Troubled Spider-Man Musical Creates Web of Capital-Raising Thoughts for Entrepreneurs

I’ve been watching the trials and tribulations of the new “Spider-Man: Turn Off The Dark” musical, which has been in development for a decade, has been in previews since late November, and is now scheduled to open sometime in early summer. An article about its tumultuous path to Broadway is here. Events have included:

• The death of the original producer
• Plenty of financial troubles, including an essentially bankrupt production after the first $20 million had been raised
• Broken bones by three actors during rehearsals and performances (two feet, two wrists, and one back)
• The postponement of the opening, six times
• Universally negative "preview reviews" by the press, who have gotten tired of waiting for an actual opening
• Just last week, the ouster of Julie Taymor (director, book writer, and famous visionary behind “The Lion King”), purportedly because of her unwillingness to listen to feed back and make changes—something no entrepreneur would EVER do…)

At $70 million, the production will cost about three times more than the most expensive previous Broadway production, “Shrek the Musical.” By my quick calculations, the show (with reported weekly running expenses in excess of $1 million) will need to sell out at full price for about three years in order to just recoup its money. It got me wondering about how producers have been able to raise the additional huge sum of money for a once insolvent production.

Given how I’ve seen entrepreneurs raise capital over the years, here are my guesses as to the three most likely ways:

• Convince the same folks who invested the initial capital that it isn’t “throwing good money after bad” and that additional investment is the only chance they have to get a return on their already sizable investment.
• Offer new investors a significant preference over prior investors on the “last money in” so they have the prospect of significant returns—a common strategy in the venture capital community, affectionately known as a “cram down.”
• Just getting people who think it would be “cool” to own a piece of a show like “Spider-Man: Turn Off The Dark,” with music by U2’s Bono and The Edge. Of course, this last strategy overlaps with the first one because these may be the same people who invested in the first place.

I don’t know the answer, but I’m betting the last strategy could be the successful one here. I’ve seen entrepreneurs occasionally raise money in deals that I thought were “unfundable” from individuals who have other motives for investing (e.g., an angel with a family member suffering from a disease who invests in a technology company trying to invent the cure or a promising new treatment).

I guess we’ll all know in the next few years (or maybe few months, if it is a total failure) whether being an investor trapped in this web was a wise investment decision.