How to Write an Independent Film Business Plan - 2/7 Company Section

Last time we went over the basics of writing an independent film executive summary.  This time, we’re diving into the first section of a business plan.  By this I mean the company section.  If you want an angel investor to give you money, they’re going to need to understand your company.  There are some legal reasons for this, but most of it is about understanding the people that they’re considering investing in.

The company section generally consists of the following sub-sections.  This section only covers the company making the film, not the media projects themselves.  Those will be explored in section III - The Projects.

FORM OF BUSINESS OWNERSHIP

​This is the legal structure you’ve chosen to form your company as.  If you have yet to form a company, you can tell an investor what the LLC will be formed as once their money comes in.  I’ve written a much longer examination of this previously, which I’ve linked to below. Also, I’m Not a Lawyer, that’s not legal advice, don’t @ me.

Related: The Legal Structure of your Production Company

THE COMPANY

This subsection talks a bit about your production company.   You can talk about how long you’ve been in business, what you’ve done in the past, and how you came together if it makes sense to do so.  Avoid mentioning academia if at all possible, unless you went to somewhere like USC, UCLA, NYU, or an Ivy League School. Try to make sure this section only takes up 2-3 lines on the page.

BUSINESS PHILOSOPHY

This is what you stand for as a company.  What’s your vision?  What content do you want to make over the long term?  Why should an investor back you instead of one of the other projects that someone else solicited? 
Your film probably can’t compete with the potential return of a tech company.  I’ve explored that in detail over the 7 part blog series linked below. ​

Additionally, you might want to check out Primal Branding by Patrick Hanlon it’s a great book to help you better understand how to write a compelling company ethos. I use it with clients as it frames it exceptionally well for creative people. That is an affiliate link.

Related: Why don’t rich Tech people invest in film?

Since you can’t compete on the merits of your potential revenue alone, you need to show them other reasons that it would behoove them to invest in your project.  See the link below for more information.

Related: Diversification and Soft Incentives

PRODUCTION TEAM

These are the key team members that will make your film happen.  List the lead producer first, the director second, the Executive Producer second, and the remaining producers after that.  Directors of photography and composers tend to not add a lot of value in this section, but if you’ve got one with some impressive credits behind them, it might make sense to add the.

Generally, if you have someone on your team with some really impressive credits, it might make more sense to list them ahead of the order I listed above. ​

Essential Reference Books for Indiefilm Business Planning

PRODUCT

This should talk a little about the films you’re going to make, and the films you’ve made in the past.

OPERATIONS

This is a calendar of operations with key milestones that you intend to hit during the production of the film.  These would be things like:

• Financing Completed

• Preproduction Begins

• First Day of Principle Photography

• Completion of principal Photography

• Start of post-production

You’ll also want to include when you intend to finish post-production, as well as when you intend to start distribution, but that should be less specific than the items listed above.  For the non-bullied items, I would say that you should just give a quarter of when you expect to have them happen, whereas the bullets should be a month or a date. 

CURRENT EVENTS

The Current events are as they sound, a list of the exciting events going on with your film and with your company.  This could be securing a letter of intent from an actor, director, or distributor, completing the script, or raising some portion of the financing.

Assisting filmmakers in writing business plans is a decent part of the consulting arm of my business.  The free e-book, blog digests, and templates in my resource package can give you a big leg up. That said, If this all feels like a bit much to do on your own you might want to check out my services page. Links for both are in the buttons below.

Thanks so much for reading!  You can find the other completed sections of this 7 part series below

​Executive Summary
The Company (This One)
The Projects
Marketing
Risk Statement/SWOT Analysis
Financials Section (Text)
Pro-forma Financial Statements.

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How to Write an Independent Film Business Plan - 1/7 Executive Summary

One of my more popular services for filmmakers is Independent Film Business Plan Writing.  So I decided to do a series outlining the basics of writing an independent film business plan to talk about what I do and give you an idea of how you can get started with it yourself.  

Before we really dive in it’s worth noting that what will really sell an investor on your project is you. You need to develop a relationship with them and build enough trust that they’ll be willing to take a risk with you. A business plan shows you’ve done your homework, but in the end, the close will be around you as a filmmaker, producer, and entrepreneur.

The first Section of the independent film business plan is always the Executive Summary, and it’s the most important that you get right.  So how do you get it right?  Read this blog for the basics.

Write this section LAST

This section may be the first section in your independent film business plan, but it’s the last section you should write.  Once you’ve written the other sections of this plan, the executive summary will be a breeze.  The only thing that might be a challenge is keeping the word count sparse enough that you keep it to a single page.   
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If you have an investor that only wants an executive summary, then you can write it first.  But you’ll also need to generate your pro forma financial statements for your film, and project revenue and generally have a good idea of what’s going to go into the film’s business plan in order to write it.  I would definitely write it after making the first version of your Deck, and rewrite it after you finish the rest of the business plan. ​

Keep it Concise

As the name would imply, the Executive Summary is the Summary of an entire business plan.  It takes the other 5 sections of the film’s business plan and summarizes them into a single page.  It’s possible that you could do a single double-sided page, but generally, for a film you shouldn’t need to.  

A general rule here is to leave your reader wanting more, as if they don’t have questions they’re less likely to reach out again, which gives you less of a chance to build a relationship with them.

Here’s a brief summary of what you’ll cover in your executive summary.

Project

As the title implies, this section goes over the basics of your project.  it goes over the major attachments, a synopsis, the budget, as well as the genre of the film.  You’ll have about a paragraph or two to get that all across, so you’ll have to be quite concise.

Company/Team

This section is a brief description of the values of your production company.  Generally, you’ll keep it to your mission statement, and maybe a bit about your key members in the summary.

Marketing/Distribution

In a standard prospectus, this would be the go-to-market strategy.  For a film, this means your marketing and distribution sections.  For the executive summary, list your target demographics, whether you have a distributor, plan to get one, or plan on self-distributing.  Also, include if you plan on raising additional money to assist in distribution.

SWOT Analysis/Risk Management

SWOT is an acronym standing for Strengths Weaknesses, Opportunities, and Threats.  For the executive summary, this section should include a statement that outlines how investing in film is incredibly risky, due to a myriad of factors that practically render your projections null and void.  Advise potential investors to should always consult a lawyer before investing in your film.  Cover your ass.  I’ve done a 2*2 table with these for plans in the past, and it works reasonably well.  Speaking of covering one’s posterior, you should have a lawyer draft a risk statement for you.  Also, I am not one of those, just your friendly neighborhood entrepreneur. #NotALawyer #SideRant

Financials

Finally, we come to the part of the plan that the investors really want to see.  How much is this going to cost, and what’s a reasonable estimate on what it can return?  There are two ways of projecting this, outlined in the blog below.
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Related: The Two Ways to Project Revenue for an independent film.

In addition to your expected ROI, you’ll want to include when you expect to break even and mention that pro forma financial statements are at the end of this plan included behind the actual financial section.

Pro Forma Financial Statements.

If you’re sending out your executive summary as a document unto itself, you will strongly want to consider including the pro forma financial statements. For Reference, those documents are a top sheet budget, a revenue top sheet, a waterfall to the company/expected income breakdown, an internal company waterfall/capitalization table, a cashflow statement/breakeven analysis, and a document citing your research and sources used in the rest of the plan.

Writing an executive summary well requires a lot of highly specialized knowledge of the film business. It’s not easy to attain that knowledge, but my free film business resource package is a great place to start! You’ll get a deck template, contact tracking templates, a FREE ebook, and monthly digests of blogs categorized by topic to help you know what you’ll need to have the best possible chance to close investors.

Here’s a link to the other sections of this 7 part series. 
​
Executive Summary (this article)
The Company
The Projects
Marketing
Risk Statement/SWOT Analysis
Financials Section (Text)
Pro-Foma Financial Statements.

5 Rules for Finding Film Investors

One of the most common questions I get is where to find investors for a feature film.  Inherent in that question is simply where to find investors.  While I may not have a specific answer for you regarding exactly where to find them, I do have a set of rules for figuring out where you might be able to find them in your local community.  This is meant to be applicable outside of the major hubs in the US, and as such it’s not going to have to be more of a framework than a simple answer.

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1. ​Go where the money is.

Think about where people in your community who have money congregate.  In San Francisco, the money comes from tech.  In Colorado, the money came from oil, gas, and tourism, but has recently grown to include legal recreational marijuana.  In many communities, some of the most affluent are the doctors and medical professionals.  In most communities, the local lawyers tend to have money, but you’ll have to make sure you come prepared.  Figure out what industries drive your local economy and then extrapolate from that who might have enough spare income to invest in your project. 

If you know what these people do, then you can start to figure out where they go when it’s after working hours.  If you know where they go after hours, you can go get a drink and start to work your way to making a new friend in this investor. 

All that being said, Be careful not to solicit too early, as that can actually be illegal.  #NotALawyer.​

2. Figure out a place where you can find something in common

Any investment as inherently risky and a-typical as the film industry relies heavily on your relationship with your investor.  As such, finding something you have in common is a great way to start the relationship right. 

