Risk Factors
A little uncertainty is good for everything.
HENRY KISSINGER
Former Secretary of State
Every business plan requires a statement of risk, in which you tell investors what a high-risk investment this is. Make it clear that nothing is guaranteed. No entrepreneur likes a risk statement, but it is a protection for you. In an LLC or limited partnership, your attorney will insert one whether you like it or not. You are well advised to do this in any proposal for funds. With a risk statement included in your business plan, investors cannot later claim that they did not know that the investment was unpredictable. Even though it seems obvious to you, and probably to them, assume nothing and state the facts anyway. If things should go awry and people lose money, they tend to sue.
A risk statement can be a very short statement or a long explanation. In the business plan for one limited partnership, the risk statement ran 14 pages; this was a bit excessive. Where should you include the risk statement? I normally create a separate section. If you are at a loss for words, please use the one on the CD accompanying this book. Normally your attorney will have a very long risk statement in an offering. In such a case, you can simply put in your Executive Summary a short paragraph, such as the following:
Investment in the film industry is highly speculative and inherently risky. There can be no assurance of the economic success of any motion picture, since the revenues derived from the production and distribution of a motion picture depend primarily upon its acceptance by the public, which cannot be predicted. See the “Risk Factors” section of the Confidential Offering Memorandum for further particulars.