Reality shows like Dragon's Den and Shark Tank are as popular as ever, with viewers keen to watch startups pitch and entice a panel of well known investors to support their business journey.
Many startups dream of having a celebrity investor — but how valuable are they actually?
A 2023 report coauthored by Daniel Blaseg, assistant professor of entrepreneurship at Esade Business & Law School in Spain and Esade Entrepreneurship Institute researcher, explored the extent at which having a famous name on your cap table boosts a startup’s success — and it found it does, but there can also be some downsides.
Having a celebrity on board pays off
Using a sample of over 2.9k early-stage ventures from the Canadian, German, UK and US versions of Dragons’ Den, Blaseg and his coauthor Lars Hornuf found the degree of being well known had a positive impact on survival, web traffic and sales. The researchers used Google Trends to measure how well known investors were in the report.
For companies, it can pay off to have a celebrity on board.
“Google Trends is an indication of how many people search for a name. We made it comparable by giving a benchmark — we used the respective president of a country’s central bank and, as an alternative, the national representative for the Miss World contest,” says Blaseg. “This is how we can measure how much a person is known, especially to a non-expert audience.”
Blaseg and Hornuf also measured the importance of money, reputation as investor and the reputation for being known. They found that the reputation for being known matters more for consumers, but less so for other investors.
“Solo GPs are investing more in brand building and reputation, and getting more known to the general public,” says Blaseg. “For companies, it can pay off to have a celebrity on board. For investors, they should spend more effort on making themselves more known to the general public — especially in a B2C setting.”
Winning investment on TV
Benjamin Michel is cofounder of digital financial assistant app Finanzguru. He sought investment on Germany’s version of Shark Tank, Die Höhle der Löwen, in 2018. Finanzguru secured the biggest investment of the show to date, receiving €1m from billionaire businessman and investor Carsten Maschmeyer.
We have had several recaps on Die Höhle der Löwen showing our growth.
Michel says the combination of having Maschmeyer as an investor and the appearance on the show has been a huge accelerator for Finanzguru’s growth.
“Carsten Maschmeyer has been a great value-add to our company,” says Michel. “Due to his investment, we have had several recaps on Die Höhle der Löwen showing our growth. This is giving us a lot of customer attention as well as trust, since people know us from TV.”
“Carsten Maschmeyer is one of the most professional investors in Germany. [He has] several funds as well as a huge team behind him helping us with scaling our business, [such as with] sales training,” he adds. “Furthermore, [he] has a huge network and helped with finding additional venture capital investors for follow-on rounds.”
However, there were limits. For instance, Michel chose not to use Maschmeyer as testimonial for Finanzguru’s app as he says he didn’t profit “too much” in terms of customer acquisition after the TV appearance. Instead, Finanzguru uses Die Höhle der Löwen on marketing materials to build trust and, Michel says, the business consequently has lower customer acquisition costs.
Fundraising also often needs to extend beyond just celebrity angels. For enough capital and expertise, angels with industry or business expertise can be invaluable too. For instance, Esade BAN, the investor network organised by Esade Alumni, has invested €45m into early-stage startups.
Trusting what you know
Ultimately, the Esade’s professor Blaseg’s report found that having a celebrity investor is a positive for startups — but there are some negatives to bear in mind. For example, if a celebrity receives bad press, such as being charged with criminal activity.
“When you leverage the publicity of the investor, you may also fall down,” says Blaseg. “Your reputation as a startup can suffer when the reputation of the investor is suffering.”
The best thing possible to have for your startup is a well known investor aligning with the industry of your company.
Despite this, the report found that the upside of having a well known person on the cap table outweighs the risk. He explains that there are three mechanisms in play when looking at the impact of having a celebrity investor — familiarity, publicity and reputation at risk.
“When you are affiliated with a well known investor, your publicity increases because more press is reporting about you,” says Blaseg. “A good example is Leonardo DiCaprio — when he's investing in something, very often the company name is not even mentioned, but it increases press and publicity to the company.
“It also makes the company seem more reliable for the consumer, because what we as humans infer is that the celebrity is also putting a bit of their reputation at risk.”
The report found that when people are familiar with something, they tend to like and trust it more. This means that as investors or celebrities are more well known, the public finds it easier to trust an unknown startup thanks to the association with a person in the limelight.
This is especially true when an investor is deemed an expert in the field that the startup operates within.
“If you are a celebrity known for sports and you invest in a sports business, this increases the effect [of the investment],” says Blaseg. “If Serena Williams is investing in a fintech company, it's less effective than her investing in a tennis company, for example. The best thing possible to have for your startup is a well known investor aligning with the industry of your company.”
