Risk aversion, high interest rates and a lot of caution. This is the scenario observed by those looking for funds in 2023. However, many companies (especially startups) are looking to realize their business plans without money and debt. But how is this possible? Through transactions called “media for equity”. These transactions that are now becoming increasingly common consist of the promotion of a brand or product by a celebrity or communication company (via social networks, YouTube channel, spontaneous media, exchange of insertions on radio and TV, for example), which, in exchange, receives an equity stake (or purchase option) in the company being publicized. The objective is to get publicity (with consequent increase in sales) without the high expenses that its promotion can demand.
Partnerships such as actor Ryan Reynolds with Aviator Gin, NBA player Stephen Curry with Under Armor and musician Sean “Diddy” Combs with Ciroc are some of the examples of how this model is expanding globally.
In Brazil, celebrities such as singers Anitta and Gusttavo Lima have also joined the investment model and companies and funds set up with the aim of promoting investments of this nature are already starting to emerge.
The format has several advantages, making it easier for the brand in question to have a spokesperson, in order to increase its exposure, appreciation and engagement. On the other hand, the personality or digital influencer who uses his image to promote the brand has a role similar to that of an angel investor for a company with growth potential, but without the need to commit his assets to acquire equity interest.
No matter how successful this modality is, choosing an individual to be a brand ambassador presents a series of risks to be evaluated both in relation to the exposure of the brand by the individual, as well as in relation to the corporate and contractual aspects of the relationship. The inclusion of a new partner in a business always requires great care to prevent the company from being harmed by factors ranging from disagreements between partners and lack of success in exposing the brand to countless others that can affect the conduct of business.
To mitigate any risks, it is essential to clearly establish the terms and conditions of the contract between the company and the digital influencer or the person chosen for the partnership. It is important that the contracts entered into between the parties make clear the objectives of the relationship, goals to be achieved, marketing actions to be carried out, functions of the new partner/spokesperson and, above all, the governance rules, conditions for the sale of equity interest and, even, rules for the possible exclusion of the new partner from the company.
In addition, special attention is needed regarding the public image of both parties and the creation of clear rules regarding the expected conduct and the effects in case of violation. For example, a supplement company that carries out a media for equity operation with an athlete. If the athlete is suspended for using a prohibited substance, the company will also have its image compromised by association. Likewise, if the advertised product is ineffective, the athlete’s reputation will suffer.
Companies that intend to adopt media for equity need adequate planning so that the advantages of this model can boost their growth, and not leave them tied to unwanted partners.