How to invest like Kobe, Bono and Ashton without being ludicrously rich
Melody Hahm
Retired NBA star Kobe Bryant unveiled a $100 million venture capital fund last week with former Web.com CEO Jeff Stibel, and he’s just the latest celebrity to make the transition from center stage (or court, rather) to a “behind the scenes” role as startup financier.
Ashton Kutcher’s A-Grade Investments, for example, has backed hot tech startups like Product Hunt, Poshmark, Casper and Citymaps. Meanwhile U2 frontman Bono’s Elevation Partners has invested in Airbnb, Yelp (YELP), Uber and Everlane. It was also an early investor in Facebook (FB), netting Bono an estimated $10 million after its IPO.
While they just made the news of their fund public, Bryant and Stibel have been stealthily investing in tech companies with a focus on the sports and wellness industry for the past several years. Their investments include The Players Tribune, mobile game company Scopely and Chinese e-commerce behemoth Alibaba (BABA).*
In an interview with CNBC, Bryant explained, “Jeff and I have been … getting a chance to learn about each other but also learn the business and see if I actually love it. I gotta tell you — there’s no greater feeling than helping entrepreneurs be successful and being a part of something that’s actually helping their dreams come true.”
HOW DO YOU GET IN ON VC ACTION?
Now, before you even start to contemplate how to join forces with these flashy celebrities backing your favorite apps, a quick reality check: Regular investors don’t have a fighting chance at all.
Investors that put money into venture funds are called limited partners (LPs). LPs receive limited profits from the company and their liability toward their debts is also legally limited to the extent of the investment. “In general being an LP in larger funds is not something that is open to average individuals,” says managing director of startup accelerator TechStars NYC Alex Iskold.
Typically, LPs who provide the capital for a venture fund like Bryant Stibel would fall into three categories — wealthy individuals specifically in entertainment and sports; family offices and other wealthy individuals; overseas funds, according to Iskold.
And even if you are an ultra high net worth individual, you have to bring value or a unique perspective to the table that would qualify you as a worthwhile investor to have (especially when there are so many who want to take your place).
“What kind of strategic value can you provide? It matters whether you’re in a network of other founders, connected to the valley or likely to bring deal flow,” says Brooklyn Bridge Ventures founder Charlie O’Donnell.
He says if you are looking to invest in the next big thing, it’s imperative that you establish yourself by joining the public conversation in the startup world and start offering value to companies in a certain sector so that people can know you. Maybe you could even write a Medium post detailing the deep expertise you possess.
“This way, when you do reach out to a VC or if a VC reaches out to you, they can easily see that you’re not just someone with a lot of money, but you’re a thoughtful person who can bring something to the table,” O’Donnell says.
THE 99 INVESTOR CAP PREDICAMENT
Beyond the need to have wealth and add value, there remains a massive barrier to entry: the cap in number of investors in a single fund. The Securities and Exchange Commission (SEC) restricts a limited liability company (LLC) to 99 investors.
“If you’re putting together an LLC, you have a limit number of accredited investors that you can take money from. These individuals will have to be wealthy — maybe not Warren Buffett wealthy — but if you start adding up the average venture fund and divide by 99, you quickly realize that the average check size that anyone can take will be pretty high,” O’Donnell told Yahoo Finance.
That’s why smaller funds like Brooklyn Bridge Ventures, which manages $23 million across two funds, are leading or co-leading investments of $350,000 in New York City companies like Ample Hills Creamery, Canary, and Tinybop.
For his $15 million fund, O’Donnell takes about $250,000 committed over four years. Additionally, he said he lowered the threshold to $100,000 for investors who fell into a diversity category — females and/or those of color — in an attempt to broaden his LP base. The only woman to ever reach the No. 1 ranking in the world on the Global Poker Index is an LP of Brooklyn Bridge Ventures.
“It’s less interesting to have a bunch of white dudes around the table. Diversity of perspective is an important thing,” he says.
With increasing opportunities for individual investors who might not be a serial entrepreneur or have the most connections in the Valley, there are a growing number of attractive alternative investments, whether they’re crowdfunding real estate or community projects. You won’t be getting a piece of the next Airbnb or Snapchat, though.
But for stars like Bryant or Bono, whether they’re retiring, anticipating a career slowdown, or just trying to add to the wealth they’ve accrued, it’s no surprise that they’re taking advantage of their star power and brand recognition. It just doesn’t do much for us.
*Disclosure: Yahoo Finance parent company Yahoo has a stake in Alibaba.
Melody Hahm is a writer & reporter at Yahoo Finance, covering entrepreneurship, innovation and technology. Follow her on Twitter.
