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Intro to Multi-Company Contracts & Financing Docs

Intro to Multi-Company Contracts & Financing Docs

Multi-Company Contracts & Financing Docs

How Creator Investing/Early-Stage Holding Company investing Works.

Content Creators are getting investment in the form of holding companies.

VCs are starting Creator practices.

This has to come at little surprise since we’ve heard only whispers of Creators raising VCs (update: not sure if this is supposed to be public, but there are also non-whispers…at some interesting prices…) This deal, whether done or not, is a big, big deal. Not because of the valuation or the amount raised, but because these deals are holding company investments. This is a new wave of, VCs, specifically, participating in:

1) early-stage holding companies and

2) content creators investing as a whole.

One thing is for sure: these Creators have become full fledge Founders, with a capital F. In preparation for what can only be described as an incoming demand of this type of deal. Let’s run through how Creator Investments get done.

Multi-Company Contracts (MCC)

A Multi-Company Contract (MCC) is an investment structure set for an early-stage holding company investment. This includes what the founder and investor agree with on as “Founder Work” and inclusive to the investment. An MCC, or a general holding company investment, should be deployed on agreement that the mission and vision of the company includes an acquisition quickly in the earliest stages of company formation, a company that expects multiple forms of revenue and/or a company to which the value is tied almost centrally (and obviously) to the founder themselves.

Intention

The MCC’s intentions are to be:

  • Founder friendly
  • Equity, not debt
  • Philosophically aligned with the process of raising early-stage capital

Document Iteration

MCC: X-year contract (short & long term iterations)

MCC: X-year contract w/rev share (for management-style deal)

Creator-Specific

Creators, specifically, have a complicated standard business structure.

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As an example, in 2024, Creators business income consisted of:

  • Platform Revenue Sharing: $20-30B
  • Direct Fan Monetization: $10-20B
  • Merchandising & E-Commerce: $15-20B
  • Affiliate Marketing: $5-10B
  • Content Licensing & IP Sales: ~15-10B
  • Courses & Digital Products: $5B

And while it is common for venture investors to solely invest in single-company C or S Corps, MCCs give the founder to flexibility to mix into multiple streams of revenue & equity positions at the same time.

Why you care

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Early-stage holding companies give founders the ultimate level of independence for:

  • Ownership and equity allocation.
  • Governance (e.g., Creator autonomy vs. investor oversight).
  • Revenue distribution and reinvestment.
  • Flexibility for spin-offs and joint ventures.

How it Works

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An investment in a Creator, or into an early-stage holding company, doesn’t mean that there has to be a HUGE company existing, but that the understanding between the Founder and the Investor is that there will be a larger company in the future.

For the sake of VCs, this includes what we call a ROFR.

A ROFR (Right of First Refusal) is a contractural right that gives an investor (that has the ROFR baked into their investment contract) that gives them certain abilities that are favorable to them. Basically, if someone invested in a Founder early, they get special privileges.

This is not standard in every investment structure, but since Creator’s are saying “I’m definitely going to be working on more than one company” and, in traditional structures, that means an entirely new cap table, then it makes sense for the investor to be aligned across the board.

1. Tale of Two ROFRs:

ROFR without subsidiaries.

When an investor uses their ROFR, does that mean they get special privileges in the holding company only or also get privileges in the subsidiary?

  1. A ROFR that doesn’t include subsidiaries gives investors the right to purchase shares in the holding company before those shares are sold to a third party.
  2. Safe to say this is default unless specifically specified in a contract.
  3. This is what’s in a MCC.

ROFR with Subsidiaries

When do they also have special abilities in the smaller (subsidiary) companies>

  1. A ROFR with Subsidiaries included extends the special privileges over to the smaller companies.
  2. Investors have the right to match offers for shares or stakes in any subsidiary within the holding company.
  3. This gives the investor more control over how the individual companies work & preferred investment pricing when you raise individually.
  4. This isn’t as common.

MCC Investor Privileges

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A MCC focuses on Founder, first and Investor, second. Here are the privileges for only an investor that uses an MCC:

  1. Applies to the Holding Company Only:
    • The ROFR applies only to transactions involving equity in the holding company itself, such as Class A (Founder) and Class B (Investor) units.
    • It does not automatically extend to investments or transactions involving subsidiaries unless explicitly specified in the agreement.
  2. Creator First, Investor Second:

    3. If the Founder (Creator) decides to sell equity, they must first exercise their option to buy it back. If they decline, the Investor is given the opportunity to match the terms of the third-party offer.

  3. Pro Rata Sale Participation (Co-Sale Rights)

    4. Similar to provisions commonly included in Series A term sheets, co-sale rights allow the investor to participate proportionally in equity sales initiated by another shareholder, ensuring they can sell their stake under the same terms and conditions.

2. “Founder Work”

You might be wondering “What ties someone to a holding company?” and “Whatever that is… why would that be appealing to sign to?” Great questions.

