The tech blogosphere was abuzz yesterday with a mix of shock and confusion over #DominateFund, a new self-described celebrity investment fund. It was launched by former Mashable editor-at-large and current CNET columnist Ben Parr, in partnership with digital-music marketing company Tracks.by co-founders Matt Schlicht and Mazy Kazerooni. While the celebrity integration riddle is one that has yet to be perfected by the broader startup and venture capital ecosystem, the view from LA is that Dominate – sorry, #Dominate – has missed the mark at nearly every conceivable turn.
PandoDaily received a copy of the #DominateFund pitch deck; and we’ve been speaking to several well informed parties in Hollywood, Silicon Valley and New York about the conceptual fund for multiple weeks. Needless to say, yesterday’s narrative has more holes in it that a block of swiss cheese.
First off, it’s a celebrity fund, but its grand entrance to the scene included scant actual funds and nary a celebrity. That’s a bad start. At best the oddly named group – the first financial vehicle with a hashtag as part of its name? – is a nascent concept, with a fundraising “target in the single digit millions” to quote the friendly launch article by Forbes’ Tomio Geron. The anchor investors are not celebrities themselves, but rather the business managers of Britney Spears, Lil Wayne, and Drake. In the world of celebrity, close doesn’t count.
Even if Parr et al succeed in raising their $5 million, there’s significant issues inherent in a fund that small. At a 2 percent management fee, the partners and any staff will have to operate on a maximum of $100,000 per year. At this rate, it’s likely that the #DominateFund team will have to pursue additional sources of income to sustain their lifestyles. Also, traditional VC economics dictate that funds reserve approximately $0.25 to as much as $1.00 for every $1.00 invested for follow on investments in successful portfolio companies. At this rate, the size of #DominateFund’s theoretical capital pool, and the number and size of bets that it can make look less and less appealing. This is why most angels have had entrepreneurial success before they invest. Also, because – you know – they have relevant experience when it comes to coaching other entrepreneurs.
But let’s assume the cash and the economics work out. LA and the Valley are both ecosystems where dreams are made, after all. Hell, let’s even assume Parr gets actual celebrities on board. There are still two big logical flaws in the plan.
The first: #DominateFund is supposed to offer celebrities access to exclusive deal flow, yet there’s no track record to prove that Parr and his co-founders have it. It’s not a new concept – so-called “human routers” like Ron Conway on the SF side and Michael Ovtiz (and more recently his son Chris Ovitz) on the LA side have long made a business of connecting celebrities serious about investing in startups with legitimate players in the startup community. The reason there are not more celebrities investing in the Valley isn’t a lack of desire. It’s a wariness on the part of an already over-funded ecosystem to let people who don’t understand the technology business into their deals.
Parr & Co. certainly have a stout rolodex of Silicon Valley friends, but this doesn’t equal the ability to get into deals. Venture capital is a hard business to learn. This is why unproven teams are almost never backed by mainstream limited partners, and most young seed funds start with their own cash first. Celebrities are unlikely to be more patient than pension fund managers or endowment funds while #DominateFund figures that out.
And, yet, all of that aside, here’s the single biggest flaw of the whole thing: Parr has totally missed the point of why startups actually want celebrity cash. Free marketing. As Geron’s Forbes article gently puts it, “The fund doesn’t guarantee any involvement of the celebrity investors in its startups. But it can quickly make those connections.” If celebrities aren’t going to attach their name to your product, there is absolutely zero value to taking their cash. The only startups that would take that deal are either desperate for cash or more interested in getting into a Hollywood party than building a great business. Neither signifies top deal flow.
I was surprised #DominateFund didn’t address this head on in its own press. Several members of our reporting team had heard what Parr was up to before yesterday, and the feedback we universally heard from people pitched on the fund always came back to this point: What is the point of a stealth celebrity investor?
Similarly the question I kept hearing in Hollywood yesterday: “Who does he have who’s willing to attach their name to this fund and its portfolio companies that can realistically move the needle?” At this stage, Parr seems to be going with the “trust me, I can deliver” approach. The problem is that doesn’t work in the Valley or Hollywood. That may be the only thing the two ecosystems have in common. No one signs onto invest in a company without knowing who is building it, and no one signs onto a movie without knowing who the producers and directors are.
If there’s anything LA has learned from decades of false starts is that there’s a right way and a wrong way to do celebrity-startup integration. You need authenticity, incentivization, and commitment. Consumers are not dumb. The public can spot disingenuous endorsements a mile away. Ask any home goods shopper whether Justin Timberlake has any shred of relevancy to BeachMint’s HomeMint. There’s a reason it was already shuttered. The company’s IntiMint tie in with “world’s hottest mom” Brooke Burke, however, was right on the money.
Brian Lee has largely had the midas touch with celebrity partnerships, striking gold on three occasions with Legalzoom’s partnership with OJ Simpson defense attorney Robert Shapiro, ShoeDazzle’s early partnership with socialite fashionista Kim Kardashian (the company’s recent troubles not surprisingly started when then-CEO Bill Strauss killed that relationship along with other missteps), and the most illustrative example of all, co-founding Honest Company with Jessica Alba, who is elbow deep raising her own child and heavily involved in the operations of the green child care product company. Alba’s publicist is clearly on point with the Honest team. In early every People Magazine photo opp, Alba is pictured as a relatable, hands-on mom. In the case of each of these success stories, the celebrity both relates to the target audience and is heavily invested in the company’s success, in name and in action.
#DominateFund seems to have almost deliberately avoided any of the merits of the above partnerships. We’ve spoken to several people pitched on the fund, and both its pitch materials and the impression left was that Parr & Co. has no clear answer as to how it will deliver any of these essential attributes.
And here’s the most damning thing: Other funds are in the offing right now that actually do this right and are more concerned with getting the right money and celebrity buy-in before they get press. I’ve seen the details of a different fund forming in LA around a comparable, but better constructed model, that is at a far more advanced stage. This fund already has several Forbes 100 list celebrities not only invested, but expressly committed to participating in portfolio companies. As much as I’d love to compare the details of each venture, the principals of this LA fund have taken the opposite tack as Parr & Co. and elected to let their actions do the talking when it’s ready.
For what it’s worth, one reason we didn’t break Parr’s news for him when we first heard about it was we thought a forced launch with no details could be seriously detrimental to his chances of pulling this off. (Another was we assumed we must not have the details right…surprise, we did.) We’re surprised that he didn’t come to the same conclusion. As we’ve written before, it’s those who do – not talk – who usually win in these ecosystems.
Think we’re too harsh? View the #DominateFund slide deck here: