I have noticed that many of my clients have been placed in a difficult money raising position. How can a Producer attract investors without attaching named talent? On the other hand, if the investors’ money is to be kept in a holding account until a certain minimum amount is raised (see tip entitled “Holding Accounts”), where does the Producer find the money to make the necessary “pay-or-play” deposit in order to attach talent to the project?
I have been recommending that Producers attempt to attract two classes of investors (Class A and Class B) and issue two separate offerings. One offering is the Development Offering and the second offering is the Production Offering. The Development Offering funds are spent right away for the purpose of normal development activities, including making pay-or-play offers to talent so that they may be attached. The Class B funds from the Production Offering, are kept in a holding account until the targeted budget is raised, in order to protect the investors. By using the Class A monies immediately, the Producer may attach talent, provide a copy of the performer’s contract or binding deal memo along with the Business Plan, and by doing so may make it easier for the Producer to attract production budget money or obtain distribution presells.
Since the Class A funds are spent right away, the Class A investors are at much higher risk than the Class B investors whose funds are kept in a holding account until a minimum budget amount is raised. If the minimum is not raised, all monies in the holding account are returned to the Class B investors. Not so for Class A investors as their invested funds are being spent as raised with no guaranty that the production budget will ever be funded.
Therefore, the Class A investors are rewarded for their risk be receiving payout priority and a higher return on investment (r.o.i.). See Tip entitled SUGGESTED RATES OF RETURN FOR INVESTORS.
Also see Sections regarding HOLDING ACCOUNTS, HOW DO OFFERINGS WORK, RATES OF RETURN FOR INVESTORS, BUSINESS PLAN, SECURITIES ISSUES and SUBSCRIPTION AGREEMENT.