I always like to remind everyone that asks this that: these deals are getting done. Maybe not graciously, but they are getting done.

Linking to an individual founder to their company is much simpler than keeping the Founder’s work within a holding company.

A. Historically Speaking: Asset Assignment

Scope of Creator’s Work.

We can first look to managements. When a Creator or even a traditional Artist gets properly signed to a holistic talent management company, there is a process of disclosure and legal ownership transference of what the Talent has, owns, is defined by, what can be considered a “win” under their management.

This is sometimes defined as Scope of Representation over Materials. Materials can be defined as:

  1. Literary, entertainment, and promotional properties
  2. Rights in all media (current and future technologies)
  3. Any creations owned or controlled by the Talent and any creations developed during the term.
    • Podcasts
    • Digital and wireless media
    • Personal performances and appearances
    • Commercials, marketing, and endorsements
    • Sponsorships
    • Books
    • Paid & unpaid appearances
    • Etc.

And that is a very deep etc. In most contracts, Scope of Representation is considered “including, but limited too.” Often, although unspoken, this can include activities within the Talent’s companies. To make this more formal, the management often creates an Incubator or Venture Studio to include individual New-Business individuals that work together with proper managers to have a holistic understanding of the Talent’s business. Hence why we wrote Stages of Creators.

Asset Assignment in an investment contract

So that’s how a third-party enters working with a content creator. So how do we link this alignment away from the ownership of the manager to the ownership of the holding company?

  1. Contribution Agreement = Putting the HoldCo as the Controller
    1. When a Creator agrees to a MCC, the Creator is agreeing to a long-form contribution agreement with the HoldCo.
    2. This licenses all IP created by the Creator to the HoldCo for the length of of the contract.
    3. This IP can include:
      1. Copyrights
      2. Trademarks
      3. Patents
      4. Social media accounts
      5. Personal brand elements
      6. Name, Image and Likeness

      As a reminder, when this new HoldCo is spun up, the Creator owns 100% of it.

B. Historically Speaking: Owner’s Abilities

In summary, traditional managements are expected to be:

  1. Seek, develop, negotiate, and organize income-producing opportunities for Talent.
  2. Administer deals to ensure smooth execution and payment of Talent’s works.
  3. Packaging Services. Packaging Services is an interesting one that not every traditional contract has, but a lot of the larger traditional ones include. These services include:
    • Advising on the creation, development, financing, and production of projects.
    • Bringing together key elements like talent, funding, and partnerships.
    • Soliciting and negotiating agreements for the exploitation of projects (e.g., sales, licensing, distribution).

On “Exploitation”

Exploitation is a legal term in relation to Materials that refers to the use, commercialization, or monetization of the Talent’s creative works, talents, or rights to generate income or value.

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Owner’s Abilities in Equity Contract

In an MCC, or even when a Creator ties their Founder’s work to a HoldCo structure without taking investment, the abilities go to the “owner” of the HoldCo.

That means that the Creator owns the HoldCo and the HoldCo owns the Materials, not their manager and not their investor.

Note: There is one section that, for secrets, I won’t share yet. And that is on voting power of the Investor. A lot of current Creator investments consider the first round of funding what would be a “Series A” investment. Traditional Series A investments have protective provisions built into the term sheet that gives the investor some privileges. Examples include:

  • Board Control: Investors often take board seats to guide decisions.
  • Veto Rights: Investors have approval rights over material actions like issuing new equity, mergers, or taking on debt.
  • Liquidation Preferences: Investors ensure returns in case of a sale or liquidation before common shareholders get paid.

These can be regardless of if the Investor is a minority investor. If you see these terms, feel free to chat with your investor more about what these mean and if they are needed at the stage you’re at.

Challenges

Taking on investment is a lot to consider. Investing in a new asset group is also a lot to consider. Here are some challenges with this structure for both the Creator and the Investor.

Creator:

  • Valuation is up for grabs. We’ll talk about that a different day.
  • This is a binding contract, so you have to be comfortable with that.
  • You can’t really fire your investors the way you can with a manager. There are some ways to dissolve this, but it’s a little complicated.

Investor:

  • This structure is new, so it takes Alignment. There will be Creators you’ll like to invest in who won’t feel the same at this HoldCo level.
    • If you get booted to Subsidiary, don’t take it personal.
  • Valuation differences
    • These valuations are not for the faint of heart. Standards being worked out as we speak.

Solutions:

Education. A MCC, or any HoldCo contract at that, is the most high conviction contract possible. This means that the only way for these contracts to be used is complete transparency. Part of why this resource exists is for that. Education and transparency will only produce the best outcomes.

Not every Creator has to take on venture capital the same way that not every software company has to take venture capital.

Law. Laywers should be involved in every contract, if someone can afford it. Creator Investment Law would be a combination of Media and Startup law.

As always, if you have any particular questions, feel feel to reach out to em@pre-founder.com.