When a trio of entrepreneurs that included George Clooney recently sold a tequila company for an eye-popping $700 million, the cry from many envious Hollywood types was, “Hey, I want to do that too!”
Hollywood talent and executives who seek to build businesses or invest as co-owners outside their careers turn to their business managers, often their primary consultants. These professionals are asked to evaluate ideas such entrepreneurial ventures as restaurants, talent-branded clothing lines, fitness and wellness products, design-related businesses, beauty aids and digital media.
Such high-risk/high-reward businesses veer away from traditional, passive investments in bonds, stocks and income-producing real estate, which are stable and thus the favorites of business managers.
“In order to do this, clients have to be willing to lose their entire investment,” says Eric Wasserman, managing partner at WG&S. “If we can’t get past that, we tell clients that maybe this isn’t the right investment.”
The mortality rate runs high for such enterprises. For example, restaurants and digital businesses frequently burn most or all invested capital when they fail.
However, such sideline ventures to the client’s main career can be gushers if successful.
Clooney and his partners reportedly ponied up $600,000 each to launch Casamigos, their tequila brand, which is promoted as hangover-free. A major distiller bought it for $700 million in June. They reportedly get up to $300 million more in an earn-out if future sales achieve projections.
The beverage category is a popular sideline, particularly for music talent who gravitate toward thir own spirits or beer brands, such as the tequila from Sammy Hagar and Adam Levine.
Filmmaker Steven Soderbergh imports, as a successful business, the white brandy Singani 63 that he discovered years ago in Bolivia while filming “Che.”
Soderbergh’s business manager, Evan R. Bell, of Bell and Co., handles back-office accounting functions for Singani 63, which is often an arrangement when embryonic client ventures are in an incubator phase.
You have to prepare clients that there can be a request for more capital down the road.”
During this phase, Hollywood business managers may supervise banking, pay vendors and handle payroll; calculate profit/loss; arrange insurance; handle tax planning and filing; and make financial reports to partners, until a venture can afford its own dedicated staff.
Another success story is ED by Ellen, which Ellen DeGeneres founded as a consumer-products brand in 2015. It is focused on apparel, home products and pet accessories. DeGeneres’ business manager Harley Neuman, her agent and her lawyer also take prominent roles, which is another fairly common arrangement.
“The three of us, as Ellen’s representatives, consider ourselves ‘brand managers,’ along with Ellen,” says Neuman, the founder of Neuman + Associates. The trio sit on its larger board, which includes ED by Ellen’s financial investor.
Bell says when clients begin asking about entrepreneurial investment ideas, “Of course, we say, ‘We love it.’ But then we add, ‘Here are the ramifications…’” He adds that he then lays out various ranges of financial performance and estimates over different time lines.
Part of sizing up ventures is taking a disciplined approach to investments fraught with uncertainty. “You have to prepare [clients] that there potentially can be a request for more capital down the road,” says Dian Vaughn, who is partner at Nigro Karlin Segal Feldstein & Bolno. “You have to have that conversation in the beginning … what is your all-in number? And we agree not to go past that number.”
She adds that business managers like herself may have to eventually play the role of bad guy, saying “no” when the client requests more money for a venture.
Entrepreneurial investments can mean joining a pool for startups or buying into a pre-existing business. A recent de-regulation for initial public stock offerings, informally called Regulation A+, makes it easier for small businesses to go public, and press reports suggest that the loose rules of Regulation A+ offerings enable those with celebrity involvement to use their star power to attract investors.
One headache is costs for more specialized professionals to evaluate a small entrepreneurial investment opportunity. These costs can run up thousands of dollars for formal advice from a lawyer and more for outside consultants for creating a comprehensive business plan or evaluating an existing plan.
|Manny the dog is watched over by Ellen DeGeneres. The successful ED by Ellen brand is sold at the Petsmart chain.
Invision for PetSmart
Investment advice, legal advice and creating businesses from scratch are not traditional business manager functions. But business managers typically help their clients find such advisers and also serve as sounding boards.
Sometimes, an entrepreneurial investment is not just about making money.
“We always dig a little deeper into the ‘why’ they want to do something,” says Brandy Davis, partner at MGO. “For restaurants, for example, it can be a desire to be attached to a hot new eatery and be able to get a table. It can have very little to do with the money they put into it.”
Business managers say many other issues can crop up when clients embark on such ventures. For example, clients often underestimate the amount of personal time required if they’re directly involved, which cuts into their income-producing careers.
Also, ventures can get entangled in controversy, even in success. For instance, celebrity-fronted businesses have received bad press over eco-friendly, beauty and wellness claims. Further, if a venture runs into financial problems, owners risk being sued and wealthy Hollywood talent involved is often a lightning rod for lawsuits.
Finally, business managers may raise the yellow caution flag about qualifications of partners. That’s the case when partners are the client’s family members, friends from the old neighborhood or new friends met while clubbing along Sunset Boulevard.