Company Profile: BetterInvest (Media Invoice Discounting Platform)

Entertainment is essential in our lives, taking various forms. After a long day at work or home, we often seek relaxation by listening to music or watching our favorite movie in a theatre, or even better, from the comfort of our homes by watching an OTT platform like Netflix, Amazon Prime, Disney+ Hotstar, etc. In fact, between recording a podcast for our YouTube channel and writing this article, I unwound by watching a new series on Netflix called "Kala Paani" – highly recommended if you haven't seen it yet.

Well, it’s fair to say that a significant amount of effort and financing goes into creating a web series or a movie. But have you ever wondered how does a single production house manage to pay thousands of people, often in advance, before the movie hits theaters or an OTT platform and starts generating cash flow? To be honest, this industry is somewhat opaque, or to put it more accurately, disorganized. This is the primary reason why banks and non-banking financial companies (NBFCs) are hesitant to lend to these production houses, as they lack the proper means to assess the risk.

But the startup that we are covering today is trying to solve these financing problems in the media and entertainment industry and also giving retail investors like us an attractive investment opportunity i.e. discounting outright sale invoices raised by production houses to OTT buyers for as high as 18% p.a. In this article, we will cover BetterInvest from all aspects with our final opinion on the platform.

Note that this will be a long read as we have a lot to cover in this article. But I can assure you that this will turn out to be insightful for you. So stay tuned till the end!

If you prefer the video format, here’s my video with Sethu Rajendran, Co-Founder of BetterInvest.

Corporate Structure

BetterInvest (BetterInvest Finadvisors Private Limited) was registered on 9th July 2020 as FABO Properties Private Limited. The name was changed a little later when Betterinvest was launched.

As per the latest MCA filings (accessed on 23rd Oct 2023), the directors are the Somu brothers (Pradeep & Aathitiyan) and Suresh Krishnasamy is the Nominee Director as he has invested $350k in a seed round.

Just to highlight, the Somu brothers are directors in multiple other ventures, some related to their previous companies and some related to the live companies they are working on including Cookd & Halbe.

It would be fair to say that the directors are pretty busy running multiple ventures but looking at their LinkedIn profiles it appears both brothers have segregated their duties well.

Founders

As per Betterinvest's About Us section on the website, the founders are:

1. Pradeep Somu (Click here to access Linkedin Profile)

2. Sethu Rajendran (Click here to access Linkedin Profile)

3. Sriram Anax (Click here to access Linkedin Profile)

For this article, we spoke to Sethu who patiently walked us through their journey and the current business model.

The Somu brothers ran HeroTalkies (2013 - 2018) which was one of the first regional OTT platforms for Tamil Movies. Before the pandemic, movie production houses used to primarily rely on theatrical releases for revenue. HeroTalkies aimed at giving them an additional stream of income by acquiring OTT rights for international audiences (primarily South Asians living in Western countries)
HeroTalkies later merged with LebaraPlay (a UK-based OTT for South Asian audiences) and was then finally acquired by YuppTV. Sethu was handling the International Partnerships at HeroTalkies.

After a successful exit, Sethu and Pradeep worked on multiple ventures together including a short political consulting stint, organizing a tour for A R Rahman concert, etc. Given their prior experience in the OTT industry and seeing cashflow problems production houses face firsthand, they decided to start Betterinvest. Let's go through their business model and a sample deal in detail.

Business Model

After the pandemic, production houses realized that Theatrical revenue was no longer their primary source of revenue, OTT buyers were ready to pay huge amounts to acquire good content as they all wanted to grab eyeballs. Since the pandemic, a lot of content has been made exclusively for OTT platforms. Production Houses now had a couple of different revenue streams:

1. Theatrical Release Revenue

2. Sale of OTT Rights (to platforms like Netflix, PrimeVideo, etc)

3. Sale of Satellite Rights (to TV Channels)

4. Audio Rights (in different languages as well)

Generally, the model in the industry is:

• OTT platforms can release content after 30 days of Theatrical Release.

• TV Channels can release content after 30 days of OTT Release.

Talking primarily about the OTT Rights Sale, there are two models involved here:

1. Outright Sale Agreement: Generally signed even before the theatrical release of the film the OTT platform would pay a fixed sum to acquire the content post the release of the movie regardless of how it performs in the theatres.

2. Pay Per View Contract: The contract is based on how many people see the movie on the OTT platform or the streaming service. Like on YouTube, you have the option to buy certain movies, all sale proceeds are shared with the production house. You don't know how much revenue will you get every month.

