How to deal with Investors
Let’s Talk About Investors*.
Better said: let’s talk about investing in an entertainment project and/or taking on investors in your entertainment project.
I have represented both sides (in different deals, of course) and there are some critical issues common to owners and investors.
Control. Owners want to control the destiny of their creations and investors want to control the destiny of their money. As I’m guessing you realize, this can cause lots of fun problems, especially if you do not nail down the “who gets to decide parts” up front. And the reality is, money talks and everything else walks…in all industries—including the entertainment business. Investors often want to control business terms like budget and distribution decisions, and many want to weigh in on creative choices, too. I usually advise investors that have little entertainment experience to trust their creative partners, but since creative choices are business decisions, the money rules. Bottom line: it’s all about building enough trust in the relationship to keep both sides in their mutually beneficial lanes.
Disputes. Failure AND Success can prompt disputes. If your project fails to generate enough revenue to pay back the investors, you will get complaints that can lead to disputes. Ironically, if your project exceeds expectations and makes big money, the same thing could happen. The disputes over failure focus on the budget spending and distribution decisions, of course and the disputes over success focus on the splits, i.e. who gets what. And sadly, many disputes we read about allege fraud regarding the project and/or the use of the money. The paragraphs below can help you avoid disputes.
Communication. Lack of communication from owners to investors can lead to disputes whether project fails or succeeds. It’s always good practice to over communicate with your investor. Even if they say they don’t need all that information--give it to them anyway and do in in writing.
Transparency. Communication’s powerful sister is Transparency. Invite your investor to examine the project’s books and records anytime. Give them direct contact with your bookkeeper and accountant and the right to see the bank transactions anytime. I don’t advise allowing the investor to conduct bank transactions, but you can give them online access to the project accounts. This kind of transparency goes a long way to keeping your partners happy and preventing disputes even with failure. With good Communication and Transparency, failure won’t be a surprise and that hits my last point.
Surprises. Surprises are Communication and Transparency’s evil cousin. We are paying that actor what? You delayed production? You went overtime on how many days?!? These are questions you want to avoid—duh. Surprises are not only worrisome, but they can also become deeply insulting to your investor—especially those that like to problem solve. The surprise tells them you didn’t bother to consult them when they could have helped, you didn’t care about their opinion, or worse, you got caught by surprise.
*Disclaimer: I am not a Securities Attorney and if you intend to raise money from individuals for your entertainment project (film, series, music project, etc.) and especially if your targeted investors are not friends or family, you should retain an attorney that specializes in securities transactions to make sure you comply with any applicable state and federal securities laws and regulations.