RELATED: 7 Reasons Courting an Investor is Like Dating

As an example of what I mean, I’ve met investors while singing karaoke at Gay bars in San Francisco.  I’ve met others at industry events, and I’ve even met a few by going to some famous silicon valley hot spots where investors and Venture Capitalists are known to congregate.  If you know where all the doctors go to drink after work, and if there’s a regular activity at one of the bars that can facilitate meeting them, it might not be a bad idea to go and try to establish some connections in that community.  This segues us nicely to…

3. ​Understand that moneyed people tend to have their own community

Generally, wealthy individuals know other wealthy individuals.  If you develop a relationship with someone within that community, it means that even if that investor you ended up establishing a relationship with won’t invest, they may talk to a friend about it who might. 

The reverse of this notion is also true.  If you get a bad reputation in the Wealthy community then you’re likely to find it very hard to raise funds for your next film.

4. Understand that most people with money will have other investment options.

As stated above, film investment is highly volatile and inherently risky.  If these investors took on every potential project that comes asking for their money, they would not be rich for very long.  As such, you’re going to have lots of competition when it comes to raising funds for your film.  This competition will not only come from other films, but also from stocks and bonds, other startups and small businesses, and even the notion that if they’re going to spend 100k they never get back, why not just buy a new Mercedes?

5. Find a not entirely monetary way to close the deal.

So to bring the last point home, you have to find other reasons that aren’t solely based on return on investment to get people to consider investing in your independent film. This can be the tax incentives, the moral argument to support culture, the fact that investing in a film is an inherently interesting thing to do, or a few other potential things. The blog below explores this in much more detail than I have the time or the word count to do here today.

Related: Why Don't Rich Tech People Invest in Film Part 5: Diversification and Soft Incentives

If you still need help financing your film, you should check out my free indiefilm business resource package. It’s got lots of tools and templates to to help you talk to distributors and investors, as well as a free-ebook so you can know what you need to know to wow them when you do. Additionally, you’ll get a monthly content digest to help you stay up to date on the ins and outs of the film industry, as well as be the first to know about new offerings and releases from Guerrilla Rep Media. Get it for free below.

The 4 Stages of Indiefilm Finance (And Where to Find the Money)

Most of the time filmmakers seek to raise their investment round in one go.  A lot of people think that’s just how it’s done. As such, they ask would they try anything else. If you have a route into old film industry money you can go right ahead and raise money the old way. If you don’t, you might want to consider other options.

Just as filmmakers shouldn’t only look for equity when raising money, Filmmakers should consider the possibility of raising money in stages.  Here are the 4 best stages I’ve seen, and some ideas on where you can get the money for each stage.

1. Development

If you want to raise any significant amount of money, you’re going to need a good package.  But even the act of getting that package together requires some money.  So one solution to getting your film made is to raise a small development round prior to raising a much larger Production round. 

If you want to do this with any degree of success, you’re going to have to incentivize development round investors in some way.  There are many ways you can do it, but they fall well beyond my word count restrictions for these sorts of blogs.  If you’d like, you can use the link at the end of the blog to set up a strategy session so we can talk about your production, and what may or may not be appropriate. 
​

Related: 7 Essential Elements of an IndieFilm Package

Most often, your development round will be largely friends and family, skin in the game, equity, or crowdfunding.  Grants also work, but they’re HIGHLY competitive at this stage. 

Books on Indiefilm Business Plans

2. Pre-Production/Production

It generally doesn’t make sense to raise solely for pre-production, so you should raise money for both pre-production and principal photography.  This raise is generally far larger than the others, as it will be paying for about 70-80% of the total fundraising.  It can sometimes be combined with your post-production raise, but in the event there’s a small shortfall you can do a later completion funding raise. 

It’s very important to think about where you get the money for the film.  You shouldn’t be looking solely at Equity for your Raise.  For this round, you should be looking at Tax incentives, equity, Minor Grant funding if applicable, Soft Money, and PreSale Debt if you can get it. 

Related: The 9 Ways to Finance an Independent Film

Post Production/Completion

Some say that post-production is where the film goes to die.  If you don’t plan on an ancillary raise, then too often those people are right.  Generally you’ll need to make sure you have around 20-25% of your total budget for post.  It’s better if you can raise this round concurrently with your round for Pre-Production and Principle Photography

The best places to find completion money are grants, equity, backed debt, and gap debt

4. Distribution Funding/P&A

It’s very surprising to me how difficult it is to raise for this round, as it’s very much the least risky round for an investor, since the film is already done.

Theres a strong chance your distributor will cover most of this, but in the event that they don’t, you’ll need to allocate money for it. Generally, I say that if you’re raising the funds for distribution yourself, you should plan on at least 10% of the total budget of the film being used for distribution.

Generally you’ll find money for this in the following places. Grants, equity, backed debt, and gap debt.

If you like this article but still have questions, you should consider joining my email list.  You’ll get a free e-book, monthly digests of articles just like this, segmented by topic, as well as some great discounts, special offers, and a whole section of my site with FREE Filmmaking resources ONLY open to people on my email list.  Check it out!

The 7 Essential Elements of A Strong Indie Film Package

Most filmmakers want to know more about how to raise money for their projects.  It’s a complicated question with lots of moving parts.  However, one crucial component to building a project that you can get financed is building a cohesive package that will help get the film financed.  So with that in mind, here are the 7 essential elements of a good film package.    ​

1.Director

As we all know, the director is the driving force behind the film.  As such, a good director that can carry the film through to completion is an essential element to a good film package.  Depending on the budget range, you may need a director with an established track record in feature films.  If you don’t have this, then you probably can’t get money from presales, although this may be less of a hard and fast rule than I once thought it was.
​

Related:What's the Difference between an LOI and a Presale?

Even if you have a first-time director, you’ll need to find some way of proving to potential investors that they’ll be able to get the job done, and helm the film so that it comes in on time and on budget

2. Name Talent

I know that some filmmakers don’t think that recognizable name talent adds anything to a feature film.  While from a creative perspective, there may be some truth to that, packaging and finance is all about business.  From a marketing and distribution perspective, films with recognizable names will take you much further than films without them.  I’ve covered this in more detail in another blog, linked below.
​

Related: Why your Film Needs Name Talent

Recognizable name talent generally won’t come for free.  You may need a pay-or-play agreement, which is where item 7 on this list comes in handy. ​
​

3. An Executive Producer

If you’re raising money, you should consider engaging an experienced executive producer.  They’ll be able to help connect you to money, and some of them will help you develop your business plan so that you’re ready to take on the money when it comes time to.  A good executive producer will also be able to greatly assist in the packaging process, and help you generate a financial mix.
​

Related: The 9 Ways to finance an Independent Film.

I do a lot of this sort of work for my clients.  If you’ve got an early-stage project you’d like to talk about getting some help with building your package and/or your business plan I’d be happy to help you to do so.  Just click the clarity link below to set up a free strategy session, or the image on the right to submit your project.

4. Sales Agent/Distributor

If you want to get your investors their money back, then you’re going to need to make sure that you have someone to help you distribute your independent film.  The best way to prove access to distribution is to get a Letter of Intent from a sales agent.  The blog below can help you do that. 
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Related: 5 Rules for Getting an LOI From a Sales Agent

5. Deck/Business Plan

If you’re going to seek investors unfamiliar with the film industry, you’re going to need a document illustrating how they get their money back   This can be done with either a 12-slide deck, or a 20-page business plan.  I’ve linked to some of my favorite books on business planning for films below. 

6. Pro-Forma Financial Statements

Pro forma financial statements are essentially documents like your cash flow statement, breakeven analysis, top sheet budget, Capitalization Table, and Revenue Distribution charts that help you include in the latter half of the financial section of a business plan.  

There’s a lot more information on these in the book Filmmakers and Financing by Louise Levinson.  I’m also considering writing a blog series about writing a business plan for independent film.  If you’d like to see that, comment it below. ​

7. Some Money already in place

Yes, I know I said that you need a package to raise money, but often in order to have a package you need to have some percentage of the budget already locked in.  Generally, 10% is enough to attach a known director and known talent.  If you’re looking for a larger Sales Agent then you’ll also need to have some level of cash in hand.

This is essentially a development round raise.  For more information on the development round raises, check out this blog!

Thanks for reading, for more content like this in a monthly digest, as well as a FREE Film Market Resources Package, check out the link below and join my mailing list.​

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Filmmakers! - 5 Steps to Successful Grantwriting

A few months ago I worked with the absolutely lovely Joanne Butcher of Filmmaker Success to put on an educational event about grant writing here in San Francisco.  Joanne has raised millions in grant funding for several non-profits over the course of her life.  While I can’t distill everything from her talk into a single blog, I can give the people who weren’t able to make it some of the key takeaways.  So without further ado, here are the 5 rules for applying for grants.

1. Research

This might just be a Guerrilla Rep Media Rule of life at this point.  If you understand the field you’re playing on, you’re going to be much better at whatever game you’re going to play there.  The only way you understand that field is by researching it. But I digress. 

When applying for grants, the first step is to research and find grants to apply to.  (Duh) Focus on grants that match the subject matter of your film. It’s best to only apply for grants you’re perfect for, even if they are not directly related to filmmaking.  

