John Legend Shares Investing Strategy With Brooklyn Law Startup Class
11/28/2022
Adjunct Professor Mitchell Littman surprised his Transactional Skills for Startups class with a celebrity guest speaker and client who invests in startups: singer-songwriter John Legend.
The Grammy Award-winning musician, who joined the class via Zoom on Nov. 22, discussed his work experience prior to his music career and shared his startup investment strategy. Although Legend has been playing the piano since he was a child, he is also a 1999 University of Pennsylvania graduate who spent three years at Boston Consulting Group working as an associate (think spreadsheets and Power Point presentations), and as part of a team advising businesses on strategy.
Now, as a celebrity investor, Legend uses a dashboard created by one of his advisors to evaluate startups. Celebrity investors are approached because they have the money to invest, he said, but also because they encourage other investors to join and can help with marketing.
Some of the basic questions Legend asks, initially, relate to the business model of the startup.
“Is the business model strong, is it disruptive, do we think the business model works, do we think they have potential to be unicorns [billion-dollar valuation companies not listed on the stock market] and change the business that they’re in and in a really positive way?” Legend said. He also wants to know about the stage of the startup and its current value.
“What timing are we being brought in at? Because sometimes you are brought in really early, when the company has a good valuation that can really grow in the future,” Legend said. “Sometimes they're already really close to a really high valuation, and you're not going to see an opportunity for it to grow as much.”
He also wants to know who the other institutional investors are, and who any other celebrity investors are.
Because he is in the public eye, Legend also weighs the cultural significance of the brand, and how the public perceives any company or brands he invests in and any social impact angles it might have, such as whether its products are environmentally sustainable.
“What will people perceive about the brand when they see it out in public?” he said. “Is there a social impact angle? And social impact could be many things: We have invested in a vegan leather company, we’ve invested in a company called Neutral that tries to make milk and other products in a way that is carbon neutral.”
He also is cognizant that attaching his name to a company has impact.
“Will my reputation, and will my image be helpful? And can we leverage my celebrity, reputation, and my image to enhance the brand?” Will I be someone who can add value personally to it?” Legend said. “So those are the things that we consider when we think about: Do I want to invest in this business?”
Legend said that he and his business partner in his film and TV production company use something they call “the mic test” to decide on which projects to get involved in. He also applies that same test for investment projects.
“Every project we do has to pass the mic test, and that microphone test, is ‘Can we put John on a mic and have him explain what he's doing, and why he's doing it, and have him be proud of his involvement?’” Legend said.
In speaking to entrepreneurs, Legend said he weighs their expertise and aims to ensure that “they've thought about the challenges, and they speak to you in a way that's honest and forthright and passionate…All the things you expect from a leader."
Legend says he aims to see if everything passes the “smell test,” based on his experience with various companies.
“You have enough conversations with people about new companies, and you get a sense whether you think the goals that the company has are realistic, whether you think it's too good to be true or not,” Legend said.
Littman, who pointed to Theranos as an example, agreed. “It’s the oldest adage on Wall Street. If it's too good to be true, it probably isn't true. No question,” he said.
The Grammy Award-winning musician, who joined the class via Zoom on Nov. 22, discussed his work experience prior to his music career and shared his startup investment strategy. Although Legend has been playing the piano since he was a child, he is also a 1999 University of Pennsylvania graduate who spent three years at Boston Consulting Group working as an associate (think spreadsheets and Power Point presentations), and as part of a team advising businesses on strategy.
Now, as a celebrity investor, Legend uses a dashboard created by one of his advisors to evaluate startups. Celebrity investors are approached because they have the money to invest, he said, but also because they encourage other investors to join and can help with marketing.
Some of the basic questions Legend asks, initially, relate to the business model of the startup.
“Is the business model strong, is it disruptive, do we think the business model works, do we think they have potential to be unicorns [billion-dollar valuation companies not listed on the stock market] and change the business that they’re in and in a really positive way?” Legend said. He also wants to know about the stage of the startup and its current value.
“What timing are we being brought in at? Because sometimes you are brought in really early, when the company has a good valuation that can really grow in the future,” Legend said. “Sometimes they're already really close to a really high valuation, and you're not going to see an opportunity for it to grow as much.”
He also wants to know who the other institutional investors are, and who any other celebrity investors are.
Because he is in the public eye, Legend also weighs the cultural significance of the brand, and how the public perceives any company or brands he invests in and any social impact angles it might have, such as whether its products are environmentally sustainable.
“What will people perceive about the brand when they see it out in public?” he said. “Is there a social impact angle? And social impact could be many things: We have invested in a vegan leather company, we’ve invested in a company called Neutral that tries to make milk and other products in a way that is carbon neutral.”
He also is cognizant that attaching his name to a company has impact.
“Will my reputation, and will my image be helpful? And can we leverage my celebrity, reputation, and my image to enhance the brand?” Will I be someone who can add value personally to it?” Legend said. “So those are the things that we consider when we think about: Do I want to invest in this business?”
Legend said that he and his business partner in his film and TV production company use something they call “the mic test” to decide on which projects to get involved in. He also applies that same test for investment projects.
“Every project we do has to pass the mic test, and that microphone test, is ‘Can we put John on a mic and have him explain what he's doing, and why he's doing it, and have him be proud of his involvement?’” Legend said.
In speaking to entrepreneurs, Legend said he weighs their expertise and aims to ensure that “they've thought about the challenges, and they speak to you in a way that's honest and forthright and passionate…All the things you expect from a leader."
Legend says he aims to see if everything passes the “smell test,” based on his experience with various companies.
“You have enough conversations with people about new companies, and you get a sense whether you think the goals that the company has are realistic, whether you think it's too good to be true or not,” Legend said.
Littman, who pointed to Theranos as an example, agreed. “It’s the oldest adage on Wall Street. If it's too good to be true, it probably isn't true. No question,” he said.