Why pro athletes like Richard Sherman and Andre Iguodala are cozying up to venture capital

The world’s premiere athletes are getting an early look at venture capital deals — partially thanks to their social media game.

Athletes’ Twitter and Instagram followers give them a direct line to fans, which in some cases can be used to promote portfolio companies they invest in.

Jon Sakoda, founding partner of venture firm Decibel, said start-ups often spend a “lot of time and money” to accumulate millions of followers on Instagram. But an athlete might be able to leverage a devoted audience immediately.

“Especially if you’re a consumer company — you want name recognition, the athlete brand and the audience distribution,” said Sakoda, who invests alongside San Francisco 49ers cornerback Richard Sherman. “Social media is the primary acquisition channel for almost all start-ups and influencer marketing and tends to be the most successful and effective form.”

There’s economic upside for both parties. A star athlete’s endorsements help with marketing and can lower the cost of customer acquisition for portfolio companies. That can translate to a lower minimum investment for athletes and celebrities. Sakoda said there are often separate deals for doing events and promotions, but it’s rare that athletes get any sort of “discount.”

Founders often weigh which investment dollars are the most strategic, according to Paul Rabil, professional lacrosse player and founder of Rabil Ventures. Especially for consumer athletics brands, it’s often a pro athlete’s investment dollars that go the furthest.

“If you’re an entrepreneur looking at the value proposition of an athlete, it’s usually their social media presence,” Rabil said. “A founder might reach out to that athlete specifically and build a sports advisory board, or give them stock options that are directly tied to a certain amount of social media posts or wider PR.”

Impossible Foods is one example of a consumer brand leaning on celebrities and athletes to up brand awareness. Its high-profile backers include Serena Williams, Jay-Z, Katy Perry and Questlove. The company earmarked a percentage of its most recent funding round for strategic investors that included celebrities and athletes, according to the company.

Investors highlighted the relatively short careers in professional athletics, especially with risk of injuries. Sakoda pointed to recent examples like former Colts quarterback Andrew Luck, who shocked fans by retiring last year at 29 years old after battling multiple injuries.

“They all have anxiety about what comes after they’re no longer able to do what they do — you can only play at a professional level for so long, whereas in a career is like acting you can have decades of success,” Sakoda said. “It’s important for them to figure out how to make the most of that time and to prepare themselves for what comes after the game.”

Investing has become a full-time career for some.

Former San Francisco 49ers quarterback Joe Montana is now a full-time investor with 32 investments, according to Pitchbook. NBA star Kevin Durant of the New Jersey Nets is next on the list with 14 deals. Former L.A Laker superstar Kobe Bryant, who died in a helicopter crash last weekend, was a notable investor and co-founder of venture firm Bryant Stiebel with investments in Alibaba and Dell.

NBA forward and shooting guard Andre Iguodala is third on the list of top athlete investors. He began investing in 2011, and has made early bets on companies like Allbirds, Zoom, Data Dog, Pager Duty and Cloudflare. Iguodala, who played six seasons for the Golden State Warriors, takes a more active approach than most, according to his business partner Rudy Cline-Thomas. For example, Iguodala is on the board of newly public African e-commerce company Jumia, while still playing for the Memphis Grizzlies.

“Andre caught the bug early and was exposed to some of the best investors in Silicon Valley,” said Cline-Thomas, founder and managing partner of early-stage venture firm Mastry. “But that’s not going to be the case for someone who plays for the Orlando Magic.”

Disposable income is increasing for top athletes along with salary caps, contracts and endorsement deals. Ryan Nece, a former Tampa Bay Buccaneers linebacker and managing partner of Next Play Capital said players’ portfolios can now handle taking the relatively high risk of investing in tech start-ups.

But Nece highlighted that few athletes have the leverage of millions of followers that Steph Curry or Kevin Durant have. The majority aren’t located in the epicenter of venture capital, either.

“Very few people have a brand that is so inspiring and moving to a broad fan base like Serena Williams, where anybody would love to support her and have her a part of their company because of everything she represents — most athletes aren’t those individuals,” Nece said

Nece started Next Play Capital as a fund of funds, specifically for athletes in that position. The firm has $150 million in assets under management and works with more than 150 athletes and team owners. Nece said they were looking for a way to give the athletic community the ability to invest in a very small concentration of a of “elite funds that are very hard to access.”

He highlighted the risk of getting in on opaque, early-stage private deals. Most athletes use an advisor, friend or manager for their investments. But there’s always the risk that somebody will try and take advantage of their name and net worth.

“When you get a shiny deck and a good salesperson, anything sounds amazing at the beginning,” Nece said. “I see people time and time again put money into things that had very low probability of ever becoming something of significance.”