The fact is that no one can apply to the thousands of grants they are eligible for is why limiting to the perfect matches is going to greatly increase your success.  It’s almost always a bad idea to bend something to fit a grant application. The key here is to remove the mindset of scarcity, and instead focus on finding the right fit.

As an example, if we were looking for funding for a reboot of The Little Mermaid, Joanne would recommend looking into marine science foundations, climate change foundations, and local artist grants, local filmmaking grants, or since it’s based on a Hans Christian Andersen book, even Denmark’s Cultural heritage foundations might be worth applying to.  

This article is a good place to start for your research.

FILMDAILY.TV'S GRANT LIST

2.   Set a goal for applications

Set an achievable goal for grants you want to apply for.  A safe bet is one per month. This would put applying for grants as a heavy part-time job for you though.

It can be hard to find relevant grants to apply to get up to 1 per week, so you should consider applying to grants that are thematically related to your content, as opposed to strictly applying for film grants.  What I mean by this is if your film is about homelessness, then maybe apply for grants from organizations helping the homeless, stating how you can help increase the awareness and impact of their foundation through the power of motion pictures.  ​

3.   Answer the Questions

Now that you’ve researched to find relevant grants, and you’ve set your goals, it’s time to start grant writing!  I know that sounds super intimidating, but really it’s just answering a very long series of questions. 

Although when you’re answering your questions, you should remember that it’s more than just providing information.  Your goal here is to sell the grantor on why your project is the one that will get the most bang for their funders buck.  

Every funder’s primary responsibility is to fund the projects that provide the most value to the foundation.  Generally, this means the projects that get the most eyeballs on them, and offer the most benefits to the communities that particular funder serves.  Your job is to convince that funder that your project is the one that will do that. 

4.   Hit Send

I know this sounds rather obvious, but once you’ve written your grant you need to press send.  However, a lot of filmmakers get stuck at this step, and spend so much time perfecting their application that they either miss the deadline, or could have applied to a whole different grant in the time they spent making one of them about 2% better.  Hit send, and start applying for the next one. 
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5.  Apply Again Next Year

Finally, the first time that you apply for a grant, don’t be put off if you don’t get it..  Most funders get far more applications than they have money to fund, and competition is fierce..  That doesn’t mean you shouldn’t apply, it just means that you need to keep applying, and, over time, improve both your proposals, your projects and your relationships with the funders.  “After all, says Joanne, “you can’t apply a second time until you’ve applied for a first.”

IF you’re a filmmaker, you’re always likely to have some project that will require funding.  Thus, relationships with funders will be very important to your long term career. By applying for film grants, you start to develop a relationship with the grantor, even if your grant applications are unsuccessful.

Also, if you’re declined, you can actually call up the funder, and ask why.  Most times, grantors will share some insight as to why your application was declined.  Doing this can put you in a much better position to get the grant next year. Just don’t be rude when you do; the point is to build a positive relationship

Thanks so much for reading!  I’d heavily encourage you to check out Joanne Butcher’s website below.  Also, check out the free indiefilm resource pack for EXCLUSIVE templates and tools to help you finance your film, as well as a monthly blog digest to help answer any questions that you may end up needing to fill out your grant proposal.

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7 Reasons Courting an Investor is Like Dating

There’s an old adage that Investing is like Dating.  In fact, I’ve talked about the similarities both on meetings with investors, and dates with people who are qualified to be investors.  So as something of a tongue-in-cheek yet still (Mostly) safe-for-work post, here are 7 ways courting an investor is like dating. ​

​1. Your goal is to see how compatible you are with the other person.

Most of the time, if you want to get into bed with someone, you want to be compatible with them first.  Getting money from an investor isn’t like a one-night stand.  You don’t just get the check and then never hear from them again.  Getting into bed with an investor is a long-term deal, so making sure you two work well together is simply a must.  Otherwise, the break-up may not be pretty. 

2. If you come off as Asking for too much the first time out, you probably won't get a second.  

The first time you go out with an investor is kind of like that first coffee date.  you’re both sizing each other up, and you want to see how you click.  If you went on a first date trying to make out and take the partner back to your place, it’s probably not going to end well for you.  Similarly, if you start asking an investor to whip out their checkbook on the first meeting, then you’re not likely to get a call back for a second. 

In summation, the goal of your first date should always be to get a second.  If you’re out with an investor, then the second meeting is the sole goal of the first meeting. 

3. It Generally takes at least 3-5 meetings to jump into bed together.  

As with dating, it generally takes 3-5 meetings to decide to get into bed together.  Often, the longer it takes the more likely it is that the relationship will be fruitful down the line.  At least to a point.  If it takes more than 7 meetings to get a check, the investor (or your romantic partner) might just want to be friends. 

4. Both Parties have something to gain, but generally speaking one has significantly more options than the other.  

Just like women are generally more sought after than men in the dating scene, Investors are generally more sought after than entrepreneurs. This may sound crass, but the only pretty girl in the room is going to get a lot more offers than the 10 guys pursuing her.  The ratio is similar for investors. 

So sure, while everybody is looking for a mate, and every investor needs deal flow, generally one side has more options than the other.  It’s important to remember that when attempting to court an investor.

5. They're Probably going to Google You.

Everybody does diligence in this day and age.  If you didn’t think your date was going to check out your online presence, you should probably think again.  Investors are going to look into your past history, and maybe even check your credit before they invest in you.  Dates will do as much as they can on a similar level, but probably not check your credit.

Related: 5 Steps for Vetting Your Investors

6. If you jump into bed on the first date, you're in for a wild ride.  a

One-night stands can be fun and all, but if you jump into bed with the wrong person right after meeting them it can be a real nightmare.  (Or so I’ve been told…) If you don’t take the time to get to know somebody before you get into a serious relationship with the, you’re going to be in for a nasty surprise.  All investment deals are serious relationships.  Don’t let anyone tell you otherwise. 

7. When you seal the deal, you might be stuck with that person for YEARS.

If you take money from someone you’ll be dealing with them until all investors somehow exit the company.  This can be many years.  The Series A Investors at Twitter didn’t exit until their IPO Years later, and a film generally takes 3-5 years to pay back their investors, if they ever do.

If you do get into bed with an angel investor to finance your feature film or web series, they’re going to be a part of your business for a long time.  It’s not just about finding independent film angel investors, it’s also about courting them and making sure you’ve found the right investor, not just the first investor who makes you an offer.

If you want some help with this courting process, my free resource package is a great place to start. It’s got a free e-book that might answer some questions your investor may have. It’s also got a deck template you can use in your first meeting. Get it for FREE below.

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Indiefilm Crowdfunding Timeline

In crowdfunding as in filmmaking, preparation is key.  If you don’t adequately prepare for your campaign, then you’re not likely to succeed.  If you’ve never crowdfunded before, this can be a daunting prospect. Don’t worry, Guerrilla Rep Media is here to help.  This post is meant to give you a timeline to prepare for your campaign, starting further out than you might think.

It’s based around what I’ve learned raising 33,000 of my own in the early days of kickstarter, as well as what I’ve learned from speakers and advising clients running their own campaigns.

6-12 Months Prior to Launch

Begin interacting with online and in-person communities relevant to your target market

If you want to have a chance at people outside of your friends and family donate to your crowdfunding campaign, then you’ll need to become a part of those communities early.  If you show up and immediately start asking for money, you’re only going to lose friends and alienate potential backers and customers.  If, on the other hand, you become part of the communities you’re targeting early on then you may well end up getting yourself some new audience members who might just back your campaign.

Related: 5 Dos and Don't for Selling your Film on Social Media

It’s a lot of work, but the benefits may surprise you.  They’re likely to reach beyond your professional life, and into your personal life. 

3 Months Prior To the Launch

Begin to be really active in groups of your target market.

Essentially, this is an extension of the list above.  As your campaign approaches, spend more time engaging with people on those online communities you joined 3-6 months ago.

2 Months Prior to the Launch

Shoot Video

List All Potential Perks

Let People Know You'll be Running a Campaign

Get set up with your Payment Processor

About 2 months before your expected launch, you should get as much of the preparation out of the way as you can.  This includes things like shooting your video, listing your potential perks, and potentially even getting set up with the payment processor of whatever platform you’re using.

Many of those things take much longer than you expect them to, so doing them early will make sure that your campaign launches smoothly. ​

1 Month Prior to Launch

Start seeing what press you can get.

Create a Facbook Event for Launch

Finalize list of Perks

Organize Launch Party

A month out from your campaign is when your pre-launch should be going into overdrive.  You’ll need to issue a press release about your campaign to try to get some local press, make a Facebook event for the launch party to try to get some early momentum, finalize all your perks, and potentially organize a launch party to help get people excited about your project.  You may want to consider making your launch party backer-only, just to get the numbers up early on. ​ Let people donate at the door from their if you need to.

Related: Top 5 Crowdfunding Techniques

1 Week Prior to Launch

Do at least one press interview (if you can)

Promote Launch Day on Social Media

Confirm a few large donations to come in on lauch day: Ideally right at launch.

With your launch date less than a week away, you’ll want to see if you can get any press.  This can be anything from a local newspaper from the town you grew up in, it could be a friend’s podcast, or it could even be some old high school alumni newsletter.  The press will give you legitimacy and legitimacy means more backers.

