passed on an incubated celebrity brand, she said, “because they didn’t have the equity to bring on a real founding team to manage it.”
When a talent management firm pitches her on a new celebrity brand, Gilbreath said the most important thing she wants to know is: “Why are they [the celebrity] doing this and is it a real passion?” The product and business also have to be able to stand on their own. “We think of the celebrity as icing on the cake — someone who can help save on PR and bring in eyeballs.” She added that retail buyers love to meet famous people, so it’s helpful to bring them into those meetings to help close the deal.
Gilbreath said she’s also drawn to the celebrity founders who are putting in their own money into the company. “It doesn’t matter how much, but it tells me they’re personally invested,” she said.
One of Springdale’s most recent investments was in Robert Downey Jr.’s new coffee brand, Happy, co-founded with Craig Dubitsky, founder of Eos and personal care brand Hello. “It made sense because Robert Downey Jr. is a coffee fanatic,” Gilbreath said, and the brand also has a mission tie-in with a partnership with NAMI. “He’s put in his own money and has shown up to industry events like the Beverage Forum.”
While Parallel occasionally backs brands that are just starting to form, “I’m more bullish on partnering talent with a brand that already exists and has a decent track record,” Florence said.
Ideally, these businesses have already hit between $5 million and $10 million in sales and have a clear roadmap for product development and distribution. “We ask the brand: ‘What’s your priority for the next two years and how could a particular celebrity help you achieve those goals?’” Florence said. That way, the brand can quickly leverage the talent’s following and media reach without having to start from scratch.
On the talent partnership side of Parallel, the firm works to match brands with creators or celebrities, who help bring awareness to their products through ambassadorship or short-term sponsorship contracts. Here, data is also critical to ensuring successful partnerships.
Without naming the brand, Florence said Parallel is working with a food startup that’s been around for a couple of years and is currently selling in Walmart. To succeed at Walmart and expand to other retailers, the brand’s founder wants to bring on a recognizable face to help reach new audiences and help drive trials. So Parallel is talking to former sitcom stars who have a similar reach. “Their management have the data to prove they do really well with Walmart shoppers.” Similar deals in the works include brokered talent partners for food startups like Behave.
It’s been an extremely tumultuous year in entertainment, so it’s understandable that celebrities want to explore founding a brand and ideally create a bigger, more sustainable revenue stream for themselves, Florence said. “But I don’t think it’s realistic to ask a big celebrity with a lot on their plate to run a whole business,” Florence said. “We don’t expect a founder to win an Oscar, so it’s not always a fair expectation.”