PhD Seminar Series: Starstruck! The Role of Celebrity Investors in Startup Fundraising

Starstruck! The Role of Celebrity Investors in Startup Fundraising

Speaker: Patrick Smith (Bocconi University)

Abstract: Over the past ten years, the venture capital industry has seen a significant rise in celebrity investors, with the number of celebrity-backed investments increasing from 34 deals in 2014 to 387 deals in 2021.  Contrary to investment signals sent by traditional high-status investors such as venture capital firms and established corporations which are high in both prominence and proven quality, signals sent by celebrity investors are extremely prominent but lack relevant or proven quality.  This research investigates how external audiences interpret and respond to celebrity investor signals, and the impact that this has on startup financing.  By combing startup investor data from pitchbook with media coverage of venture capital deals, our findings reveal that firms tend to raise larger sums of capital more quickly in the subsequent financing round following a celebrity’s investment.  However, we also observe that these subsequent deals are financed by larger investment syndicates whose members have less deal making experience – an effect that is amplified when the media specifically mentions the celebrity’s investment.