While you’re doing this, you’ll want to spend a lot of time talking about the impending launch on social media and talking to some big potential donors about coming in in the first few hours of the campaign.  If people see more traction early on, they’ll be more likely to jump on board. ​

Launch Day

Follow-up with AS MANY PEOPLE AS YOU CAN to get them to donate.

If you have some large confirmed donors, then you need to follow up with them and remind them on launch day.  It matters a lot to get some big fish in right as the campaign starts. ​

First Few Weeks of the Campaign

INDIVIDUALLY email EVERYONE you can to ask them to donate.

Once you get your campaign started, you’ll want to INDIVIDUALLY email EVERYONE in your address book.  I’m not talking about setting up and sending out a mail chimp email, I’m talking about individually reaching out to follow up with EVERYONE who you have an email for.  One trick I’ve learned from a friend and Former Speaker Darva C. is that you should email 2 letters of the alphabet a day, over the first 2 weeks of the campaign.  Then email them again, starting on day 16 of the campaign. ​

It’s a grind, but making a film always required sacrifice. 

Midpoint of Campaign

Host an event to keep interested high.

It would be wise to have an event to keep your social media spirit high in the lull that is the midpoint of the campaign.  You have to keep the momentum going through the campaign, so having something like a midpoint event to talk about on social media is incredibly useful.  This event is one I would HEAVILY consider making backer-only, even if they’ve only backed you for 1 dollar. ​ You could also let them back at the door from their phone.

Last Few Weeks of Campaign

Individually email everyone you can AGAIN.

​Do the same thing that you did on the first 13 days of the campaign again. Thank the people who donated, and remind the people who didn't to donate again.  ​

Closing Night-Host a celebration (or commiseration) party!

Finally, at the close of the campaign, you’ll need to have a party, whether to celebrate your success or commiserate that you didn’t hit your goal. Either way, you’ll deserve a night of fun because you WILL be tired.

If this seems like a lot, it is. Even once you’ve finished raising, you still need to make the movie. My free Film resource package includes a lot of resources to help you make it and get it out there once it’s done. It’s got a free e-book, lots of templates, and a whole lot more. Click the button below to sign up.

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The 5 Rules to Running a Successful Crowdfunding Campaign

Since my exit from Mutiny Pictures Most of my work, these days is as an executive producer, consultant, distribution representative, and marketer. However, there was a time when I was a filmmaker and a regular (as opposed to executive) producer.  During that time, I raised a total of 33,000 on Kickstarter for two projects.   This blog gives you some of what I learned from those two campaigns.

​While those two projects never went as far as they could have due to a parting of ways between myself and my former business partner, there’s still a lot of information I learned in running these campaigns in the early days of Kickstarter.  Here are 5 of them.

​#1. Prepare

You CANNOT be successful in crowdfunding without preparation, and that preparation starts early.  Generally, your soft preparation for a crowdfunding campaign will start at least 6 months before you launch your campaign.  This soft preparation will consist more of being an active member of your community.  About 3 months out you’ll need to get ready to shoot your video, and about 2 months later you’ll need to get ready for pre-launch. 

I’ll be releasing a preparation timeline in a few weeks, so check back soon!

#2. Grow Your Network

About 80% of your donations will come from people you already know and interact with regularly.  This is why you need to become active in communities that will be interested in your film.  This can be alumni organizations, groups of people enthusiastic about the kind of film you’re making, and any other group of people that are tangentially connected to the film you’re planning on making.
​

#3. ​It’s a Full Time Job, Plan Accordingly

No matter how much preparation you do, when the campaign starts it will be at least one person’s full-time job.  You’ll need to personally thank everyone who donates, and you’ll need to spend a lot of time emailing basically everyone you know individually.  If you’re smart, you’ll do it twice.  Bulk emails aren’t going to do you anywhere near as much good as individual emails, and individual emails take a lot of time. 
​

#4. Try to Get as Much Press as Possible

The best way to add legitimacy to your campaign is to get mentioned in the press.  In order to get that press you’ll need to reach out to any editors and reporters you can that might cover you.  Note that I say editors and reporters THAT MIGHT COVER YOU.  If you know a reporter at Variety, you probably don’t want to email them about your campaign since they’re not going to cover it.  If you grew up in a small town with a local paper, you definitely do.  You’d be surprised what they’ll cover. 

This is something you can work with your prospective crew about as well.  Maybe you’re not from a small town, but your DP or production designer might be.  This can be a very mutually beneficial arrangement, it puts your crew in the spotlight and raises the profile of the film. 

It would be wise to send out a press release via one of the many press release sites.  This will help you generate at least a few articles on affiliates for NBC, FOX, and others that you can use to grow the profile and perceived legitimacy of your campaign.  It also has some SEO benefits, but I’m not sure that would help too much on crowdfunding. ​

#5. DON’T SPAM

Don’t post your campaign incessantly on all of your social media,  Make sure you continue to provide value outside of asking for money while you’re in your campaign.

If you use Messenger to send your campaign to someone, open up a conversation first.  Don’t just copy-paste a form email with no conversation back from them.   

Say hello to someone first.  Ask how they’re doing.  Then send them info about your campaign when they ask what you’re up to. Taking the time to show you care about what’s going on in their life will greatly increase both your conversion rate and the amount each member of your network contributes.

Thanks for reading!  If you like this, you should go ahead and grab my FREE Film Market Resource Pack. It’s got a free e-book of articles like this one to help you grow your filmmaking career, free templates to streamline investor and distributor conversations, and even a monthly content digest that helps you continue to grow your knowledge base on a schedule that’’s manageable to almost anyone. Get it for FREE Below.

4 Reasons Niche Marketing is VITAL to your indiefilm’s Succes

Most people don’t plan to fail, they simply fail to plan.  Similarly, most filmmakers don’t think about anything other than getting the film made until the film is completed.  This is a prime example of failure to plan resulting in a failed project.  In reality, you should be thinking about your target market as early as when you write your script.  If this is your first film, you should be targeting a well defined niche.  Here are 4 reasons why.

Would you Rather Watch than Read?  Here's a video on the same general topic from my YouTube Channel.

Niche Marketing Gives you an audience for your film

I’m sorry to be the one to tell you this, but your film is unlikely to appeal to everyone everywhere.  You’re much better off figuring out what parts of your story will resonate with various groups, and focusing your early marketing efforts on them.  It will put your film in front of the people who it will resonate most strongly with, and it will help you rise about the white noise that every content creator must face, especially when starting out. 

It’s also important to keep in mind that just because your film starts in a niche doesn’t mean that the niche is where it will always live.  If you properly utilize niche marketing, it can actually help you break out of the niche and into the more generalized marketplace. 

Niche Marketing Cuts down on your marketing cost

If you do think that you can target everyone, because your film is just that universally appealing then your marketing expenditures are going to be astronomical.  Also, you’ll be competing directly with movies like Star Wars, The Avengers, and whatever the next Pixar movie is.  Unless you’re a studio head, then you can’t afford to win that competition. 

Utilizing proper niche marketing efforts will dramatically cut down on your marketing expenditure since you’ll know exactly who you want to get your project in front of.  Thanks to social media platforms, you’ll be able to target those people directly using smart advertising buys and strong community engagement from an early stage.

Further, if you do break out of your niche, you’ll already have more noise being made about your project so the costs to market it will be much smaller.

Niche Marketing Can help you fund your film

If you start to get involved in niche communities well before you make your film, then you’ll have a community that you can mobilize to help you raise a portion of your funding through donation-based crowdfunding.  To be clear, if you simply post your campaign over and over to the various communities you want to support your campaign.  You’ll have to ingratiate yourself into them well before starting a campaign.

​The Reason that these people may well be willing to support your campaign is that many niche communities are underserved, and want to have their story shared. 

 They want to see more media made about their interests and themselves as a community.  They want their story told.  Many of them, are willing and eager to make it happen.  This brings us to our final point.

Niche Marketing Gives you advocates for your film

No Films can market themselves completely on their own. They need to get a core group of people to help spread the word. Niche marketing can be a huge help for getting the people who are most likely to be your strongest advocates onboard early. As mentioned above, they’re the people who care the most about your subject matter. They’re the people who will seek out your content and show it to your friends because they identify with it so much.

No one can create advocates, you must find them. The most likely place to find them is within the various underserved niches that have plenty of stories that need to be told. 

Thanks so much for Reading. If you like this and want more, check out my FREE Film Business Resource Pack! You’ll get a free e-book on the business of entertainment, a set of highly useful templates, and a whole lot more. Check it out below.

The Two Main types of Financial Projections for an IndieFilm

As a key part of writing a business plan for independent film, a filmmaker must figure out how much the film is likely to make back.  This involves developing or obtaining revenue projections. 

There are generally two ways to do this, each with its own advantages and disadvantages.  The first way is to do a comparative analysis.  This means taking similar films from the last 5 years and plugging them into a comparative model to generate revenue estimates.  The second way is to get a letter of intent from a sales agent and get them to estimate what they could sell this for in various territories across the globe. 

This blog will compare and contrast these two methods (Both of which I do regularly for clients) in an effort to help you better understand which way you want to go when writing the business plan for your independent film.

