Investors: Am I putting the cart before the horse?

Discussion in 'Growing and Managing a Business' started by B.Tartaglia, Dec 3, 2012.

  1. B.Tartaglia

    B.Tartaglia
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    Hey All,

    I am new here, so please excuse me if I come off as inexperienced to the forum.

    In a nutshell, here is my plan-
    I am planning to launch an EDM (Electronic dance music) concert tour next year and I am still in the planning process. I am very skilled in the technical and event production background, and have worked/organized a handful of events before.

    I will need a financial backer to help me get this tour off the ground, but I have yet to meet with or even search for one. I feel the way I am planning this tour is putting the cart before the horse... Tell me what you think- I have already found (And working with) my marketing team, production crew members, tour manager, performance agencies, secondary production companies,lawyers, security firms, many event locations, and pre-tour promotional event locations.

    We plan to only host a few promotional(or budget building) events prior to the tour.


    I plan to fund the promotional events myself. These events alone have the potential to bring in 275% of the initial investment (Per event)

    I chose to do these events for a number of reasons, but my main reason is to be able to present the numbers from this event to a potential investor (To further assure him/her that we are able to turn a profit)

    Should I have found my main funding first before going this far? Where would be a good place to find an investor to support this? With the little information I provided, do you have any suggestions to how I should move forward?


    Please note: I have never worked with any sort of investor before. So if there is something you would recommend.. please feel free to let me know!
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum B.Tartaglia, thanks for joining. Have you completed a business plan for the events, that shows how much it will cost to run them, how you will operate the business, how you will use the investment and how you will make a profit? This is something that serious potential investors will want to see before they consider investing.

    Is there a mistake in that figure, if you can source more than 100% of the funding you need, why would you need an investor?
     
  3. B.Tartaglia

    B.Tartaglia
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    Thanks for your response, Fergal. At the moment, I am having a business plan written up and that number is correct. I may have not been clear.. but that profit is only form the promotional events, not the actual tour.

    For example: one promotional event will cost aprox. 10K. Each event will gain its profit from ticket sales (roughly about $20 a ticket in a venue that holds 2k).. If we were to load the house(Which is pretty likely due to the statistics from our past events) , that would be an income of 40k (before expenses) So it is more around 200%... My apologizes.


    Any suggestions?
     
  4. Fergal

    Fergal
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    If you have a bank B.Tartaglia, I'd suggest that you talk to them about finance options. If they are not interested in financing the project themselves, they may be able to suggest someone who can. If that doesn't work out you could start speaking to other banks, in an effort to find one that's interested.

    Another option would be to speak to contacts you have in your industry. Focus on those who have been successful in the past and who could potentially have funds to invest. Tell them about your successes and achievements to date, then ask them if they might be interested in investing in your concert tour project.

    You will learn a lot once you start talking to people and discussing your proposal with them. People can help us in surprising ways and reaching out to your extended network has the possibility of opening doors for you that you never expected.

    Good luck with it!
     
  5. ArcSine

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    B Tartaglia, re your initial 'cart before horse?' question, that particular decision can be kinda tricky and it's frequently as much a matter of instinct as it is any hard rules. As with most stuff, the right answer is situation-specific and can vary considerably.

    On the one hand you don't wanna invest a boatload of time and effort laying out the groundwork, only to discover afterwards that the necessary financing will either be too expensive and/or onerous, or worse, nonexistent.

    But OTOH it's usually the case that the more groundwork you have in place, and the more of the initial uncertainties you've addressed and resolved, when you get around to playing the preview of coming attractions on the investor's desk, the more secure he'll feel about the likelihood of success.

    In your case it sounds like you've got an impressive array of the groundwork already in place, in fact to a much greater extent than most investors usually see for their first look. Venues, legal team, marketing, production, crew,...those pieces of the puzzle are usually still on the founder's to-do list when that first cup of coffee with an investor is poured. By conventional measures you're certainly not too soon in the process to initiate dialogue with an investor.

    But, there's an intriguing wrinkle present in your situation not usually found in start-ups: an ability to roll out a mini-version of the biz model (the promotional events) which are self-funding. The reason this might be a very important issue: The difference between investing in a start-up which is just an idea on paper, vs. a business which is already in operation (and profitable to boot, even if only in a "mini" version) is substantial. Substantial in terms of the kind of conditions and restrictions an investor will want to put in place for his own safety, and substantial in terms of how expensive the money is.

    So it's possible (no guarantees; re-read the "situation-specific" caveat above) that you might end up doing better by holding off a bit on making your pitch to your primary backer. At least until you have the verified accounting numbers in hand from a couple or three of the promotional events (and assuming these events are sufficiently similar to your primary intended activity to have predictive value).

    The reason is that it's not in most investors' nature to give up terms and conditions they've won in negotiations, even in the face of subsequent favorable evidence about the business' success chances. An investor who gets started with you now is still looking at an unproven plan (noting, though, that you did mention something about stats from past events, so there may be something there to consider) and he'll want a return yield and other conditions commensurate with a perception of greater risk. Once you're up and rocking along and the operation is living up to expectations, it'd likely be difficult to get him to accept a lower return and fewer covenants after the fact.

    There's also the fact that having a couple of events under your belt might give you a sharper picture of just how your funding should be arranged and structured. That foresight would be rather helpful when it's time to talk to the investor, the bank, etc.

    Still, if your particular situation is giving you strong vibes that you should get your money lined up sooner rather than later, I'd certainly recommend that you negotiate into the deal terms some provisions whereby the cost of the money, and other covenants, are to automatically relax and/or reduce upon the achievement of specified benchmarks. This, just because your post sounds like you have solid reasons to believe that your success likelihood is greater than that of the average pre-launch startup.

    Best of success with it!
     
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  6. MoneyTrack

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    B,
    Have you tried networking with other experts in that field. They may be able to connect you with some investors. I don't think you're necessarily putting the cart before the horse because it seems like you are ready to make some money. Just be sure to cross your T's and dot your I's. Is there something you could be overlooking?
     
  7. B.Tartaglia

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    I have.. But no luck yet:(. The majority of people in my area have other businesses which funded their current. I have reached out to a few that have used venture capitalists.. but still no luck. Never giving up though!
     

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