BetterInvest would only deal in content where an outright sale agreement is in place. So let's understand this model in depth.

Understanding Outright Sale Agreement Contracts

OTT Platforms generally ask the producer to submit something called "The LINK Agreement" which lists out all agreements/rights/relevant dates to the content that it plans to acquire.

For example, if Red Chillies Entertainment which produced Jawan has already sold off its Music Rights and Satellite Rights to different T-Series and Zee TV respectively, how will Netflix come to know what release dates have been agreed upon with them and what rights have been sold? Netflix would want to do proper due diligence on this document to ensure that there is a sufficient buffer between the theatrical release date and the Satellite date so it can run the movie on its platform and get more subscribers. So ideally the LINK Agreement is the most important piece of document. Now, I haven't personally seen this agreement, but I trust Betterinvest's expertise on this.

Only after the OTT buyer is happy with their due diligence and is sure that the production house is capable enough to deliver the content, they would enter into an assignment contract where 10% - 30% of the deal value is paid in advance to the production house based on various factors. Now each OTT Platform has its own payment terms and schedules, as per Sethu:

• Netflix releases the payment in tranches of 30-60-90-120 days after the content is released on its platform.

  💡

  Fun Fact: Overseas, Netflix would generally have regular cashflow payments of 24-30 months in cases of high-budget movies.

• Amazon Prime would generally pay in one shot.

• SonyLiv would generally pay in 2 tranches.

What Happens After The Outright Sale Agreement Is In Place?

As I mentioned before BetterInvest would only bring deals on the platform where the Outright Sale Agreement is in place. The production house would give this agreement copy to BetterInvest who would do their due diligence on them and if all is satisfactory agree to discount the invoice value of the agreement for 17% - 24% p.a.

But that still begs the question of why the production house needs this money at such a high interest rate, there can be multiple reasons:

1. Usually, this money is required before the release of the movie and the production house needs the money to settle dues/salaries before release or even to promote the movie.

2. They might want to use that money in any other ongoing projects that need financing at the moment.

3. The money might also be used to book the call sheets of big star actors for upcoming year projects.

Betterinvest Co-Founder Sriram Anax also shared a LinkedIn post on this which will explain this in more detail. You can read it here.

Below is the discounting process as demonstrated by Betterinvest. If you are not sure how invoice discounting works, we have written a detailed article which you can read here.

Sample Deal

As of 24 October 2023 when we wrote this article, there is no ongoing live deal on Betterinvest, so I am using the below info from a deal (Shanthi Talkies - 5) I was personally invested in on 10 July 2023 and received the returns back.

• While investing in the deal, you will have to sign a discounting tri-partite agreement which is executed on stamp paper between Betterinvest, the production house and the investor. You can download this sample agreement here. The screenshots below are from the actual agreement I signed so it may differ from the sample one.

• In Schedule 1 Part A, you will see the details of the invoice holder, what is the asset, who is the counterparty, when was the agreement done and what rights have been sold.

• In Part C of the Agreement, you can more details on the invoice like the value and when is the deal expected to mature. In my case, the official date was 30th Aug 2023 with a grace period of 7 days but I received the repayment back on 12th Aug 2023 itself since Amazon paid early.

• Schedule 4 Part A would mention the Security Documents Betterinvest has collected to discount this invoice. Along with the ones mentioned below Betterinvest also collects a Direct Collection Letter (Clause 3.2) from the purchaser that the OTT buyer would directly pay the proceeds into the escrow account which will be controlled by Betterinvest at all times which is great in my opinion. Unfortunately, none of these documents are available on the deal page so you just have to trust them with this which is not ideal.

• Schedule 4 Part B would highlight other deal-specific information like how much advance has already been received by the production house. In the deal I invested in, ₹20.7 Cr was already received from Amazon which gave me confidence that Amazon is too invested in this, the release was also scheduled in 4 days from my investment date (10 July 2023), so I knew that the production house is pretty much only discounting for next 30-40 days.

• The rest of the agreement is a pretty standard discounting agreement, but given this is an unregulated investment, we have focused on the below two clauses which will become applicable in case of default.

  As per clause 4.7 below, just in case a purchaser like PrimeVideo/Netflix or a small OTT buyer is not able to make the payment on the maturity date mentioned in Part C of the agreement, Betterinvest can choose to terminate the agreement and apply a default penalty of 36% p.a. on the producer.