Would you Rather Watch/Listen to this than read it? Here’s a corresponding video on my YouTube Channel!

Comparative Analysis - Overview

A comparative analysis is when you comb IMDb Pro and The-Numbers.com to come up with a set number of comparable films to yours.  These are films that have a similar genre, similar budgets, similar assets, are based on similar intellectual property, and are generally within the last 5 years.  If you can match story elements that are a plus, but there are only so many films with the necessary data to compare. 

When I do it, I compare 20 films, average their ROIs from theatrical, pull numbers from home video wherever I can (Usually the-numbers.com), and then run them through a model I’ve developed to come up with revenue estimates.   Honestly, I don’t do a lot of this work.  Most of the time I refer it to my friends at Nash Info Services since they run The-Numbers.com and the brand behind these estimates means a lot to potential investors. 

I will do it when a client asks though, generally as a part of a larger business plan/packaging service plan.  

Sales Agency Estimates - Overview

Sales Agency Estimates are when you get a letter of intent from a sales agent, and as part of that deal the sales agent prepares estimates on what they think they can sell the film for on a territory-by-territory basis.  Generally, they work from what buyers they know they have in these territories, whether or not they buy content like this, and what they normally pay for content like yours. 

These estimates are heavily dependent on the state of your package, who’s directing your film, and who’s slated to star in it.  If you don’t have much of a package and a first-time director, then you’re not going to get very promising numbers.  ​

Comparative Analysis - Benefits

Generally, anyone can get these estimates.  Some people figure out the formula and do it themselves, others pay someone like me or Bruce Nash to do it for them.  There’s either a not insubstantial fee involved or a lot of time involved in getting them. They’ll generally satisfy an investor, especially if Bruce does it. 

Sales Agency Estimates - Benefit

The biggest benefit to a sales agency approach is that if they’re doing estimates for you, they’re probably going to distribute your film.  Also, these estimates have the potential to be more accurate, because they’re based on non-public numbers on what buyers are paying in current market conditions.  Finally, if a sales agent has given you an LOI, these estimates are generally free.

Comparative Analysis - Drawbacks

The first drawback is likely that they’re either very time intensive or somewhat costly to produce.  Also, because VOD Sales data is kept under lock and key, it’s very difficult to estimate total revenue from VOD using this method.  Given how important VOD is, that’s a somewhat substantial drawback.

Further, these estimates are greatly helped by the name value of who made them.  Likely, if the filmmaker makes them themselves, then they’re not as viable as if someone like Bruce or Me does them.  This is not only because we both have a track record in them, (Bruce much Moreso) but also because we’re mostly impartial third parties. 

These revenue estimates can be very flawed if a filmmaker makes them because many filmmakers have a tendency to only pick winners, not the films that lost money.  In business, we call this painting too blue a sky, as it makes everything look sunny with no chance of rain.  In film, there’s always a substantial chance of rain. ​

Sales Agency Estimates - Drawbacks

The biggest drawback to these estimates is that not everyone can get these estimates.  You have to have a relationship with the sales agency for them to consider giving them to you.  Generally, you’ll need to have convinced them to give you an LOI first.  That’s not always the case though. 

If you have a producer’s rep, they can sometimes get you through the relationship barrier, but they’ll often charge for doing so when we’re talking about a film that’s still in development. 

Also, Sales agencies can sometimes inflate their numbers to keep filmmakers happy and convince them to sign.  This does not look good to investors if that money never comes in

Conclusion

Overall, which method you use to estimate revenue depends entirely on what situation you find yourself in.  If you have the ability to get the sales agency estimates, they can be VERY strong, if you don’t, the comparative estimates are reliable enough to do what you need them to do.  That being said, I wouldn’t advise taking a comparative analysis to a sales agency. 

Thanks for Reading! Creating revenue estimates is only part of raising money for your film. There’s a lot more you’ll need to know if you want to succeed. That’s a large part of why I created my indie film resource package, to help filmmakers get the knowledge and resources they need to grow their careers. It’s totally free and has things like a deck template, free e-book, and even specialized blog digests sent out on a monthly basis to help you understand how to answer the questions your investors will almost certainly have. Check it out at the button below.

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7 Realistic ways to Find First Money In on your Feature Film.

When fundraising for anything, the first money is always the hardest.  Investors don’t want to be the first in due to the investment seeming untested.  So in order for them to feel more secure, you might need to raise some of the money in other places.  Here are the 7 most realistic places for filmmakers to go to get first money in. ​

First money in isn’t meant to be the entirety of your budget.  It’s only meant to be about 10%.  Having raised 10% of your budget helps investors see that you’re serious, and aren’t going to require them to do all of the funding work themselves.  With that in mind, almost every item on this list is not meant to fund your entire movie, but more serve as a jumping-off point to help you raise the funds you need to make an awesome film. 

Highly Related: The 9 ways to Finance your Independent Film

1. Donation based Crowdfunding

I know most filmmakers really don’t want to hear about crowdfunding, but it’s still one of the best ways to serve as a proof of concept for a film.  It’s also a great way to get first money in.  Specifically for this example, I’m talking about donation based crowdfunding.  I’m far from an expert in equity crowdfunding, and while there’s potential in the idea, it’s unclear how it should be executed. 
​
That being said, donation based crowdfunding can be an excellent way to get the project rolling, and get further into development.

2. Tax Incentives

Depending on where you’re planning on shooting, Tax incentives can be a great way to get a portion of your funding in place.  If you’re in the US, then shooting in Kentucky can get you as much as 35% of your budget.  Granted, that will go down to about 30% once you take out a loan against it so that it becomes real money instead of a letter of credit.  That loan will be fairly low interest, since Kentucky’s incentive is structured as cash.

There are a lot of things I could go into about tax incentives, but it’s more than I can cover in this blog.  I might make a future blog or video about it Comment and ask.

3. Grants

There aren’t a lot of development stage grants out there, and as such the few there are tend to be in very high demand.  However, if you can get some portion of you money via a grant from the Kenneth Rainin Foundation or some other development stage granter, then it cuts the risk for your investors and gives you first money in. 

Keep in mind, most organizations that give grants turn you down automatically when you first apply. It can be wise to apply multiple years in a row while you try to get this film, or other films off the ground. 

4. Equipment Loans

An equipment loan is a relatively low interest loan that uses any equipment you own as collateral for the money that’s being lent.  I understand that this is a scary prospect for many filmmakers (With good reason) but it can be a way to get money into the project at an early stage, and serve as your first money in.
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It’s also important to note that debts are paid off before equity is paid back, so your loan would be repaid and your equipment secured before any future investor got their money back.  Of course, this isn’t always the case, but it generally is. 
​

5. Personal or Business Credit

There are a few people who will loan money for films based on your personal credit.  Sometimes it will be a business loan, sometimes it will be an insanely high limit credit card, but in the end it can be the money you need for development.  It’s not ideal, but it can be a way to get your movie to the next level. 

If you’ve been making corporate videos through your entity for a number of years your business may have enough credibility to take out a moderaate interest loan from a bank against your future corporate video earnings.

In general, this will be a percentage of your previous earnings according to you last few tax returns and whatever debt burden the business has from general operations. This is best used to offset time away from corporate work as an expansion into a new product line, I.E. your feature film.

This would most likely be considered an unsecured loan, which means it’s higher interest than the equipment loan or anything of the sort like that.

If you do go down this road, you should not forget that it often takes 12 to 18 months from delivery to a distributor to start earning royalties, and that’s not accounting for the minimum of 9-12 months to make the film and deliver it to a distributor. The interest over the course of a term like that might be hard to bear.

I should stress I’m not a lawyer or financial advisor. You should check with yours before acting on anything on this list, especially anything that’s debt base.

6. Wealthy Friends and Family

If you’re lucky enough to have accredited investors in your friends and family, then this can be a good way to get your first money in.  Investors normally invest in people as much if not more than projects, so approaching someone you already know is generally an easier ask than someone you don’t.  Since this blog is about getting first money in, having an investment from a wealthy friend or relative can be the quickest and easiest way to get over that hurdle.
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Of course, in order to raise money from wealthy friends and family, you must HAVE wealthy friends and family.  If your friends and family ARE NOT Accredited investors, then it’s best to include them in a donation-based crowdfunding round.  While the SEC (Securities and Exchanges Commission) has loosened requirements for high-risk and small business investments since the JOBS Act, they’re still very strict when it comes to high risk investments, and it would be better for you to not run afoul of them. ​

7. Equity Investment

Finally, if you don’t have wealthy friends and family, you can chase equity investment.  Normally this means that you would approach the person who owns the car dealerships in your neck of the woods, or other local business leaders.  If you can get a meeting to talk to them about investing in a movie, there’s a chance that the excitement of it might help you raise a portion of your funding. 

Mind you, this is not an easy sale.  It’s going to take a skilled salesperson to pull it off, and a lot of research into why someone like this person who owns the car dealerships would want to invest in your project. 

Thank you for reading! If you found this content valuable, check out my FREE film business resource pack. It’s got a free e-book on the indiefilm biz featuring 21 articles around similar issues covered in my blog. Around half of those articles can’t be found anywhere else. Additionally, you’ll get an indiefilm deck template you can use to create a deck for investors, contact tracking templates, form letters, and a whole lot more! Check it out below.

