Questions on IP investment and Returns

An Indonesian Animation Company wrote to me for some advise. Hope the answers help you too.

1. We are offering investors an IP, how to promise them that it will be successful? Like how many percentage they can get in return?
Ans: Honestly, this is a tricky question. Depending on how much you are asking? And also how many years are they expecting to see returns and risk. Typically you need at least 3 to 5 years to start seeing returns in IP creation. In my opinion, you should start small to build your brand and fans before talking to investor.

Various types of investor and returns

Angel – 60 to 70% Annual Return
Venture Capital – 30 – 35% Annual Return
Private Equity – 20+%
Public Company -12 – 20%

Reference
http://www.wipo.int/sme/en/documents/investment_ip_fulltext.html

2. What is normally the deal for sharing benefits with the investors?
Ans: Like I said, the more establish you are, the more bargaining power you have. Example: If you have more fans, you are in better position to bargain.

If you are at the beginning stage, you need to justify how much money you have invested so far.  Else the percentage value you are holding will be very small. You have to consider how much you need from them. Then propose a percentage. Example. If you want 700k from them. And you have invested 300k so far. Then whatever money made, you split 30% / 70%.  But again, it all depends on whether they will accept your justification. Its all about bargaining and negotiation.

3. Lets say, the investor invest on the IP.  What if the IP not selling well, or worst case, not making any money. Do we as a studio has to give back the money that the investor has invested?
Ans: Typical deal is no. Its an investment. Not a loan. But investor will set various milestones. Anytime you don’t meet the milestone. They will pull the plug. And will not continue. This is how they will protect themselves. That is why I suggest that you think carefully before going to investor.