How FanVestor is Harnessing the Power of the Fans to Support Celebrities They Love
In my recent posts, I’ve discussed how FanVestor has teamed up with iHeartMedia to help with Covid-19 relief, and create even more incredible experiences for fans to deepen their relationship with sports and entertainment celebrities. This post focuses on changes in securities regulations and tech innovation that created tremendous opportunities for forward-thinking organizations. I will share some insights on how FanVestor is applying innovation and a data-driven mindset to capitalize on this new economic situation.
The idea of fans funding their favorite celebrities is not new — there are many examples of fans supporting athletes, musicians, entertainers and celebrities. Some of these examples are contributions and others are investments. FanVestor plans to present all types of engagement between fans and their favorites.
Then, there were the groundbreaking and hugely successful “Bowie Bonds” issued by music icon David Bowie. Bowie’s album sales had declined in the years following his 1983 comeback, Let’s Dance, so in 1997 he partnered with David Pullman of Prudential Insurance Company to raise capital $55M from fans to buy back his album rights through the sale of securities — the bonds — based on the future earnings of his songs released prior to 1993. Royalties from 25 albums were used as collateral for the loan. Bowie Bonds were set with a 10-year maturity and 7.9% interest. Pullman estimated the value of the future earnings would be approximately $100 million based on the then-current sales of CDs featuring these songs at a rate of about a million copies a year. Pullman and Bowie raised $55 million, enabling Bowie to buy back the rights to his songs from his manager, allowing him control over their distribution and secured his financial future. Eventually, the Bowie bonds liquidated in 2007 as originally planned, without default, and the rights to the income from the songs reverted to Bowie.
Not every celebrity, however, has had a positive experience when getting involved with securities. In November 2018 both professional boxer, Floyd Mayweather and artist, DJ Khaled, both agreed to pay over $600,000 and $150,000 in fines, respectively to the SEC for failing to disclose payments each received for promoting Initial Coin Offerings (ICOs) from several issuers on Instagram and Twitter. They were also prohibited from promoting any securities for years — Mayweather three years and Khaled two years. That previous April, the founders of one of these issuers, Centra Tech, had found themselves in hot water after the SEC alleged that their ICO was fraudulent. In addition to the Commission’s civil suit, criminal charges were filed by the U.S. Attorney’s Office for the Southern District of New York. By not disclosing the payments when citing the large returns Floyd and Khaled had received, they had inadvertently led their followers to believe they were unbiased and therefore more likely to invest their own funds. Floyd and Khaled did not admit or deny the charges, but they did cooperate with the investigation.
In 2015, R&B group TLC launched a Kickstarter campaign to raise contributions to fund their final album (a non-securities offering). The group, which had been immensely popular in the 1990s, had fallen into obscurity after Lisa “Left Eye” Lopes died in a car crash in Honduras in 2002. Their fans had clearly remained loyal, and as soon as the two remaining members, Tionne “T-Boz” Watkins and Rozonda “Chili” Thomas announced the campaign, support poured in, to the tune of $430,000, far surpassing their goal of $150,000. However, although the campaign page was updated many times over the next two years, no album materialized until mid-2017 although without any refunds or regular public updates. This resulted in a storm of negative posts on social media, including numerous accusations that T-Boz and Chili had scammed them. There was even a trending hashtag, #TLCIsGoingToJailParty.
And then, there is the saga of PledgeMusic, whose implosion in 2019 nearly destroyed the crowdfunding industry for music related projects. Founded ten years earlier, the direct-to-fan platform had promised an “experience” to fans who could invest in an album, then be part of its creation from start to finish. Several musicians signed on, and soon other similar companies were being incubated. However, the business model eventually proved unsustainable, leading to bankruptcy and a collective loss of ten million dollars to the participating artists — PledgeMusic used the funds raised by fans to pay other outstanding debts. Then at the end of July 2019, a petition to wind up PledgeMusic.com was heard in the High Court of London. This action followed by PledgeMusic ending in the bankruptcy proceedings with hundreds of artists not paid the outstanding funds owed to them from the successful campaign pledges.
Most recently, on September 11, 2020, The SEC charged film producer Ryan Felton, along with rapper and actor Clifford Harris (aka “T.I.”); T.I.’s social media manager, William Sparks; and two other men for promoting fraudulent ICOs conducted through Felton’s companies, FLiK and CoinSpark. Allegedly, the funds raised were to be used to build FLiK’s digital streaming platform and a digital-asset trading platform for CoinSpark; instead, Felton used the millions in misappropriated funds to buy himself, among other things, diamonds and a Ferrari. T.I. had tried to get his social media followers to invest, and Sparks had brokered sales of FLiK tokens through T.I,’ s social media accounts. The other two, Chance White and Owen Smith, were named in the complaint for, like Mayweather and Khaled, omitting the fact that they had been promised money in return for promoting the ICO. Yet another examples that investors should be very careful when reviewing crowdfunding investment opportunities and don’t just follow your favorite celebrity — need to be careful and examine what is being funded as well as what the funder is being promised in return. It is always recommended to study all available information and don’t be shy to ask questions.
