Top 5 Reasons Celebrity Brands Fail To Raise Capital
Celebrity brands first ventured into raising outside capital around five years ago, moving away from self-funding to seeking outside investors. Initially, they faced challenges securing institutional investment at the seed stage, often relying instead on angel investors and family offices. This pattern mirrors the struggles of other consumer brands but has shifted recently at the institutional level.
While Sandbox Studios remains the only fund solely focused on celebrity brands, other consumer funds like Midnight Ventures and Second Sight are now actively pursuing deals with celebrity-backed founders.
Why?
Because celebrity brands can work—if you know how to work them.
However, not everyone has cracked that code, leading to many brands fading into obscurity before the public even hears about them. A significant factor behind this rapid decline is the lack of funding – specifically follow-on funding.
Follow-on funding is crucial, especially for businesses with substantial overheads, which most consumer brands have. Unlike digital businesses, consumer goods require physical products to sell—products that cost money to produce. Securing a $1 million purchase order from Target might sound like a dream for a startup consumer brand, but it can quickly become a nightmare if the brand doesn’t have the cash on hand to fulfill the order.
Money, Money, Money
Whether it’s follow-on funding or startup capital, the importance of capital is often underestimated by consumer founders. This is even more true for celebrity brands and their angel investors, many of whom still assume that attaching a celebrity to a project guarantees success.
But we all know that’s not the case.
Over the past four years, Sandbox Studios has observed over 600 celebrity brands, and the mistakes are consistent and tend to lead to the same outcome: running out of capital.
This might surprise some, given the assumption that if a brand is in trouble, the celebrity should step in with more money. The reality is that they often do, but it’s rarely enough to provide the necessary runway.
The result? Everyone leaves frustrated, and often broke.
To help avoid these pitfalls, we’ve outlined the top 5 reasons celebrity brands struggle to raise capital:
- Valuation Set Too High
Pre-launch, a company’s value is typically based on the team, product, and go-to-market strategy. Post-launch, the value should reflect the brand’s success, primarily driven by revenue. Too often, celebrity brands launch with unrealistic valuations that they can’t achieve with the capital they’ve raised.
Take, for example, a personal care line backed by a well-known influencer that recently raised capital at a ~$100 million valuation. This valuation was based on securing key retail distribution and the influencer’s previous success. While the brand might have potential, reaching the $20+ million in revenue needed to justify that valuation is unlikely with the current raise. This scenario often leads to a down round (a lower valuation) to attract new investors, which existing investors are reluctant to accept, ultimately stunting the brand’s growth.
For context, Sandbox Studios typically wouldn’t consider a pre-launch personal care brand with a valuation above $10 million. This is a common issue, particularly with celebrity brands.
- The Celebrity is Too Involved
Contrary to popular belief, having a celebrity too involved can be just as detrimental as having them not involved at all—sometimes even worse. Celebrities excel in their craft, be it sports, acting, or music, but starting from scratch in a new field, like entrepreneurship, is challenging. Despite their resources, being an entrepreneur is hard work, and not everyone, celebrity or not, is cut out for it.
There are exceptions (think Reese Witherspoon, Oprah Winfrey, Ryan Reynolds, Jay-Z), but they are rare.
When a celebrity founder insists on being involved at every stage of the business, it can demotivate the team. A social media manager, for example, may feel stifled if their celebrity boss dictates every move. Conversely, issues arise when the celebrity refuses to cooperate with the team on critical tasks like content creation, PR, and events. This micromanagement leads to high turnover and inefficiency, which is more common than you might expect in celebrity brands.
- The Celebrity Isn’t Involved
Ironically, while this is the most anticipated issue, it’s often not the primary reason brands fail to raise capital.
In our experience, celebrities are usually very involved and care deeply about their ventures. They have numerous opportunities to co-found brands and typically choose carefully when associating their name with a product.
However, complications arise when a celebrity delegates responsibilities to their team or management agency. While this can work with the right team, it often leads to communication breakdowns and inefficiency. As we all know, successful startups need to be nimble, and too many cooks in the kitchen can make that impossible.
- The Team Isn’t Experienced
A strong operating team is crucial for any celebrity brand since the celebrity co-founder won’t be handling the day-to-day operations. Like any investment, a brand’s success hinges on the experience of its operating team or key shareholders. Unfortunately, celebrity brands often falter because the team lacks real-world experience in the relevant sector.
This happens frequently due to the insular nature of celebrity networks. Exposure to the right people is limited, and brands often end up working with subpar partners simply because they were the best available or the ones who initially brought the idea to the celebrity.
Rarely are proper tenders issued, which should be the first step in developing an idea. This oversight is a significant reason why so many celebrity brands fail.
- No White Space
Too often, a celebrity brand launch involves slapping a celebrity’s name on an existing product and hoping for market share based on star power alone.
This strategy doesn’t work.
Today’s consumers are savvier and have access to a wider range of products. The world is smaller, choices are more accessible, and simply rebranding with a known face isn’t enough to secure market share.
Successful celebrity products solve a real consumer problem or fill a gap in the market. The celebrity’s role is to accelerate brand awareness, but adoption is key to generating returns on these investments.
While investing in celebrity brands can be less risky due to built-in audience leverage, certain factors weigh more heavily on these brands than others. Too often, teams cut corners because they have a famous face attached, which is why these brands frequently struggle to secure proper investment.