INVEST WITH HEART™: HOW FANVESTOR IS LEVELING THE PLAYING FIELD FOR ENTERTAINMENT AND SPORTS INVESTORS
Having served as CFO and a C-level executive for a number of companies that went and/or were public, I have spent most of my professional life managing complex financial and operational transactions. Often challenging and always exciting, these transactions taught me a number of lessons, some of which I have written about in articles on why companies go public, the role of high frequency spectrum and fixed wireless technologies in 5G networks, and my personal favorite, the correlation between a game of chess and business negotiations. The most important lesson, however, is to constantly be focused on the next great innovation on the horizon. In this new series, I will explore the fascinating and ever-changing landscape of new capital market models.
Disruptors are the face of innovation; they are the individuals and entities that move the world forward into a more efficient, evolved, and profitable future, usually by displacing the existing leader in a given arena. This phenomenon is nothing new; more than a century ago Henry Ford made automobiles widely available, effectively ending the horse and carriage business, bringing millions of Americans unimaginable mobility and freedom.
For recent evidence of this one has to look no further than the stream service Netflix, whose innovation ended the reign of Blockbuster, and retail giant Amazon, which upended brick and mortar stores in nearly every retail industry. Both brought value in the form of time (no more trips to the store to rent a video) and money (no shipping fees on many Amazon products) and quite literally changed the habits of consumers around the world. Today, the company which I founded, FanVestor, is riding a “perfect storm” of changes to securities law and unprecedented data retrieval capability to change the face of investing in the entertainment and sports arenas. In fact, FanVestor is creating a new ecosystem of investing, one based on the emotional connections between fans and the celebrities they love.
Just a few years ago, this type of financial innovation would not have been possible, thanks to legislation enacted more than eight decades ago. During the Great Depression, Congress passed the Securities Act of 1934, partly in response to the widely-held belief that unregulated, irresponsible behavior on Wall Street had caused the stock market crash five years earlier. Congress designed this Act to provide investors with greater transparency and protection from fraud; however, it also made investing a very narrow process. In order to invest in securities, one had to be “accredited,” which was defined as one having a million in assets or earning a salary of $200,000 per person or $300,000 per couple. This was only about 2% of the population, which meant that the other 98% of Americans, while “protected,” were also left out in the cold with regard to investing.
Fast forward to 2016, when Title III of the JOBS Act went into effect, also known as Regulation CF, it leveled the playing field for investors by allowing startups to raise $1.07 million every twelve months from all Americans, regardless of their net worth, so long as their company was under a certain size. Title IV’s Regulation A+ introduced a new type of oﬀering for private companies to raise up to $50 million from the public every twelve months. Like an IPO, Reg A+ allows companies to oﬀer shares to the general public and not just accredited investors. Think of it as similar to innovating businesses such as Kickstarter, Indiegogo, Omaze, or other crowdfunding platforms, except that instead of a commemorative trinket for one’s investment, individuals received a stake in the company in the form of securities.
The same is true of the FanVestor platform, which provides consumers the ability to invest in entertainment and sports celebrities. In the past, fans’ investment was mostly limited to buying event tickets or other products such as t-shirts with an artist or athlete’s name or likeness. Title III of the aforementioned JOBS ACT makes it possible for consumers to invest their hard-earned money in the people, events and ideals they are so passionate about.
Perhaps most importantly, Title II of the JOBS ACT revised the existing Rule 506’s limitations on the way companies could reach out to potential investors. Before Title II, companies seeking to raise capital through the sale of securities had to register their stock offering with the SEC. There were some exceptions, most commonly under Rule 506, however, they were still prohibited from engaging in general solicitation or general advertising, including on social media. Title II lifted that ban on general solicitation, provided that (1) sales were limited to “accredited” investors, and (2) the company selling the securities reasonably believed, and had taken reasonable steps to verify that all purchasers of the securities were accredited investors. This still presented a challenge until, as mentioned above, Title III took effect and opened the doors to everyone, including fans of average means, to take advantage of the opportunity to invest in their favorite celebrities and sports teams.
Enter FanVestor, a proprietary platform that offers celebrities a new way of engaging with their fans through Initial Talent Offerings™ (ITO) and Initial Entertainment Offerings™ (IEO). FanVestor, the 2020 Crowdfunding Innovation Award-winning fan engagement marketplace, turns fans into investors by offering both accredited and unaccredited qualified retail investors participation in institutional-quality funding opportunities. The FanVestor fan/owners receive a true investment — future dividends, exclusive rewards and experiences such as priority access, enhanced fan experiences and other benefits, including participation in charitable projects with their idols.
