A new claim by Forbes suggests that celebrity startups may not be what we think they are.
The outlet starts out by taking aim at both Rihanna and Kim Kardashian’s recent announcements about their latest funding rounds in their celebrity startups, questioning whether Savage X Fenty and SKIMS (respectively) were really worth the money they’d raised in recent funding rounds (Savage X Fenty raised $125 million in a Series C funding round, while SKIMS raised an additional $240 million, thus bringing its new valuation to $3.2 billion).
The outlet also points out that celebrity investments (in other words, what they’ve invested from their personal checkbooks) in their own companies are often not disclosed — and neither are the real sales numbers.
“All these private companies are on a PR tear and it’s even easier when a big name is involved,” said Sucharita Kodali, a retail analyst at Forrester, to Forbes.
What’s more, she said, company valuations are often inflated by up to ten times their true value — and no one is the wiser, because term sheets aren’t required to be disclosed to the public per the SEC.
“The SEC does not regulate what private companies say and there’s no governing body. The venture capital community plays a huge part in propagating these lies, and nobody questions them,” she said.
So, what’s the truth behind these celebrity startups?
Celebrity Investments vs. Startups
Let’s not confuse celebrity investments in other startup businesses with celebrity startups. This new report specifically discusses companies that celebrities claim as their own (in addition to SKIMS and Savage X Fenty, the report discusses Goop by Gwyneth Paltrow).
If a celebrity’s fame elevates their startup to heretofore unseen heights, is that really a bad thing? Certainly, Savage X Fenty has a higher valuation because Rihanna has attached her name to it (though Forbes is quick to point out that it’s nowhere near what Victoria’s Secret, as an example, is worth). And if Kim Kardashian’s name pushes SKIMS’ sales past Spanx, well then, good for her.
Legally speaking, the actual amount of money that a celebrity throws into his or her own company isn’t required to be fully disclosed unless (or until) a company goes public. Then, as a matter of regulatory compliance, the funding must be disclosed so new investors will know who spent what, and what they need to be paid back.