5 Steps to Vetting your investor

Just like all filmmakers and Entrepreneurs are not created equal, nor are all “Rich Guys.” Many will jerk you around, and not actually deliver on what they promise. So how do you know if your potential investor is legit? Well, here are a few tips.

Note: This Article is largely in response to a piece by Jason Brubaker at Filmmaking stuff. Overall it’s a good piece, but I felt it lacking a few things so I’m expanding it with my thoughts. You can find the original article here. Even though Jason was a bit too involved with Distribbr and that whole debacle, he did make some good content so my response blog is getting a port.

1. Look them up online (Duh)

You need to know who you’re dealing with, so before you meet with them you should do some diligence. The goal of this step is just to ensure they have money, and get an idea of whether they’ll be likely to spend it.

You want to find out what they’ve done, and where they got their money. Generally start by looking them up on AngelList and Slated. These sites do some pretty deep vetting for to make sure that investor members are accredited. They’ll also list the previous investments of the investor, so you can see how they stack up against yours.

Slated is strictly for film, AngelList is focused on Tech. If they have active profiles on these sites, then you know that they are active investors. Active investors are more likely to invest.

If they don’t have either of those profiles, look at their LinkedIn. Generally Linkedin will show you previous positions, if they have multiple executive positions at companies with more than 15 employees, or list that their company was sold to a bigger company they probably have excess capital to invest.

If you’re too far away from them to see their full Linkedin profile, google them. If they have a profile in Forbes or Bloomberg, you’re set. If they have a ton of lawsuits or if you find something saying they, I Don’t Know, tried to buy a baseball team but were laughed out of the room then lambasted by a major newspaper, maybe steer clear. Totally not at all a real example, by the way.

2.Look at what they’re wearing and what they’re driving.

As Brubaker says, this technique is far from perfect. Sometimes the guy in the three-piece suit has less capital than the girl in the jean jacket and yoga pants. However, there are some things you can take into account. Fashion is highly dependent on the area you live in. Here in Silicon Valley, it’s common for the people in sweats to be worth more and be more likely to invest than the suits. Try to understand the cut of the clothes, and get an eye for designers. I know some people who wear T-shirts that cost more than I paid for my first Armani suit. Admittedly, I bought that suit secondhand.

But there are some constants. Before you look at the clothes, look at the shoes. People, especially men, overlook the importance of shoes to the overall aesthetic, but they’re a relatively constant indicator of wealth. Watches are also a good indicator of status.
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Whatever make or model of car they drive will give you a good idea of how much they’re worth. Generally make is better than model, for example, hybrids are big here in the bay. for a time, a Prius was a status symbol. Now that most luxury brands have a hybrid, the make is generally a good metric to judge by. Teslas are still a great indicator.

​3.Do they pick up the check?

Here’s one that I totally disagree with Jason on. He makes the point that if he can’t pick up a 50 check you’re not getting a 50,000 dollar check from them. Whether or not an investor picks up the check is largely dependent on a few factors. If they’re an independent angel investor, they can take about 8 meetings with entrepreneurs a week. If they always picked up the check, they wouldn’t be an accredited investor for long. Also, most of the rich guys I know are surprisingly stingy.

Generally, if it’s a first meeting I split the check. I pay for my seat at the table, they pay for theirs. A fear of many legitimate angel investors is whether or not the entrepreneur is going to carry their weight, so in a way splitting the check is symbolic of what a good relationship with an investor should be. Future meetings are up for debate.

4. If they’re talking about “Money Coming In” it’s BS.

Jason is completely correct on this one. Unless the startup they were one of the first ten employees at a is about to IPO, (You can google that, and easily fact-check it) that money won’t come in.

However, if they say their money is tied up, that’s a different story. Savvy Rich people don’t let their money sit in a checking or savings account. They invest it. Most of the time, they’ll have a respectable stock portfolio. That means they’ll have to sell something (Liquidate Assets) in order to free up money to invest in your projects. Here’s a tool to help them to do that.

5. Is it too Easy?

It may sound counterintuitive, but if it’s too easy to get the check that should be a huge red flag. I’ve worked in Silicon Valley and Hollywood, and it’s never easy. It requires finesse, charisma, and luck. Just like you need to do your homework, your investors need to do homework on you. They will need a deck, a business plan, and a good relationship in order to give you a check.

This analogy is crass, but the more I play this game the more I realize the truth behind it. Getting investment is like dating. You have to get to know each other first. Then you figure out if you like each other you figure out if you could work well together. Finally, after 3–7 excellent meetings and more phone calls and messages, you get into bed together. Often the more meetings it takes to get into bed, the better the relationship will be. That’s not always the case though.

If you want more like this, you should grab my free film market resource package. It’s got lots of templates to help you talk to investors and distributors including deck templates form letters, and tracking sheets as well as money-saving resources and a free e-book.

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The 9 Ways to Finance an Indiependent Film

A lot of Filmmakers are only concerned with finding investors for their projects. While films require money to be made well, there’s are better ways to find that money than convincing a rich person to part with a few hundred thousand dollars. Even if you are able to get an angel investor (or a few ) on board, it’s often not in your best interest to raise your budget solely from private equity, as the more you raise the less likely it is you’ll ever see money from the back end of your project.

Would you Rather Watch or Listen than Read? I made a video on this topic for my YouTube Channel.

So here’s a very top-level guide to how you may want to structure your financial mix. The mixes in the image above loosely correspond to the financial mix of a first-time film, a tested filmmaker’s film, and a documentary. They’re also loose guidelines, and by no means apply to every situation, and should not be considered financial or legal advice under any circumstance. This is just the general experience of one Executive producer.

Piece 1 — Skin in the game. 10–20%

Investors want you to be risking something other than your time. The theory is that it makes you more likely to be responsible with their money if you put some of yours at risk. This can be from friends and family, but they prefer it come directly from your pocket.

I've gotten a lot of flack for this.  However, the fact investors want skin in the game is true for any industry or any business.  Tech companies normally have skin in the game from the founders as well, not just time, code, or intellectual property.

However, if you’ve got a mountain of student debt and no rich relatives, then there is another way…
​

Piece 2 — Crowdfunding 10–20%

I know filmmakers don’t like hearing that they’ll need to crowdfund. I understand it’s not an easy thing to do. I’ve raised some money on Kickstarter and can verify that It’s a full-time job during the campaign if you want to do it successfully. However, if you can hit your goal, not only will you be able to put some skin in the game, and retain more creative control and more of the back end but you’ll also provide verifiable proof that there’s a market for you and your work. Investors look very kindly on this.

That said, just as success provides strong market validation as a proof of concept, failing to raise your funding can also be seen as a failure of concept. and make it more difficult to raise than it would otherwise have been. Make sure you only bite off what you can chew.

Due to the difficulty in finding money for an independent film, the skin in the game or crowdfunding portion of the raise for a director’s first project is often a much higher percentage of the raise than it will be for their future projects.

Piece 3 — Equity 20–40%

Next up is equity. This is when an investor gives you money in return for an ownership stake in the company. From a filmmaker's perspective, it’s good in that if everything goes tits up, you don’t owe the investors their money back. Don't misunderstand what I mean by this.  You ABSOLUTELY have a fiduciary responsibility to do your due diligence and act in the best interest of your investors to do absolutely everything in your power to make it so they recoup their investment.  If you do that, or if you commit fraud, your investors can and likely will sue the pants off of you. You’ll have an uphill battle on that as well since they probably have more money for legal fees than you do.

Also, you will need a lawyer to help you draft a PPM.  You shouldn't raise any kind of money on this list without a lawyer, with the possible exception of donation-based crowdfunding or grants.  In general, just remember that I’m a dude who produced a bunch of movies who writes blogs and makes videos on the internet. Not a lawyer or financial advisor. #Notlegaladvice #Notfinancialdvice #mylawyermakesmewritethesesnippets.

It’s bad in that if everything goes extremely well, they get a huge percentage of your film. So it deserves a place in your financial mix, but ideally a small one.

For a longer list of my feelings on this topic, check out Why film needs Venture Capital, or One Simple Tool to Reopen Conversations with Investors

Piece 4 — Product Placement 10–20%

Product placement is when you get a brand to compensate you for including their product in your film. It’s more common in the form of donations or loans for use than hard money, but both can happen with talent and assured distribution. If you’re a first-timer, it’s difficult to get anything other than donated or loaned products.

Piece 5 — Presale Backed Debt 0–20%

Everything you read tells you the presale market has dried up. To a certain degree, that is true. However, it’s more convoluted than you may think. According to Jonathan Wolfe of the American Film Market, the presale market has a tendency to ebb and flow with the rise and fall of private equity in the filmmaking marketplace. There’s been a glut of equity for the past several years that’s quickly drying up.

 That said, there are a lot of other factors that will determine where pre-sales end up in a few years. The form has shifted, in that it’s generally reputable sales agents that give the letters instead of buyers and territorial distributors. You then take that letter to a bank where you can borrow against it at a relatively low rate.

