Couldn’t make it to today’s Investor Relations/How to Pitch seminar? That’s okay! One of our speakers (and CTI Program Manager) Amanda Harper joins the blog this week to provide insight on the nuts and bolts of capitalizing your show. In addition to supervising all things CTI, Amanda has raised money for over a dozen productions as the Scorpio Producing Associate. Read on to learn the tips and tricks from an industry professional!
The Mechanics of Raising Money
You have a project and investors! That’s great; now what?
A production entity is the company formed for a production of a show in which investors invest. This will be formed by the show’s lead producer. There are multiple types of production entities. The most common type is called a Limited Liability Company (LLC). With this kind of entity, investors are given an Operating Agreement and either an Investor Questionnaire or a Subscription Agreement. Another is called a Limited Partnership (LP). For this type of entity, investors are given a Limited Partnership Agreement, Private Placement Memorandum, and Investor Questionnaire.
Most production entities (but not all) require investors to be accredited. An investor is considered accredited if they meet one of the following requirements:
- Individual or couple with a net worth exceeding $1,000,000, excluding the value of the primary residence
- Individual whose annual income is more than $200,000 or a couple whose joint income exceeds $300,000
- Entity where the owner meets one of the above items (and therefore is an accredited investor)
The SEC regulations are designed to ensure that investors are “financially sophisticated.” If the entity does allow unaccredited investors, they can accept up to thirty-five.
Part of producing is keeping track of all the details and helping your investors navigate the paperwork. So, how do you do this?
Be organized! You’ll need a way to organize your potential investors’ contact information, especially if you plan to have many investors. When Tom and his partners produced Hairspray and The Producers, each show had over two-hundred investors. Both entities are still active. You’ll need to track things like investment name (is it an entity, individual, or spouses?), accreditation status, investment amount, and contact information. Keep in mind that the information will be used by not only you as a producer, but also accountants and your general manager. I highly recommend using Excel, as it’s easy to organize and manipulate the information. You can sort the data by last name, first show, state, etc. Ultimately, you need to choose whatever system works for you. However, it’s essential that you have a secure place to keep the sensitive information that you’ve collected about your investors.
The format of the Operating Agreement will vary depending on the production attorney. However, the content of the agreement is more or less the same.
It is vital that you review the paperwork. Legalese is hard to read but there’s no way around it. As part of your due diligence, you should carefully review the entire agreement. It’s important that you understand what your investors need to complete and/or sign so that you can walk them through the paperwork.
During the Run
Congratulations, your show has opened! Maintaining your relationships with investors after a production has opened is just as important as finding them. You should keep your investors updated on the progress of the show so that they feel like insiders. There’s a variety of ways to do that! You can email your investors, either by sending personalized messages or using a service like MailChimp or Constant Contact. You can also call your investors. Make sure all phone numbers are current and create a script for yourself so that you tell all your investors the same information. Alternatively, you can go old-school and send a letter.
Just because a production has closed doesn’t mean your job is complete with investors! Assuming the show is any sort of success, there will be subsidiary income after the production closes (see the blog post from March 29th for the definition of Subsidiary Rights Income). You will need to maintain up-to-date investor records so that they can continue to receive distributions and tax documents. It is your responsibility to relay any changes to the show’s general manager and/or accountant. This kind of maintenance can last longer than you’d expect. For example, the production company for the original production of Smokey Joe’s Café opened in March 1995 and the entity was active until 2014.