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Equity as a compensation for celebs- Why are companies looping in celebrities to raise financing?

Startups often need a lot of money to get off the ground. To do this, recently companies have been turning to celebrities to raise money. Companies are involving celebrities mainly because of the potential benefits they can bring in addition to funding, such as increased visibility and credibility for the company. This has made many celebrities not just the face of cinema or sports but also business owners in multiple companies. 

So the big question is, why are companies roping in celebrities to raise financing?

1. Opens new markets to the startups

Celebrities bring significant value to companies through their personal brand. Their public image and recognition can be leveraged to increase attention and gain a foothold in the market- domestic and international. Additionally, this recognition can be used to generate revenue and growth for the company.  

When Nykaa made the very charming Katrina Kaif and Alia Bhatt its ambassadors at the early stage of the company, it put Nykaa on the global map.  

2. Equity partners

Why not just make celebrities endorse the brand, why make them equity partners? 

Startups need to focus all their resources on building their brand and on the growth of the company in the early stages. They may not be able to pay the celebs. Hence, equity is offered to avoid cash crunch. This approach allows companies to allocate their cash reserves towards other areas, as they can offer equity as a form of payment for celebrities’ involvement. 

Celebrities also have an advantage. Investing in a company not only offers the potential for significant returns, but also provides ownership through equity. This can come in the form of dividends and other financial returns as the company grows and generates profits.

3. Builds Credibility

Having a known face to represent the brand is an effective way for companies to address their promotional, branding, and marketing needs all at once. This is because companies can leverage the personal image and reputation of the celebrities to build credibility. Additionally, a celebrity on a startup’s management board can help build connections and further provide valuable insights.

The decision to invest in a startup depends on the risk tolerance, investment goal and financial position of the celebs. 

However, investments in startups is a win-win situation for everyone involved. While the company gets its limelight, the celebrities also earn substantially when the value of the company goes up.

For example, Shilpa Shetty invested in MamaEarth in the early stages of the company. Her investment of 6 crores in MamaEarth is estimated to be worth 80 crores after the IPO. Nykaa roped in the very charming Katrina Kaif and Alia Bhatt at the early stage of the company. When Nykaa went public, their returns were reported to have increased 10 times their original investment.

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