“I found an investor” are four words that often change careers and relationships. When accepting money from the range of a well-meaning friend or family member who supports your artistry all the way to a sophisticated investor trying to buy their way into the entertainment business, here are a few things to think about before taking the dough for your show.
• Evaluate your relationship. Is this a person you have a longstanding relationship with, or is it a total stranger? Is this person familiar with your artistry and the music business? If this person was introduced to you, what is your relationship with the “middle man?” Do you have clear enough boundaries to balance a personal relationship by introducing money into the equation?
• Characterize the cash. Have a clear understanding of what your investor expects in return for their money. A gift has no expectation of return, a loan has an expectation of repayment—often with interest—and an investment has an expectation of return in the form of cash, ownership, or both for sharing the risk of your project.
• Clarify the commitment. Be very clear with each other how much money will be changing hands, and when payments will be made. Having open-ended financial commitments such as the cost of a new rig, the production budget for an album, or tour support are invitations to disaster. Express dollar figures—including minimum and maximum amounts when necessary—to avoid surprises.
• Talk about terms. A mutual understanding of what a money person gets in exchange for their dollars is crucial. This varies widely, ranging from something as simple as free tickets and autographed t-shirts acknowledging crowd funding donations, all the way to ownership of your business and intellectual property (such as your band or company name, musical compositions, and master recordings) for investment money. Your understanding of the boundaries and value of what you are giving away in exchange for money is very important, and it can have long term implications—especially if you have not realistically evaluated what the fruits of your labor are worth.
• Document your dollar deal. Properly documenting your mutual understanding goes a long way for both parties. This can be as simple as a “thank you” note for a gift, to using a form for a promissory note for a loan, to as complex as hiring a lawyer for the drafting of complicated regulatory filings and various agreements for a corporation that’s being formed with a major capital investment. When it comes to documentation, it’s wise for both parties to participate in the drafting process.
By balancing enthusiasm with clarity, you can make sound decisions and deals when it comes to financing your projects and your career.