Last week a beauty startup pitched me a brand with genuinely exciting technology, a celebrity co-founder with a real personal connection to the category, and a $5 million raise. I was leaning in. Then I asked about the deal structure with the celebrity. 10% equity and a $3 million upfront cash fee. A flat $3 million, paid upfront, just to come on board as a co-founder of their own brand.

This week I am breaking down why that single structure kills more celebrity brands than anything else I see in due diligence, where it came from, and why the celebrities asking for it are actually betting against themselves.

The brand was a beauty company that developed an exciting technology I had not seen in the category before. Growing market. A celebrity with documented personal experience with the problem the product was solving. By the time they finished walking me through it, I was genuinely interested.

Then I asked about the deal with the celebrity. 10% equity. $3 million in cash. Not based on revenue she would generate through her channels. Not tied to any milestone. She wanted $3 million upfront, unconditionally, to become a co-founder of her OWN brand.

Everything shifted. Not because of the number itself. A $3 million check is not what bothers me. It is what asking for it tells you. If you genuinely believe in the outcome, if you actually think this brand could become the next Rhode or the next SKIMS, you do not need the $3 million now. The equity is worth infinitely more if the bet pays off. The moment a celebrity asks for cash upfront, they are telling you something about how much they actually believe in what they are building.

This company was raising a $5 million round in total. $3 million of that was going straight to the celebrity. Which means they were not really raising $5 million to build a company. They were raising $2 million to build a company and $3 million to pay the celebrity. The majority of the round was going to an individual, not the business.

Think about what $3 million buys in the early days of a brand. It builds the operational team that turns an idea into something real. It funds product development and the iterations that come from real customer feedback. It builds the infrastructure that makes a celebrity launch more than a first-week sales spike. Every dollar paid out in cash to the celebrity is a dollar that cannot compound inside the business toward an exit. In venture, the exit value is the only number that actually matters. By asking for cash upfront, the celebrity prioritised her own purse over the success of the company. And put a brake on the compounding before it could even start.

They were raising at a $15 million pre-money valuation. With $5 million coming in, that is a $20 million post-money. Investors own 25% of the company after this round closes. And since everyone dilutes equally, the celebrity's 10% stake dilutes by that same 25%, dropping from 10% to 7.5%.

Now consider the round without the cash fee. If the celebrity takes no cash, the company only needs to raise $2 million. At $15 million pre-money with $2 million coming in, that is a $17 million post-money. Investors own just under 12%. And since everyone dilutes equally, the celebrity's 10% drops by that same 12%, landing at around 8.8%.

So by asking for the $3 million cash, the celebrity reduced their own equity, increased dilution for everyone at the table, and stripped the company of the runway it needed to grow. They were working against their own upside before the company had taken a single step.

The financial damage I just described is serious. But what the cash payment does to the dynamic between the celebrity and the brand is actually the bigger problem.

The moment you pay someone upfront, the relationship becomes transactional. And transactional relationships come with contracts. Contracts that spell out exactly what the celebrity delivers for their $3 million and their equity. A certain number of posts. A certain number of appearances. Specific activations, all clearly listed and carefully negotiated by their team.

And once those obligations are ticked off, that is it. Imagine you have a major retail launch coming up or a PR moment you want to capitalise on and you want your celebrity co-founder to show up. You reach out excited. And that excitement gets killed pretty quickly when their team comes back saying hey, this looks great but it was not in the contract. More than happy to make it work but here is the day fee.

A real co-founder does not operate that way. They show up because it is their company. Their financial future depends on what it becomes. The moment you introduce upfront cash, you have converted the celebrity from a co-founder into a very expensive spokesperson who happens to own a piece of what they are promoting.

Jennifer Garner was in product development meetings at Once Upon a Farm for years. Jessica Alba paused her acting career to build The Honest Company from zero. Neither of them had a contract specifying a post count. They were real founders. The outcomes reflect that.

And then there is the motivation. Because that is really what this comes down to.

