Indie Theater Investments
April 1, 2005 6:48 AM   Subscribe

My wife and I are within 2 months of opening our independent theater, but due to some unforeseeable - and thus unbudgeted - demands from the city, we're roughly $10K shy of opening day. As much as I hate to say it, I think it's time to start wooing some smaller investors. What sort of investment plans can we offer?

Since we're not looking for big time investors - five at $2K each would do the trick - I'm not sure what kind of investment program to use. A tiered system might work well in this scenario (i.e. less than $500 gets a shirt and discounted tickets, $1000+ gets free admission for the life of the investment, etc.). Still, what kind of sponsorship/investment should we offer? I'm open to any and all suggestions.

More importantly, how should I structure the payouts? Monthly, quarterly, annually? What seems like a decent interest right? How do you calculate an investment payout?

There's a lot of questions here, but it all boils down to: What kind of investment should we offer, and how would it be executed? Thanks.
posted by bjork24 to Work & Money (12 answers total)
I have no ideas off the top of my head to help you out, but as I mentioned in an earlier (dead) thread you probably didn't see, I live a couple of blocks from your theater and anxiously await the opening.

I am sure these are old avenues for you, but have you considered approaching the DDEC or It's All Downtown?

Matt Miller, Mary Faucett, and Shirato have historically been enthusiastic downtown investors.

Perhaps some sort of "evening event package" with The Rasta Grill, The Gallery Bistro, Bijan's, or Flame.
posted by sourwookie at 7:35 AM on April 1, 2005

Rochester's local "Art House" went 501(c) 3 a while back. Your situation is different, but some of the membership benifits might give you ideas.
posted by alana at 7:42 AM on April 1, 2005

Response by poster: A fundraiser is in the very, very early stages - we just have to get the walls up first! Although, a wall-less theater might make would-be investors more sympathetic...
posted by bjork24 at 7:44 AM on April 1, 2005

Sell sponsored seats. Patrons can have a plaque on their seat with their name or dedication or whatever, and you can either just charge for the sponsorship, or create some packages whereby they can have first refusal on the seat, discount etc. Can be yearly or lifetime. I have been to a few indie cinemas that do this. They had a few famous investors too.
posted by fire&wings at 8:05 AM on April 1, 2005

If you're opening reasonably soon you might be able to sell a few people annual tickets, which could be good for a couple of grand. If yours is the only place in town I'm sure there are people already planning on coming every week anyway.
posted by cillit bang at 9:09 AM on April 1, 2005

How about a film festival in the donors' names? Let them pick the movies.
posted by sixpack at 11:14 AM on April 1, 2005

Payout is going to depend on what sort of "investment" you're going after. Are you for-profit? Non-profit? Incorporated?

Donations don't require any payout beyond a receipt. Tough to get if you're not a 501(c)3 non-profit since there's no tax benefit otherwise.

Loans can be structured any way you like (with payments monthly, bi-monthly, semi-annually, etc.) Unless you're targeting friends and family, you'll probably have to pay much more in interest than you'd like. Be very certain that you'll be able to make your loan payments if you go this route as they are a legal obligation and failing to make payments could result in your losing the theatre. Check with the SBA on small business loans.

With equity investments, you offer investors a piece of the company for a price. Technically, no payout is ever required (until you sell) but you might want to distribute profits (once you have them) or offer to buy back their investment at a certain point (at a premium). Equity investments can be structured as a limited partnership or a corporation (probably an s-corp, which is simpler). You'll need legal advice to pull this off. IANAL.
posted by zanni at 1:29 PM on April 1, 2005

Response by poster: We're for-profit, so 501(c)3 donations are out of the question right now.
posted by bjork24 at 2:00 PM on April 1, 2005

I think what everyone is saying is stop thinking about investors and start thinking about clients.

Sell advertising space on the chairs like someone said, or on the walls in near where you sell tickets. Sell space on your reader board outside if you have one. Pre-sell tickets for every event for the year. Sell the sponsorship for opening night or for a specific time period.

Investors will own a part of the business. Better just to sell something to people and keep the money and the decisions for you.

Good luck.
posted by pwb503 at 3:58 PM on April 1, 2005

Our local theatre has a membership system that from what I understand works very well for them.
posted by jasonspaceman at 4:41 AM on April 2, 2005

arrrghhhh! Alan beat me to it!
posted by jasonspaceman at 4:42 AM on April 2, 2005

While others have talked about advertising or patron approaches, let me offer some advice if you want to approach investors.

First, a reasonable rate of interest depends on whether you can offer collateral (a lien against property or equipment) or not. If you can (probably unlikely, and if you can, you probably should just talk to a bank, since the legal paperwork can be cumbersome with a lot of small investors), then this is a pretty safe investment, and you certainly would need to offer less than a 10% annual interest rate. On the other hand, if this is essentially a signature loan - with investors betting (a) on your character and (b) the success of your venture, then you need to offer an interest rate to compensate for the risk. For a small investor, I'd suspect that 10 to 12 percent would suffice, given the lack of high-paying safe alternatives, but there may be no way to find out other than to propose a rate and see what happens. If you do add perks (such as free admissions), then of course you should expect to pay a lower rate of interest, but you'll be sacrificing future income as well.

(2) $10,000 may sound like a lot of money, but I doubt that you want to try to raise it in small pieces, and a lot of people could probably write you a check for the entire amount. At most, you should offer $1,000 chunks, but $2,000 ones would not be unreasonable. (On the other hand, I'd urge you to increase the amount to $12,000 or $15,000; what you don't want to do, six weeks from now, is to discover that you're still just a bit short - or that a month into operating the theatre, it's losing a bit of money and you need more.) It wouldn't surprise me if you could find a single person willing to lend the whole amount, if he/she is interested in seeing a venture like yours succeed. You might want to start looking for investors at your Chamber of Commerce or Rotary Club or whatever - maybe a two-sentence mention ("X and Y are looking for anyone interested in making a small investment in Z theatre, due to open in May 2005. Please see them if you might be interested.") at the next event.

[Calculations: an investor who lent $2,000 would, at 12% annual interest, get back $240 in interest payments every six months.]

(3) Given the small amount of money involved, quarterly payments is the most frequent you'd want to do, but a strong argument could be made for semi-annual.

(4) You don't want to pay back any of the principal for at least two years. You might set as terms that holders of this debt could request repayment of the principal, in full, including interest calculated as of the payoff date, with 90 days notice, any time after the two year period. Or you could set up a payoff schedule - say, you'll pay 10% (or 20% or whatever) of the principal every six months, starting 2 1/2 years out, until the principal is paid off, with interest continuing on the balance owed.

(5) You've probably considered - but for the sake of completeness, let me mention it here - borrowing against your house (if you have equity) or a credit card. Doing so against your house, though a bit risky, is the line of least resistance (less paperwork, lower interest rate). Even a credit card may be less hassle (but you may want this as last resort).

(6) There is virtually no way that offering equity investments (that is, partial ownership in your venture) is likely to make economic sense, simply because of all the paperwork involved, unless you can find just one person (in which case you'd be talking a partnership of sorts). Equity investments would only make sense, in my opinion, if a lot more money were involved. (A huge problem with equity investments in a small business such as this one is that you and your wife will presumably be doing much/most of the work to run the theatre, and not paying yourself a direct wage, or much of a wage, so the "profit" that has to be split among owners can't really be easily calculated, if the owners are anyone other than just you and your wife.)

Good luck!
posted by WestCoaster at 2:29 PM on April 8, 2005

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