Piece 6 — Tax incentives 10%-20%

While many states have cut their filmmaking tax incentives, it’s still a very viable way to cover some of the costs of making your project. It is worth noting that the tax incentive money is generally given as a letter of credit, which you can then borrow against or sell to a brokerage agency. It’s not just a check from the state or country you’re shooting in. This system of finance is significantly more viable in Europe than it is in the US, but no matter where you plan on shooting it needs to be part of your financial mix.

Piece 7 — Grants 0–20%

There are still filmmaking grants that can help you to make your project. However, that’s not something that is available to all filmmakers, especially when they’re first making their projects. Don’t think grants don’t exist for you and your project, because they probably do, spend an afternoon googling it. My friend Joanne Butcher of www.FilmmakerSuccess.com suggests applying for one grand a month for the indefinite future, as when you do so you’ll develop relationships with the foundations you contact which can be invaluable for your career growth.

Grants are much easier to get as a completion fund once you’ve shot your film. Additionally, films made overseas are more likely to be funded by grants than those shot here in the US.

Piece 8 — Gap/Unsecured Debt 10–40%

Gap debt is an unsecured loan used to create a film or television series. This means that the loan has no collateral, be it product placement, Presale, or tax incentive. It used to be handled by entertainment banks for a very high interest rate, I can’t say who my source was on this, but I have heard of interest rates in excess of 50% APR. That market has been largely taken over by private investors loaning money through slated, which did bring interest rates down. Unsecured debt almost certainly requires a completion bond, which generally means that it’s only suitable for projects over 1mm USD in budget.

In general, you should use this form of financing as little as possible, and pay it back as quickly as possible. Again, Not legal or financial advice.

Piece 9 — Soft money and Deferments — whatever you can

Soft money is funding that isn’t given as cash. This can be your crew taking deferred payment for their services, or receiving donated or loaned products, locations, and anything else meant to get your film made. This isn’t so much funding as cost-cutting. It often includes donations or loans from product placement.

If you like this content and want to learn more about film financing, you should consider signing up for my mailing list. Not only will you a free e-book, but you’ll also get a free deck template, contract tracking templates, and form letters. Plus you’ll stay in the know about content, services, and releases from Guerrilla Rep Media.

How do we Get More Investors into Independent Film?

Throughout writing this blog series, I’ve been told more times than I can count that film is a terrible investment, and no one besides hobbyists would consider it.  Many want to leave it there, without bothering to look at what’s causing it.  Last week we thoroughly examined the issues plaguing the film industry, and what keeps investors out.  The issues aren’t pretty, but they may be fixable.  What follows is a list of what could be done to fix this problem and some of the ways organizations that are implementing these tactics.

Greater Transparency

One of the biggest things stopping film investment is the perception that it’s unprofitable.  All too often that’s not simply a perception.  Another thing stopping independent film as an industry from being profitable is the fact that many sales agents don’t accurately report the earnings of the films they represent.  Others charge too much in recoupable expenses, so it’s unlikely to recoup.  Some take an unreasonable portion of the revenue or simply hide sales from filmmakers. 

One necessary problem to fix is the lack of transparency within distribution.   There are rights marketplace solutions like Vuulr and RightsTrade emerging thanks to recent technologies for international distribution. Aggregators like BitMax and FilmHub have been around for a while already.  The issue that these platforms have yet to solve is that of both audience and industry awareness of their project. If a filmmaker can market or receive help with that audience discover and marketing, then in theory the entire process can be disintermediated and filmmakers can sell directly to customers using a marketplace.  Unfortunately, this discovery issue is still both time-consuming and expensive.  

What about a hybrid system?  One where a skilled group works with distributors and sales agents to sell the completed films at the maximum possible profit to the investors and production company.  What if those groups were directly linked to protecting the investor’s interests, and gives sales agents capital for growth and new projects?  Then the sales agents would have much better incentives to ensure the companies that license their content to them get a strong return.

That would seem like a solution, but we’ll get to it.  There are other problems to delve into first.

Better Business Education for Filmmakers.

I touched on this in my last blog, but filmmakers don’t understand the business well enough to function as media entrepreneurs.  Traditionally, specialists such as executive producers, PMDs, and true producers focused on the marketing and supported projects so that the writers, directors, creative producers, and line producers could focus on making the project.   With film sets getting leaner, there aren’t enough of media entrepreneurs doing their jobs. ​ (although I take on this role from time to time.)

In essence, there isn’t enough of a skilled entrepreneur class capable of making and selling films as a product either directly to consumers or to distributors, sales agents, and other industry outlets.   So long as filmmakers don’t understand business, they’ll never be able to break out and get what they and their films are worth.  If filmmakers don’t endeavor to understand business, they will be unable to communicate with investors and understand where they come from well enough to make a sustainable living in film.  This issue is exacerbated by the fact that film schools don’t teach any of these skills as well as they should. ​

Filmmakers want to make the movie, and they will stop at nothing to get that done.  As a result, promoting the film becomes an afterthought far too often.  What would be ideal is if these educational organizations could tie into an angel investment group or community.

But what about integrating with an investor class and/or investment group?

Educated Investor Class

Investors generally understand business, but the film industry is ripe with its own nuances and idiosyncrasies.  Investors need to know how money flows from them to create the product, then to take the product to market through various forms of distribution, and how that money eventually gets back to that same investor. Investors need tools to tell when someone is offering a con instead of an investment.  It’s not the easiest thing to find information on, and when they do it’s focused more on the filmmaker than the investor.  

If an investor doesn’t understand the issues within the film industry, then it’s less likely they’ll be able to properly vet an investment.   If that same school that teaches filmmakers business, could teach investors about the nuances involved in the film industry, then there could be something of a connection point at a different sort of event.  

Curators and tastemakers with Access to MEANINGFUL Distribution.

Just because an investor knows about how money comes in and out of the film industry doesn’t mean they can find quality films in which to invest.  Being a professional Investor is all about quality deal flow. Indiefilm success tends to make less money than a successful technology startup, so curation and guidance is even more important.  

Sure, nobody knows everything, but a curated eye can help separate the wheat from the chaff.  Most investors don’t have a trusted source to review projects for feasibility and potential returns.  Investment is about more than just money.  Investors often act as business advisors.   Unfortunately, not enough angel investors understand the industry well enough to do that effectively.  However, if the curation board also acted as advisors on the projects, then the potential returns get much higher.   

As an example, if that board had access to distribution, then you could cut out the biggest risk of investing in film.  A member of the curation board could get the films to the proper PayTV, TVOD, SVOD and other distributors to help the fund managers.  ​

A way of Discovering new talent

It’s always been a problem to find the next Quinten Tarantino, Jennifer Lawrence, or Jason Blum.  Everyone has heard stories of how everyone in Hollywood is related.  While it's more true than anyone wants to admit, the on set path to grow your career has become more difficult and less sustainable than it once was.  

It's not an easy problem to solve.  It’s difficult to tell the difference between that person who’s DEFINITELY going to be the next big thing but ends up washing cars two years later and the dweeby 20 year old who no one thinks will ever make anything of themselves makes millions at the box office on their directorial debut. This problem may be the most difficult of any listed.

Making your first film is incredibly difficult.  It’s also very difficult to get it financed.  From an investor perspective, they put in all the money up front ant they’re the last to be paid.  It’s incredibly high risk with little reward.

Marketing a film is also quite difficult, and generally involves additional expenditure when the coffers are dry.  This has killed many films before they saw the light of day.  If a fund were to offer finishing funds to new filmmakers, they keep their risk incredibly low while opening up new discovery options.   

Sure, it doesn’t help get the film made in the first place, but it can help get it finished and out there.   The barrier to entry of having a nearly completed film also cuts down on the pool of potential applicants in a way that necessitates them showing they have the mettle to actually make something. That fund could also give preference to successful filmmakers for their second, third, and fourth projects.  Such a system could enable a fund to retain the quality people they need to make a successful organization, while still opening the ranks for discovery.

Staged Financing

Investment in film is inherently speculative an as a result incredibly high risk.   But the risk could be made lower by borrowing some techniques from Silicon Valley VCs.  Instead of funding 100% of a film upfront in equity, an investor could stage their investment over the course of the film, at key points where the filmmakers would require more money.   

It’s not something that could be done with a  simple line in the sand due to the difficulty in getting recognizable name talent on board the project, but there are systems that could be used to mitigate risk while maintaining the ability to make high-quality name-driven projects that have a higher chance of financial success than directorial debuts with no names attached.  It’s not a magic bullet, but it could mitigate the problem enough for other solutions to be more possible.  

Staged financing would make it much more approachable for investors, since the risk to the individual investor is significantly smaller.  But there are ways an organization could further limit the risk. How you ask?

Same Funder Providing different securities. ​

As mentioned in part 6 of this series, equity investors are the last to be paid on most projects due to where they fall in the waterfall in relation to Platforms, Distributors, Sales Agents, and the like.  This is due in part to filmmakers needing to secure debt-backed securities from different funders in order to complete the project. These debt-backed securities must be paid before the investors are, which further disincentives the equity investment from the original investors.   

But what if the different securities were made available from the same group? That way a fund could offer the same pool of investors the last in first out debt in order to protect the interest in their equity position. From my vantage, that would seem to protect both the investor and the filmmaker by enabling the investor to mitigate risk and the filmmaker to maintain greater ownership of their projects, and a higher profit share once the debt is paid off.

