Kim Kardashian is hot, she is 435MM-followers influencer, and she is a billion-dollar founder and entrepreneur
Her latest challenger was something new: a Private Equity Firm
Less than 1.5 years after its launch, it was reported she is no longer a managing partner.
Everyone in finance hated the idea. I did not (entirely).
I work in Private Equity and my hobby is social media so let me share some thoughts:
1) Bono/Elevation Bad Precedent
2) LP asymmetric bet
3) The consumer thesis that never was
4) Venture Fund vs. Private Equity Fund
1) Bono/Elevation Bad Precedent
Kim Kardashian was not the first popular personality to try to break into the private equity game. In the early 2000s, Bono, the Irish rock star, became an investor and part of the five members of the firm’s investment team.
The Elevation fund is not the focus of this post, but long story short, the U2 frontman was dubbed "The Worst Investor in America." Popularity did not translate into returns, but this time things could be different. At least I thought so.
Kim is clearly extremely brilliant and has been able to create billion-dollar companies, so what went wrong?
There are two components required for an investment firm to succeed: (i) Raising capital, and (ii) Doing good deals
If you do both (i) and (ii), you will do well.
Let's start by looking at (i)
2) LP asymmetric bet
When Kim Kardashian's fund launched, it was reported they were aiming to raise $1-2B Axios reported that after a year of fundraising, only $121M had been secured. Based on my understanding, SKYY Partners was looking to secure institutional capital, a decision I do not fully understand.
Put yourself into the allocator's shoes, your job is to protect capital and generate returns. Why would you advocate investing in a first-time fund that is led by someone with no institutional investing experience? I hope SKYY Partners was giving very generous terms to begin with, but still, the value proposition is hard to see.
The upside is just a few % points of outperformance (did someone expect them to pull out of the hat a 40% IRR fund?), but the downside (in addition to losing money) is not having done your job to evaluate the fund's manager.
It was likely an asymmetric bet with a negative expected value and therefore very few people went for it. I would have expected the firm to aim for family offices / HNW individuals who believed in the vision.
Ok, so point (i) on raising capital was going to be tough, but what about point (ii) doing good deals?
3) The consumer thesis that never was
When I first heard of SKYY Partners I thought the thesis was obvious and could work. Buy a company, use Kim's influence and experience to get very cheap marketing and distribution + some tips based on her experience, and once the company has stepped up in size, flip it to the next buyer. Easy enough.
This said, the firm said her role is to be more as a traditional private equity adviser than as a brand ambassador. I guess you can make the argument that once her personality is separated from the brand after the sale, the company will revert back to its old sales, and therefore buyers will never pay a decent multiple, but I actually disagree.
This revenue reversion thesis only works if you are selling undifferentiated products that customers do not really value. Of course, consumer brands are rarely sticky, but I do not think people will ever say "Oh, Kim PE fund sold this brand, I will not buy this product anymore".
Sure, you can make the argument that once the Kim boost is gone, growth will slow down, but I did (and still do) think that one of the most famous people in the world could have an enduring impact on consumer businesses.
Given the fund never really started, I guess we will never know as the fund just did one deal.
4) Venture Fund vs. Private Equity Fund
I still think that if you are one of the most famous people in the world with experience building businesses, there are ways to add value to other companies, but these past two years proved that private equity is not the easiest way.
In hindsight, I believe a venture capital fund would have been a much better model for several reasons:
i) Unmatched access to deals: most people know her, and literally everyone building in consumer knows her therefore she would have perfect visibility and access to every consumer deal
ii) Ability to go early-stage: the venture game is inherently different from the private equity game, with more early-stage bets where just a few can make a fund. In addition, working with smaller companies could (1) enable Kim to have a greater impact, (2) Enable Kim to buyout any company that might be a future threat to her businesses (or that could create synergies)
iii) Opportunity to add value with less effort: in PE, you actually need to operate the companies, and play a much more active role as you are an active investor. In venture, you are passive. And I would argue that many businesses would really value being "Kim-Backed"
iv) Less need to build a team: needless to say, starting a venture fund is simpler and less capital-intensive than starting a private equity fund
Nonetheless, a fascinating case study
What do you guys think?
