The investment landscape in India has seen a growing trend of celebrities—actors, sportspersons, and influencers—investing in startups often in sectors aligned with their public image, such as wellness, beauty, fashion, food & beverages, and online gaming platforms. These investments not only diversify their portfolios but also allows them to leverage their personal brands in new and impactful ways. However, these investments bring with them a host of legal obligations and strategic considerations, especially when the brand is unique or tied closely to the celebrity’s image.
Unlike traditional endorsements, celebrities’ investment in equity instruments changes the public perception from viewing the celebrities as a mere endorser of the brand to the genuine backer/user of the products or service. These investments often align with the celebrity’s personal brand value. Nevertheless, a celebrity must evaluate the startups business model, customer base, and growth trajectory realistically and select a brand which compliments their image and further association enhances their long-term brand equity.
However, mere equity holding does not entitle the startups to publicize celebrity’s involvement. The celebrity must retain the right to approve any use of name, likeness, or affiliation, ideally through image rights agreement. The line between endorser and the investor blurs if not negotiated properly creating compliance risks under the Guidelines for Prevention of Misleading Advertisements and Endorsements, 2022 issued under the Consumer Protection Act, 2019. These guidelines require a clear and prominent disclosure of ‘material connection’ with the brand including equity ownership, profit-sharing arrangements, or any other form of consideration required under the Guidelines.
An investment in startups may also create conflicts with existing or future endorsement deals agreed or to be agreed by a celebrity. An ongoing association with a fast-moving consumer goods (FMCG) brand may create commercial and contractual difficulty to invest in startup, direct to consumer competitor. This overlap can lead to reputational risk or breach of exclusivity or non-compete, depending upon the structure of the endorsement contracts.
To mitigate such exposure, investment and endorsement agreements should include strong morality clauses and reputational exit rights, allowing celebrities to withdraw from the brand if it engages in illegal, unethical, or publicly damaging conduct. Image rights must also be contractually secured to prevent any post-termination use of the celebrity’s name or likeness, ensuring they retain control over their public association and can avoid unwanted linkage to a brand whose values no longer align with theirs.
Since, celebrities now invest for brand synergy rather than pure financial returns, an ambiguous exit roadmap can lead to complications if the brand diverges from its original identity or faces reputational challenges. The commercial terms such as put options, buyback clauses, and tag-along rights are critical to ensure that the investor retains flexibility and control in instances of shifting brand direction, reputational risks, or changes in ownership and offering a clear path for exit. While an Initial Public Offerings (IPO) also serves as another rewarding exit route, offering liquidity, while expanding the brand’s public credibility. Given the regulatory hurdles and market dependencies IPO is usually viewed as a long-term possibility rather than a guaranteed outcome.
A celebrity investment is no longer mere endorsements but a strategic investment with legal and commercial consequences. A celebrity offering credibility and market visibility to the brand at a cost equivalent to its reputation remains exposed and must be protected accordingly. Therefore, celebrities must carefully evaluate the potential risks and rewards of such investments, ensuring alignment with their personal brand values and long-term goals.
[The authors are in Corporate and M&A Team at Lakshmikumaran & Sridharan Attorneys, Hyderabad]
