Small businesses take risk with celebrity investment
— -- Perhaps he should have been a silent investor.
New York Yankees slugger Alex Rodriguez ponied up capital for Zico coconut water, yet this summer he publicly praised rival brand Vita Coco.
"My trainer suggested I try Vita Coco because of all the electrolytes and potassium," Rodriguez said in a press release. "Now I drink it every day."
The media immediately picked up on the switch-pitch.
"Alex Rodriguez looked like a nut yesterday after backing two rival coconut water brands," said the New York Post. "Error On The Play: A-Rod Endorses Vita Coco While Investing In Its Biggest Competitor," said Sports Business Daily.
Adding to the intrigue, Zico-investor Rodriguez released a statement that put down that brand. "Since Zico changed their formula to concentrate, I felt that the taste and functionality was compromised," it said in part.
The coconut water craziness shows what can go amiss when a growing business takes money from a "celebrity" investor. The publicity that comes from linking with a well-known backer can be a business boon, but there are big risks as well.
Typically, only company insiders know the details when a problem arises with low-profile investors. But when a famous name is involved, it can quickly become public fodder.
Even with the obvious dangers, a slew of small and growing businesses have tied in with top athletes, as well as Academy and Emmy Award-nominated investors.
Baby-food maker HappyFamily announced this spring that Demi Moore was a new investor. Moore's spouse, actor Ashton Kutcher, backs snack-food company Popchips, as do Sean Combs and Boston Red Sox star David Ortiz. Expanding hairstyling chain Drybar has funding from Conan the Barbarian actress Rose McGowan.
Many of those business owners know the risks but say the rewards outweigh any potential troubles. Zico founder Mark Rampolla says he was taken aback by A-Rod's about-face, but adds that other well-known investors have helped his brand.
For instance, Boston Celtics power forward Kevin Garnett— who became an investor and endorser in March — now stars in an online Zico campaign.
(Model Gisele Bundchen and TV host Kelly Ripa have also put money into Zico. For its part, rival Vita Coco's A-List backers include actress Moore, actor Matthew McConaughey and Madonna.)
Rodriguez is now a Vita Coco investor, as well as an endorser. He "is currently divesting his interest in Zico," says spokesman Richard Rubenstein.
Banking on 'halo effect'
When a company spreads the word about its celebrity backers — as many do in press releases and TV interviews — it could boost sales, says Sam Waltz, founder of strategic consulting and capital services firm Sam Waltz & Associates.
There's a "halo effect" in which fans may be interested in trying a product that a favorite actor or elite athlete supports, he says.
Celebrity backing can also pique the interest of other potential investors.
"When an early-stage company is raising capital, one of the first things people ask is, "Who is in? Who else is coming in?'" Waltz says.
While many sports and entertainment stars aren't known for their investment skills, they can bring an aura of glamour that other investors may want to be associated with, he says.