The celebrities who built the best brands in this space were not doing it purely for the money. They were passionate about the problem they were solving. Rihanna spent years frustrated by the lack of inclusive foundation shades before launching Fenty. Jessica Alba was genuinely obsessed with finding safer products for her family before starting The Honest Company. When you care that much about what you are building, everyone around you feels it. The co-founders. The operators. The investors. They are all taking a bet on something uncertain, living on equity and belief rather than guaranteed salaries, because the person leading this made them want to be part of it. The celebrity is being asked to make the same bet. Give up the guaranteed payment now for the chance to build something worth multiples of that later.

If the desire to build this brand is genuinely there, a $3 million check should be the last thing on your mind. You should not need to be paid to get out of bed for your own brand. When someone asks for it anyway, that tells you something. The desire is not quite there yet. And without that, you are not getting a co-founder. You are getting someone fulfilling a contract.

The reason so many celebrity deals now look like contracts rather than co-founder agreements comes down to what happened over the last few years.

After the early exits of Casamigos, SKIMS, and Rhode, every celebrity and their management team started looking for equity opportunities. Why take an endorsement fee when you could own a piece of something that sells for a billion dollars?

So they started doing equity deals. A lot of them. Most did not work out. For celebrities who put in real time and reputation and got nothing back, that experience was painful. And their teams responded predictably. We are open to equity but we need some protection. We cannot end up with nothing again.

What they are missing is that this is how venture is supposed to work. Most bets fail. That is not a flaw. It is the model. For every Casamigos there are hundreds of celebrity spirits brands that never returned a dollar. For every SKIMS there are hundreds of celebrity brands nobody remembers. The winners do not just cover the losses. They create outcomes so large the losses become irrelevant. That is the game. And it only works if you are actually playing it right, which means going all in on the bets you make and accepting that most will not pay off.

A hybrid structure where the celebrity gets paid regardless does not protect you from that reality. It just makes the company less likely to succeed while giving the celebrity a small guaranteed payment that will never come close to what the real upside would have been.

Given all of the above, we have taken a very simple position at HotStart VC. Either the celebrity is all in or they are not. There is nothing in between we are willing to fund.

We also see a direct correlation between celebrities who invest their own cash into the business and the ones who genuinely show up differently. When a celebrity writes a check themselves, the dynamic changes completely. They now have skin in the game on both sides of the table.

A celebrity asking for $3 million upfront is telling you something. They do not believe in the outcome enough to wait for it. And if they do not, that is the most important piece of information in the room.

Brand deals exist. Appearance fees exist. Licensing exists. All legitimate, all with predictable income, and none of them require betting on a venture outcome to get paid. But if you want what Rihanna built with Fenty or what Kim Kardashian built with SKIMS, you have to take the same deal they took. Real equity. Real commitment. No upfront payment. They bet on themselves completely. The bet paid off at a scale no endorsement deal could have matched.

The deal I walked away from last week had real potential underneath it. The product was interesting. The category was right. The celebrity fit was genuine. None of it was enough once the terms landed.

$3 million upfront on a $5 million raise is not a deal structure. It is a signal. It tells you the majority of the round is going to a person rather than the business. It tells you the relationship will be governed by a contract rather than genuine ownership. It tells you the structure that produced every major outcome in this space has been replaced with something that looks similar on the surface and fails for the same reasons underneath.

Ownership compounds. A check does not. The celebrities who understood that built the brands this industry talks about. The ones still asking for upfront cash are betting against themselves before the game has even started. At HotStart, that is not a bet we are willing to take alongside them.

This week, I'm joined by Kristina Subbotina, a creator entrepreneur and startup lawyer with tens of thousands of followers and the founder of Lexsy, an AI-powered legal operating system for startups that handles everything from cap tables and fundraising to exit at around half the cost of Big Law.

Kristina breaks down how a General Partner at A16Z spent five months pushing her to start creating content, how she went from boring professional posts to dancing on TikTok while sharing real legal templates from Cooley, and how that audience helped her reach $400K in ARR without spending a single dollar on ads. We also talk about the legal horror story of a founder who used Claude to draft a sale agreement and ended up fleeing to another city to escape a five-year non-compete, and why AI will empower lawyers rather than replace them.

Now available on YouTube, Spotify, and Apple Podcasts.

About HotStart VC

HotStart VC is launching a new fund to invest in brands founded by celebrities and creators. We’re building the go-to platform for creators and celebrities launching brands, providing capital, strategic support, and the infrastructure to scale.