FINANCIAL INVESTMENT: Through fan ownership
EXCLUSIVE REWARDS & EXPERIENCES: Through both products (virtual and physical) and experiences plus tiered levels of rewards for both commercial and charitable projects that can be attached to securities or offered to fans/followers in separate opportunities.
INVEST WITH HEART™: We’ve always known that fans have emotional ties to entertainment figures, just ask anyone who remembers exactly what they were doing when they heard Elvis Presley or Michael Jackson died. Earlier this year, the entire world mourned the tragic deaths of Kobe Bryant, his daughter, and several others in a tragic helicopter crash. Even people who had never watched a basketball game were deeply affected by Bryant’s death, in part because of their connection with him through his post-basketball career and his strong social media presence. Bryant is only one example of the never-before-seen access to the lives of celebrities, not only through Facebook and Twitter, but Instagram, TikTok and YouTube. Indeed, the number of people musicians and athletes reach every day through their social media posts is mind-blowing. For example, Taylor Swift has 131 million followers on Instagram; what’s more, her posts are not just about her music but about other aspects of her life, including her beloved cats who travel with her around the world. In other words, social media has given celebrities and athletes the means to broadcast everything that’s important to them, ranging from their political view to romantic relationships and their favorite vacation spots, thereby creating a completely disruptive connection with a diverse group of fans on a myriad of levels.
Another great example is the Kardashians. If Kim Kardashian mentions a t-shirt on social media, it is sold out the next day; if one of her sisters supports a charity dear to her heart, donations pour in from fans all around the globe. This demonstrates that consumers are primarily motivated not just by potential monetary returns on their investments, but by the opportunity to be “members of the club.”
BUILDING ON A PROVEN TRACK RECORD: There is in fact a longstanding precedent for this type of fan investing, and with great success. In 1923, the Green Bay Packers, one of America’s most beloved NFL teams, became a public commodity and in the nearly hundred years since fans have collectively invested more than thirty million dollars. Madison Square Garden owns interests in the NY Knicks and the NY Rangers, and these teams’ fans can buy and sell interests in the organizations. Internationally, publicly available shares of football teams (soccer in the US) such as Manchester United, ROMA, and Juventus are bought and sold on worldwide exchanges.
But the most famous example by far is the “Bowie Bonds,” which were issued by music icon David Bowie in 1997. Like most musicians, Bowie experienced several ups and downs during his decades-long career. But he had proven himself time and again to be a master of reinvention, as with his 1983 comeback album, Let’s Dance.
As David Bowie’s career evolved, he transformed himself, this time from musician to business mogul. He partnered with Prudential Financial to raise capital through the sale of securities based on the future earnings of his songs released prior to 1993. Also called “Pullman Bonds,” after their creator banker David Pullman, Bowie’s ten-year bonds were set to mature at an interest rate of 7.9 percent. This was the first offering of bonds to be backed by the future potential earnings of a music artist. Pullman had valued these future earnings at about 100 million dollars, based on the current sales of Bowie’s catalog, which had been compiled onto CDs and were selling about a million copies a year. The bonds raised fifty-five million dollars, enabling Bowie to buy back the rights to his songs from his manager (he was one of the first artists to negotiate ownership of his masters) which in turn gave him control over his songs’ distribution. Investors were excited to be involved with this new venture, and of course by the idea of a steady stream of income.
Studies show that the average non-accredited investor (as determined by REGULATIONS A or CF) spends $500 on each investment opportunity he/she cares about, an amount that increases over time. This is significant, especially when one considers that under these regulations the minimum amount required for investment is just $10. FanVestor is founded upon this democratization of capital market investing, and is committed to turning fans to owners, thereby offering them a greater return on that investment, financially and through richer experiences as “members of the club.”
At the same time, FanVestor offers celebrities unprecedented opportunities to grow their brands and create new revenue streams. FanVestor also provides those on its platform and the companies with whom it partners unprecedent access to consumer behavior. The Big Data generated by FanVestor’s investors collects both social media behavior and online activity, revealing the desires and passions of fans, including what drives their buying and selling habits. This gives celebrities a greater understanding of what moves and motivates their fans, providing data for future career choices (where to tour, what products to sell, et cetera).
All of the aforementioned is made possible through FanVestor’s commitment to securities offerings and accountability. Through agreements and partnerships with financial and business leaders such as HSBC, Deloitte and Perkins Coie, FanVestor acts as the data-driven investment platform with an unmatched level of robust investment technology, transparency and compliance.
This is an exciting time for the direct-to-consumer businesses, and this is only the first step in the innovation disruption that FanVestor is delivering to the marketplace.
In my next piece, I look forward to sharing the differences between FanVestor and Traditional Capital Markets. In the meantime, download the Fanvestor app or visit FanVestor to learn more about the exciting road ahead for fan-financed investing.