Money: Cue investors, stage left

'Angels' back theatre productions, says Smita Talati, but will they be rewarded on Earth?

Next month the New York hit I Love You, You're Perfect, Now Change opens at The Comedy Theatre, London. And the doughty investors who have backed the production will be waiting to check the reviews just as anxiously as the actors.

The show opened in 1996 and takes a satirical look at relationships between girlfriends and boyfriends, husbands and wives, in-laws, children and grandparents. Jeremy Meadows, the producer, says: "It has similar values to the cult American show Friends."

Like most West End producers, Mr Meadows is still looking for investors to buy units of pounds 1,000 to fund the production. If the show plays to 70 per cent capacity in the 800-seat theatre for roughly nine weeks, in-vestors will recoup their original capital and start receiving a share of the profits. If it closes within a fortnight, they'll have enjoyed free tickets to the first night but kissed goodbye to their investment.

Putting money into theatre is a high-class form of gambling. People who take the punt are affectionately known as "angels" because, it is joked, they will only receive their reward in heaven.

Ultimately angels are putting their money and faith in the talents and integrity of the producer. Alan Gordon, a Wall Street financier, funded the musical Rent with the backing of friends. He says: "If I was given the opportunity to invest in a show, I'd run the other way. The only person that ever makes money is the producer; investors are almost guaranteed to lose."

But if your hunches are right and you pick a blockbuster you can make a fortune. Angels who put pounds 1,000 into Andrew Lloyd Webber's Cats in 1981 are now sitting on investments worth close to pounds 30,000.

On the other hand, the hapless ones who hedged their bets on disasters like the musical Bernadette lost all their original capital. The show attracted thousands of small investors to its retelling of the life of St Bernadette of Lourdes. The show was a critical and commercial disaster.

Of his show I Love You, You're Perfect, Now Change, Mr Meadows says: "We hope the show will run for three or four years. But if you're not prepared to lose every penny, don't back it." However, on the upside, he adds that at least his angels will not have to act as indemnity policies. "Unlike Lloyd's members they won't have to bail us out if things turn really sour."

The industry's trade organisation, the Society of London Theatres (Solt), maintains a list of angels interested in investing in productions staged by its members. These include almost all West End productions and plays. Solt will not give investment advice, nor will it add new angels to its lists unless it is confident that they understand the risks.

Eddie Jones, 78, a retired bookmaker, has been investing in theatre for more than 20 years. He says new angels need to find their way around the business before they can hope to make money. "It's all about getting in with the right producers," he says.

There is a long queue to get on to the angels list of household producers such as Sir Cameron Mackintosh and Michael Codron.

Mr Jones had to wait six years to join the latter. "Basically you have to wait until an existing angel has died," he says. He has 14 West End productions in his portfolio and invested pounds 100,000 last year.

Unlike American investors, British angels are not offered tax incentives to invest in the theatre. However, an unquoted company, Durbeyfield Ltd, is now raising investment in a tax-efficient manner to fund a large- scale production of Thomas Hardy's Tess of the D'Urbervilles, due to open at the Sheffield Lyceum this September.

Tess angels can claim 20 per cent tax relief on investments of up to pounds 150,000 because Durbeyfield is raising money through the government's Enterprise Investment Scheme (EIS). Investors must be individuals and hold their shares for at least five years. So someone who ploughed pounds 20,000 into the company could claim pounds 4,000 off the next tax bill. He or she will also be entitled to enjoy proceeds from the shares free of capital gains tax and offset any losses against gains on other chargeable assets.

Most angels invest in theatre for philanthropic rather than financial reasons. They enjoy being involved in a creative venture and attending first-night performances and parties. But they do not expect to be drawing their pension from it.

Nor should they expect to have a say in the running of the production. Katherine Dore is producer of Adventures in Motion Pictures, a dance company that leapt to fame with its all-male Swan Lake. The Broadway production of the show won a Tony award earlier this month.

Last year AMP launched a shareholder scheme to raise pounds 500,000 to develop the company further. Investors bought shares priced at pounds 500 each. They have already recouped 10 per cent of their original capital and the company is about to launch a second share issue.

Adventures in Motion Pictures, 0171-836 8716; Solt, 0171-557 6700; Perfect Change Productions, 0171-793 4118; Durbeyfield Ltd, 0171-266 5767.