  But as per clause 4.6, you also give Betterinvest the power to extend the maturity date as it seems fit. Sometimes this is actually needed if the content has genuinely been delayed. But what if the content is released on time and the buyer has not been able to make the payment, given that Betterinvest is also in good relations with the producer they might choose not to show it as a default but extend the maturity date and try and resolve this with the producer which may not be in best interests of the investor. We recommend Betterinvest to take at least 67% of investors' approval before extending the maturity date if there have been no delays.

Rest all clauses are okay in my opinion, but feel free to read the agreement in full for your comfort and better understanding.

Things We Like About BetterInvest

• For starters, I like that the founders are not completely new to this industry, they have a decent amount of experience from their HeroTalkies days and are trying to bring this new asset class to common retail investors like you and me.

• We also like the fact that they only deal in outright sale agreements which keep things simple for investors in terms of expected returns and cashflows. The returns are also not dependent on how the movie performs at the box office.

• Before the deal comes to BetterInvest, it gives me some level of comfort that the OTT buyer has also done sufficient due diligence on the production house and the content to be delivered via the LINK Agreement explained above.

• BetterInvest collects a good amount of security documents which can be powerful when things go wrong.

  • Post Dated Cheques

  • Indemnity Bonds for the discounted invoice amount.

  • Direct Collection Letters which means money directly comes to escrow and not goes to the production house.

  • Vendor Portal Access so they can ensure that producers have not changed escrow account details.

  • Insurance for long-term projects (7 - 14 months) where the shooting has not yet been completed and there is a risk that the project gets stalled due to severe circumstances.

• They have now only started dealing with A-grade OTT buyers like Netflix, PrimeVideo, Sony, Hotstar, etc which gives me some comfort that these buyers will do timely payment.

Things We Don't Like About BetterInvest

• As I mentioned above in the agreement section, clause 4.6 is dangerous and can be misused by Betterinvest if its goals are not truly aligned with the investors. If they act on our suggestion, we would be very comfortable with the agreement.

• Lack of transparency in terms of the security documents, they of course mention these things in the discounting agreement so are bound by the law, but showing these docs to the investors might bring transparency.

• It's an unregulated product and invoice discounting is considered "operational debt" on the books of the production house Betterinvest also shows this risk appropriately. But they of course compensate you for that risk by giving you 18% p.a.

• The other significant risk is the risk of delay, if you are financing projects where unforeseen delays happen, your cashflow planning goes for a toss and you have to wait longer to get back money. (Just to clarify, you still keep earning interest until the principal is paid back)

  💡

  This has happened with one of the deals we have participated in for the movie Raththam where the movie was delayed by 1-2 weeks due to multiple blockbusters being planned to release on the same day. Our repayments will be delayed accordingly.

Other Questions We Asked The Founder

Please expand the below questions to see the answers.

Bottom Line

I personally think BetterInvest is filling a very important gap in the media industry between production houses and investors. The deals and agreement look well structured to a large extent and they have done a fair job of explaining the risks of the product to investors.

However, I think much more needs to be done in the area of transparency like giving access to actual security documents and showing the risk of delay by maybe showing a metric on their website on how many deals have actually been delayed.

That being said, I wouldn't say this type of investment is for each investor's portfolio, yes it's absolutely exciting to earn 17 - 18% p.a. with minimal effort but this is still an unregulated instrument, do not invest more than you can afford to lose. If you are confused about what this means for you, please get in touch with me and I will be happy to help you out.

Hopefully, this knowledge and fact-based article will help you in making the right decision for yourself. Just to clarify again, we did not get any financial incentive in writing this article for them, it's an effort on our side to bring more transparency to the Indian alternative investment community. But even after reading all the above and understanding the risks, if you intend to create an account on Betterinvest, please use our referral code: AW7JTH (you will get ₹2000 for your first successful investment)

If you think something is factually incorrect, please get in touch with me at yash@thealtinvestor.in

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Please note that this is an opinion blog and not official research advice. I am not a registered RIA in India, and none of these views reflect those of my current employer. This blog aims to promote informed decision-making and does not discourage you from investing in any deals.

We plan to come up with more blogs discussing different types of instruments available in the world of startup investing, write on due diligence for some platforms, and also existing and upcoming alt investment deals in the Indian market. If you want to stay updated on the latest blogs, please subscribe to our newsletter so you get notified automatically.