Given the early success of David Bowie, and iconic sports teams like the Green Bay Packers , it is clear that fan investment can be an extremely viable option to provide meaningful experiences for fans while raising capital for the celebrities they love. As evidenced by the above examples, however, the celebrity investment environment has often resembled the “Wild West,” largely due to the difficulty in regulating social media, specifically the misuse of this power by a relatively few bad actors. This has resulted in a lot of suspicion and confusion about the riskiness of such investments, and legal troubles for celebrities whose “crime” was not knowing the SEC’s rules around promoting securities or not understanding the investments they promoted.
It doesn’t have to be this way. FanVestor is in the process of creating an investment model that harnesses the power of crowdfunding and also serves as a trusted technological bridge to both its investors and participating celebrities — with technology to foster greater knowledge and understanding of capital markets to support all parties in compliance with regulations. Although not acting as an underwriter, FanVestor aims to onboard those projects that meet specific compliance criteria and comply with the securities laws, including recommending appropriate transparency and post fund-raising best in class reporting standards.
FanVestor is an all-in data-driven fan investing and fan commerce platform — website and app — for elite talent, musicians, and athletes, as well as entertainment, sport, and e-sport organizations. With emphasis on compliance and online investing sophistication, FanVestor offers a way to engage with your favorite celebrities and athletes through Initial Talent Offerings™ (ITO) and Initial Entertainment Offerings™ (IEO). With FanVestor, fans will be able to receive an actual investment, future dividends (if applicable), as well as FanVestor exclusive rewards and experiences such as priority access, enhanced fan experiences, and other benefits. FanVestor connects investors directly to their favorite celebrities and athletes. FanVestor lets you Invest with Heart.
For the celebrities, FanVestor will offer a platform that will enable them to raise capital (within regulatory constraints) for various projects, and offer exclusive benefits to their fans for their associated participation. FanVestor’s platform will leverage and harmonize fans’ enthusiasm for investing in their favorite celebrities as well as buying exclusive perks and participating in charitable initiatives. We aim to become a leader in a total 360-degree fan investing, commerce, and rewards platform for celebrity brands and their associated partners.
For example, sports teams will be able to utilize the FanVestor platform to raise capital and/or funding for associated exclusive experiences (i.e. digital or physical goods or services) directly from their fans. These alternative sources of financing will mean:
· Lower sport entity’s cash flow salary expenditures with specific fan-funded fundraising projects to bring in new players for example, and therefore increased cash reserves for other initiatives, including dividend distribution;
· Lower cost of capital as compared to the traditional capital markets with only financial investors (vs fan-sourcing).
These issuers would also have support from the FanVestor platform, including our business partners in social media and PR, detailed and logistics planning; financial and compliance expertise, and other ad hoc services as needed. At the same time, teams can control the raise and develop the fanbase as investors for follow-up fundraising; FanVestor’s model also opens the door for cross-border participation and fractional ownership, meaning all their fans are able to invest, not just the wealthy ones.
Just a few short years ago, much of this would not have been possible. The signing of the Jumpstart Our Business Startups Act (also known as the “JOBS Act”) in 2012 democratized investment. Commencing in September 2013, “private” placements could be advertised to all investors, although still limited to investment by “accredited investors” with threshold net worth or income. Then Regulation A was expanded in 2015 to ease public offerings of up to $50 million to all investors. Most recently, the provision, enacted under Regulation Crowdfunding (“Reg CF”), made it possible for all Americans, regardless of their net worth, to invest, so long as they are eighteen and meet the annual investment limitations. These changes to the securities laws have facilitated crowdfunding, so that investors will be able to receive more than a symbolic trinket in return for their investment, but rather a stake in the company owned by or in the name of the sports and entertainment celebrities. Studies show that the average crowdfunding investor spends $500 per campaign they care about, an amount that increases over time and over $1,000 recently. FanVestor is founded upon this democratization of capital market investing, and is committed to turning fans from all types of backgrounds to owners, providing them access and inclusion previously only available to the selected, thereby offering them a greater return on that investment, financially and through richer experiences as “members of the club.” To date, I am not aware of any fraud associated with Reg CF reported by the SEC.
These changes are even more critical considering the challenges many businesses are facing due to the coronavirus pandemic. In a recent report, the Crowdfund Capital Advisors (CCA) and Small Business & Entrepreneurship Council (SBE Council) lobbied Congress for the creation of a “Main Street Recovery Co-Investment Fund,” using Reg CF. The SEC is currently considering changes to Reg CF, including increasing the amount principals can raise, so that communities and small business owners can raise capital to recover from the economic hardships caused by Covid-19. As mentioned, FanVestor has also teamed up with media giant iHeartMedia for COVID relief efforts.
In my next post, I will discuss how FanVestor is creating new models around the legacy investment banking model, including identifying new solutions to the issuer onboarding, price discovery, market analytics as well as engaging accredited and non-accredited retail investors. In the meantime, please check out FanVestor.com to learn about the incredible virtual experiences we’re offering to fans with the celebrities they love.