He’s back with another zinger
Also, Sammons did not have the best rep with LPs, so the PE muscle in the firm was questionable.
very underrated point which has gone largely unnoticed as people focus on Kim k's lack of investing acumen. He was an ex-Carlyle Partner, responsible for the US consumer team, which recently shut down their team in the US only.....even without kim k's presence, it's unlikely he'd have reached any fundraising target due to his prev. reputation
To what extent would you say the issue was Sammons specifically/Carlyle's thesis vs. consumer performing badly as a whole? My understanding is that consumer has been trending downwards for a while (i.e 30% of Europe PE deals in 2016 -> less than 10% now or 13% -> 9% in the US)
Interesting that the entire team has solid backgrounds (all ex-MF backgrounds with what seems like a stacked team). Feel it makes it a bit more palatable from an LP perspective and de-risks the deal execution side. If anything intuition points me to the idea that announcing without Kim K. would have been good for people to take them seriously and then adding her as an advisor later down the line may have made it easier.
Agree with the thoughts though on Kim's value add. So much of consumer is distribution and being able to get your foot in the door lowers costs and consumers may be brought to a product because of a name, but are retained on integrating it into their daily lives. Truff being their only deal seems to sit in line with this idea of brands with die-hard customer bases that command premiums compared to their "commodity" counterparts.
This was shocking to me too, I thought it would be a bunch of semi-targets with no real blue-chip experience, but most of their investment team on LinkedIn looked to have been Target -> BB/EB -> UMM/MF -> SKYY. Not sure why they flopped with only $121MM raised for Fund I, especially considering they had a ex-Carlyle senior
Nobody cares more about “prestige” than Caliber
Shows that 25 year olds are still dumb/naive.
“Kim Kardashian is hot…”
stopped reading after that.
All of this may be true but this is not why their fund failed. The real reason is that LPs had so much to risk (PR, financial, reputation) by backing a fund that has KK 's name attached to it. Are there really a lack of options in the mkt that someone has to give money to a fund that has KK as a GP? LPs could be destroying their careers if they did so. I also think the people who moved to work at this upcoming fund are losers that should have seen this coming. This ending is hardly surprising
I really disagree with your take that the people who joined her fund are “losers.” I personally dislike the kardashian/jenner family and feel that they have done a lot of harm to society, but that doesn’t negate the fact that Kim is extremely powerful and has endless contacts. These people thought that aligning themselves with someone of her stature would be a huge win for their careers, but it wasn’t, and I think hindsight bias is getting in the way of objectivity on this topic.
You do make a good point here —
It seems like a venture play would’ve served her better here.
Kinda like shark tank — do you want Marc Cuban on your HVAC rollup or on your finicky little gizmo instead (though not apples to apples since much of the value of shark tank is CAC/ advertising from being in the show).
Kim is not “extremely brilliant.” That’s part of the misunderstanding here. She’s a woman who became famous because of a sex tape and leaned into the drama. She was later surrounded by people who saw an opportunity to make money based on her likeness. She herself doesn’t know anything about business (and certainly not investing) and it doesn’t make any sense to have her be involved in pretty much any investment stage beyond early sourcing. LPs are smart and recognize that Kim’s whole media personality and aura don’t belong anywhere near a PE firm.
Anyone who thought that bimbo was going to be successful was either an idiot or completely unaware of how she became famous. Now if it was her MOTHER that was running it, I'd be more interested. Kris Jenner is a goddamn genius.
Kris Jenner as the GP with Kim as a brand advisor would’ve been the winning combo here
1000%
Actually, everyone in my PE circle thought it was a damn good idea. For all of the reasons that you mentioned. Massive following, successfully built, multiple fashion, businesses, and a competent execution team. The idea that everybody hated this just doesn’t tie with my ex experiencing industry at least here in Asia.
You need a new circle…
Been pondering this one a bit the past few days. The way I look at it, she was never going to be part of the investment decision making process anyways. I don’t think that was the thesis of her value add. I think her value add was always her connections (to source) and then the Kardashian / Jenner social media platform (to promote portcos). Say what you want about the family, but they do know how to build brands. Was very surprised at their complete failure of a fundraising, but I think a lot of people got caught up on having Kim as the main decision maker. They actually have a pretty good lineup when it comes to team. Heard the guy leading it with Kim is also a killer in the consumables space as well.
Could argue though that there are very few sub-sectors within consumer where the firm can make an investment and not be competing with one of the Kardashian/Jenner brands (announced or in stealth) in some way. Given they have brands that span across fashion, makeup, skincare, fragrance, "wellness"/vitamins, home goods, even spirits, there isn't a lot of whitespace left if using them as marketing is part of the thesis.
wow their VPs and Associates are all very stacked and chic. wish the fund the best
What’s so ‘stacked’ about them? Mostly seems pretty normal people who have moved downstream from their associate programs to take a punt on something? Pretty run of the mil MM level operation / team (which is a bit better than what you’d expect for a first time $400m fund to be fair but not ‘objectively’ ‘stacked’)
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