The idea of celebrities and other business influencers investing in early stage startups isn’t new. The prospect of these non-professional investors doing so in an organized, efficient, and value-added way, however, would be quite novel.
In November, we bemoaned the launch of #Dominate fund, which despite being positioned a celebrity fund, lacked any real celebrity backers, and lacked the experienced investment professionals to inspire confidence. It wasn’t so much the idea as the execution that was bad. At the time we hinted that another LA-based fund was in the offing that would be comparable, but better constructed.
That fund, Plus Capital, made its semi-public debut earlier this month by announcing plans to raise $25 million via a customary SEC filing. Today, sources close to the fund tell us that Plus has completed its “first close,” bringing in between $5 million to $10 million. More intriguing is the caliber of influencer said to be involved, and the way Plus plans to utilize them.
Our source declined to name specific investors, citing confidentiality and the legality of an ongoing fundraise. “But I can tell you that the group has on the order of 5 Oscars, 5 Emmys, 10 Golden Globes, and at least one sandwich named after them at the Carnegie Deli in NY,” they said.
Plus is not just bringing aboard Hollywood A-listers, however, our source says. Early investors apparently include notable executives and investors who our sources say have over $100 billion in transaction tombstones and dozens of M&A transactions and successful IPOs under their belts. The next close is said to be fast approaching and is expected to include more of the same, as well as several pro sports MVPs and Grammy winners.
This pseudo-name dropping is all well and good, and seems to speak to some genuine Q-rating behind Plus. But the question remains, how will it be more effective than the countless previous attempts at a “celebrity VC fund?”
The first thing Plus has going for it is its founder, Adam Lilling. Lilling has built several successful Internet ventures connecting technology and media. These ventures include one of the Internet’s first online retailers of music and video, Pentagon CDs & Tapes (which later sold to Virgin Entertainment Group, becoming became Pazanga), and BiggerBoat, one of the earliest vertical search and ad networks for entertainment.
Lilling has spent the last several years building Santa Monica’s Launchpad LA accelerator, where he is a founding director, and personally backing media and technology companies. Those in the LA community would describe him as one of the most well respected angel investors and advisors amid LA’s current startup ecosystem ascension. Outside his role in Launchpad, Lilling is a personal investor in BigFrame, ShareThis, and MoviePass, and sits on the boards of Chromatik, ZEFR (fka MovieClips), and HelloMusic. In short, Lilling is capable, well respected, and deeply connected in the LA tech and entertainment scenes.
Beyond the fact that it’s run by someone with actual investing experience – a shocking concept – Plus has gone to great pains to create a model that incentivizes its influencers to engage with and add value to its portfolio companies. When talking about the fund concept prior to its official launch – he’s been legally prohibited from discussing Plus since beginning fundraising – Lilling described the model as “formalizing a process that is typically haphazard at best.”
At the time, Lilling explained that Plus’ limited partners (LPs) will be required to participate, either publicly or privately, in at least one portfolio company each year. This can take the form of introductions, mentorship, taking a board seat, or social media support. More interestingly, LPs will be incentivized with additional “deal-specific upside,” aka carried interest, in companies where they assist publicly. This is similar to the incentives offered to venture partners at most VC firms. The fund will also create a “pool” to reward private assistance, although to a lesser degree.
Similar rewards are in place to incentivize LPs to channel their dealflow through Plus, with the firm then reviewing and vetting all prospective investment opportunities submitted. In some sense, this model is similar to a movie studio’s “coverage” department and thus should be familiar to many of the fund’s influencers. Like with publicly backing a Plus portfolio company, LPs receive additional carried interest when the fund invests in one of the deals that they source.
These structural tweaks make Plus more than a loose collection of TMZ-worthy names, but the question remains, will it be enough for the fund to compete with traditional VCs? Moreover, can Lilling and his backers legitimately use “influence capital” in addition to “financial capital” to help bolster early stage companies? Finally, will influencers be well served by participating in Plus?
As GRP Partners’ Mark Suster wrote on the topic of startups exchanging equity for celebrity endorsement, “don’t bother.” Fortunately, Plus isn’t selling endorsements. Lilling believes that by assembling captains of industry, thought leaders, and, yes, celebrities, Plus will be able to offer access, expertise, and, you guessed it, “influence” beyond that typically available to startups – on their own or through a traditional VC. In this way, it’s similar to the way later-stage VC firms tap into their portfolios and rolodexes to complete business development deals, vet prospective investments, and recruit. The difference with Plus is that its influencers are financially incentivized to help.
On the topic of value delivered to influencers, I’m inclined to agree that they are better off a part of Plus than angel investing solo, or relying on their business managers, agents, and lawyers to play the role of venture investment advisor. In this way it’s really a bet on Lilling, and the team he assembles. If you think he would be a good steward of $25 million of pension fund money, he’ll be equally adept with the same amount from the personal checkbooks of celebrities and executives. That said, the vast majority of VC firms fail, even those run by seasoned investors and backed by smart capital. Plus will face all the same challenges.
Lilling has been lining up his influencers for nearly a year, since formally deciding to launch on Plus Capital, so it wouldn’t be a surprise if he fills out the full $25 million in short order. From conversations around town, it sounds like he’s already vetting investments as well, so it shouldn’t be long before we get a sense of the types of deals he’ll do, and the type of influencer participation to expect.
There will be many, many interested observers both in- and outside of LA’s tech and entertainment communities watching to see if Lilling can crack the code on the celebrity funds. If so, Plus may the first in a new generation of similar funds looking to effectively trade on celebrity currency. If not, it may be the final nail in the coffin for this well-worn idea. (But if history tells us anything, probably not.)
[Illustration by Hallie Bateman]