It’s nail-biting time for Joan Stein. A Broadway producer and investor, Stein has $100,000 riding on the success of Legally Blonde, the new musical based on the Reese Witherspoon movie. What she needs is a gigantic hit—one that will ensure big returns for an investment fund she has assembled to back four shows.

Her first pick, last winter’s Butley, is on track to do slightly better than break even. That means her Los Angeles-based Theatrical Ventures Fund has only Legally Blonde and two more shows on which to make some real money. If it catches on, Blonde is the kind of mainstream production that could pay out 500 percent or more—“attainable on a successful musical,” Stein says. Hey, it could happen.

But as any theater producer will tell you, it probably won’t. Broadway “is not an investment,” says veteran producer Emanuel Azenberg. “It’s a cultural crapshoot.” By some calculations, 80 percent of all shows fail, and 20 to 25 cents on the dollar is considered a good return. Only rarely does a Rent come along, paying back more than $10 for every $1 invested.

As recently as five years ago, when staging a Broadway musical cost more than $7 million and a straight play less than $2 million, there was a limited but dependable group of willing backers. Most considered investing a form of arts patronage and kicked in whatever they could afford to lose. Now, with the price tag for some plays approaching $3 million and musicals creeping past $12 million, that network has begun to thin. So producers are trying new approaches: reaching out to dozens of small investors, raising capital online, and tapping investment pools like Stein’s.

Theatrical Ventures is one of the newest in a growing crop of funds now invested in the stage from the Great White Way to London’s West End. They’re basically mutual funds for theater, allowing investors to spread their risk among multiple productions. The producers Hal Luftig, Elizabeth Williams, and Margo Lion started the first independent fund of this kind in 1995. The $1.3 million fund, which took stakes in Rent and the upcoming Frost/Nixon, has returned 175 percent; that is, a $10,000 invest­ment has paid back principal plus $7,500, or 4.8 percent a year.

Stein’s backers are a group of more than a dozen friends and associates who chipped in $25,000 to $150,000 each, for a total of $550,000. Her goal? To match or beat the returns of a good stock—7 to 12 percent a year. “I know it’s a risky area, but I felt her strategy was sound,” says Jon Murray, a producer of television shows such as The Real World and The Simple Life, who has invested in Stein’s venture.

Theatrical funds use a variety of fee structures, but it’s not unusual for a manager to take 10 percent off the top plus anywhere from 10 to 50 percent of the profits. (Depending on the amount invested, that would make typical hedge fund fees—2 percent of assets under management and 20 percent of profits—seem almost generous.) In most cases, the funds invest in productions that are in a relatively advanced stage of development. By contrast, two of Stein’s four projects are being assembled by her from scratch and don’t have completed scripts, much less an opening date. This aspect of her model resembles a venture capital fund that invests in startups. She has set aside fully half of her investors’ money to pay overhead and the high costs of developing her two shows. To compensate investors for the substantial risk, Stein offered an unusually rich potential payout at the end: She’ll start taking her share of the profits only after Theatrical Ventures earns back its entire value plus 25 percent. In another wrinkle, if the two nascent shows turn a profit, Stein will pay her investors special premiums on top of their usual profit shares.

Stein’s two works in progress are Mad Hot Ballroom, a musical inspired by the documentary (her fund has $100,000 riding on it), and a monologue-based play called Motherhood ($50,000). “If the shows aren’t successful, all of this is moot,” Stein says. “But if they are hits, there will be plenty to share.”

Will Theatrical Ventures pay back its contributors? Stein is making no predictions and offering no guarantees. Soon, Legally Blonde’s receipts will begin to answer the question. (Theatrical Ventures is one of two funds invested in the $12.8 million show, along with about 100 individuals.) For now, all she can do is reassure her investors about one of their biggest concerns after worries about tax liabilities and risk: whether they can get tickets to opening night. The answer is yes.