Thanks for reading. This one required A LOT of rewriting as part of the archive transfer/website port. If you made it this far, you should sign up for my email list to get my free film business resource pack. You’ll get blogs just like this one segmented by topic, as well as a free e-book, investment deck template, contact tracking templates, form letters, and more!

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6 Things stopping a sustainable investor class in film.

Much of this series has been focused on the numbers behind film investment.  While metrics like ROI and APR are very important when considering an investment, they’re not the only reason that high-net-worth individuals (HNWIs) tend to shy away the film industry. Here are 6 things that are stopping them.  

In order for independent film to develop a sustainable investor class, the asset class itself needs to be taken more seriously.   The reason that no one has yet been able to create a sustainable asset class out of film and media is much more complicated than the numbers not being in our favor.  In this post, we’re going to examine some of the other things stopping independent film from becoming a sustainable asset class.  This list is in no particular order, except how it flows best.

1. LACK OF INVESTOR EDUCATION

Investors tend not to invest in things they don’t know or understand, at least as anything more than an ego play.  The Economics behind film investment is difficult to understand even before you factor in how difficult it is to find reliable information on film finance from an investor’s perspective.  

Even the basics of the industry can be difficult to learn.  Generally, film investors are forced to read older, often out-of-date books on film financing targeted more at filmmakers than at investors.  This industry is in the midst of a reformation, so much of the information is out of date before it’s published.  Most investors don’t really spend a long time learning information from a different perspective which may or may not be correct.  

Whit that in mind, many Investors learn how money flows in the Film industry from the filmmakers they invest in.  Apart from the conflicts of interest, there’s another rather large problem with that strategy.

2. FILM SCHOOLS DON’T TEACH BUSINESS AS WELL AS THEY NEED TO

Film Schools can be great at teaching you how to make a film, but they’re generally not good at teaching necessary business skills.  Even things as basic as general marketing principles, how best to finance a film, or how to make money with a film under current market conditions.  

While film and media are an artistic industry, focusing solely on the quality of the film is not going to recoup the investor’s money.  Film Schools aren’t great at teaching branding filmmakers how to define their core demographic, or how to access them once they have.   

3. DISTRIBUTION ISN'T WHAT IT USED TO BE.

The big risk in film distribution used to be the gatekeepers.  You had to make a good enough film to attract a distributor so you could get your film out there.  However, that problem has been traded for an entirely different one, oversaturation of content. I would argue that a new problem is harder to overcome. 

The old model was that the home video sales would be able to make a genre film profitable, even if it wasn’t that good.  Essentially, if you had access to a wide-scale VHS or DVD replicator, you could make a mint selling the licenses.   There wasn’t much competition, so a cottage industry sprung up around film markets.

That model worked when it was much more expensive to make a film.  Given the high barrier to entry from needing to raise enough money to shoot on film, as well as develop the skills to expose it correctly, there was relatively little competition compared to the demand.  However, now that anyone can make a film with an iPhone and 500 bucks the marketplace has been flooded.   

Additionally, since the DVD Market has all but dried up, it’s difficult to make a return for newer filmmakers.  VOD (Video On Demand) Numbers haven’t risen to the occasion, since most people can get their fix from watching Netflix.  It used to be easy to sell DVDs as an impulse buy at the checkout line.  Now that everyone has hundreds of free movies at their fingertips, Why should they pay 3 bucks to watch something when there’s an adequate alternative I can get for free?  

So the problem is now less how to get distribution, and more how to market the film once you’ve got it.  It’s both hard and expensive to market a film.  Generally, it’s best to create something of a hybrid between these two types of Distribution.  However, there are issues with that as well, and these are less associated with expertise.

4. SEVERE LACK OF TRANSPARENCY IN INDEPENDENT FILM

I’ve written before about the lack of transparency in Distribution, so I won’t go into too much detail here.  In Essence, the black box that is the world of film distribution is very intimidating to many investors.  Investors want to be able to know when their money is coming back, and many filmmakers are unable to make any real promises about that.   However, there’s another issue with transparency from an investor’s perspective.

Unfortunately, many filmmakers don’t communicate well with their investors or other stakeholders.  I’ve spoken with many film commissioners, investors, and others about their frustrations with filmmakers not keeping them in the loop. 

Filmmakers understandably focus on the admittedly difficult task of making the film happen.  Between all of the tasks like scheduling and budgeting the film, finding the locations, confirming the crew, making the shotlist and storyboards, sending out call sheets, and a whole lot more, it’s easy to let communication fall by the wayside.

5. INVESTORS LAST TO BE PAID

Now I know that Filmmakers are reading this thinking “BUT I GET PAID AFTER THEY GET 120% BACK!?!?” To a level, you’re right.  However, unless you waived your producer’s fees, you got paid before they did.   Sure, you did a lot of work for often too little money to make your film happen, but you did get a fee to produce this film.  If your investor wanted to be cynical about it, you produced or directed a movie for hire that you got to take most of the credit for.

Here’s what a waterfall for a film normally looks like.   Investors generally did a lot of work to get their money, and now they’ve paid you to make a film and it’s unlikely they’ll ever get all of their money back.  ​

1.Buyer Fees
2.Sales Agent Commission
3.Sales Agent Expenses
4.SAG/Union Residuals
5.Producers Rep (If Applicable.)
6.Production Company
      7.Gap Debt (+Interest)
      8.Backed Debt (+Interest)
      9.Equity Investor

I may be persuaded to do a financial analysis of what that would actually look like in terms of money. Oh look, I did a blog explaining exactly what this means.  Click here to read it. 

6.LACK OF ACCESS TO TASTEMAKERS AND CURATION

We explored the numbers of why indexed film slates just don’t work in part two.  However it takes a fair amount of training, experience, and a bit of luck to recognize what films will hit and what films won’t.   While William Goldman is famous for saying “nobody knows anything,” there has to be a balance between a dart board with script titles and industry experts guiding the ship.

Developing an eye for what makes a successful film is something that most prospective film investors don’t want to take the time to learn, especially since many get burned on their first investment.  it takes a lot of time to understand what projects have what fit in the market, and that’s generally not something that an investor has time for. 

Having a few sets of experienced eyes looking over what investments would be good to fund is something that could make independent film a more sustainable asset class, and not enough investors have access to it to avoid getting burned.   

So, what is there to be done about it?  Check the next post for the final installment, How do you make a sustainable asset class out of film?

Also, if you like this content you can get a lot more of it through my mailing list. You’ll also get a FREE film business resource package that includes an investment deck template, contact tracking templates, money-saving resources, a free e-book, and a whole lot more. Again, totally free. Get it below.

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Diversification and soft incentves in the film industry.

In this blog series, we’ve been talking a lot about why filmmakers would invest in an independent Film.  Sadly, if you go by numbers alone the answer is that they shouldn’t.  Film investment is an unpredictable, volotile, high risk endeavor.  But, if you’re the type that isn’t scared by that, there are some reasons to considerer it.  Sure, it will probably never make you as much money as tech, but it might has other benefits that aren’t offered by tech investment.

1. Smaller Potential Downside

If a Tech company fails to exit, generally you’re out everything you put in.  Films exit once they’re completed, and investors begin recouping when they do.    Further, a smart filmmaker won’t fund their project solely by equity, si the investor is more likely to get their money back.  So, while you may not have be able to find a decacorn, the potential to lose everything you put in is somewhat less likely.  It can be even less likely if you invest in finishing funds.  

2. Tax Credits

Nobody likes to pay Uncle Sam, most people would rather see their name in lights than pay the government.   Many states offer a tax incentive to get filmmakers to attract productions outside of territory.  Often, those incentives are structures as tax credits an investor could buy at about 85-90 cents on the dollar.   Other commissions offer it as a rebate that goes back to the filmmakers and subsequently back to the investors, if it’s not re-invested to finish the film.  

3. Diversification

A strong investment portfolio is a diversified investment portfolio.  Some industries do better than others when times are tough.  Historically, Film is a sector that’s somewhat reversely dependent on the economy.  That means when there’s a downturn, film investments sometimes do better.  The period of greatest growth was in the great depression, and until recently it’s still been one of the least expensive ways to get out of the house.  

But will that continue to be true?  Perhaps not.  Theater sales are continually declining, and DVD sales are in the toilet.   However, in todays world, most independent films never get a theatrical release.  if they can market themselves to the right audience, they can still make sales to people in their homes, for less than a cup of coffee.  Admittedly that marketing job is no small feat.

Even if you don’t want to invest in social activism, you can enable an artist to create something that brings joy into the hearts of countless people.  Sometimes by scaring the pants off of them.  The arts are more than just storytelling, they help us communicate who we are as a people.  In many ways I know more about Luke Skywalker than I do about my uncle, and more about Harry Potter than most of the people I went to my real high school with.  These cultural touchstones have a huge impact on who we are as a society.  

The US is terrible about helping to fund the arts and culture, so to some degree it comes down to society itself to perpetuate it’s own culture.  If you can afford to help filmmakers make better movies, you should consider it

4. Supporting Arts and Culture

While every cultural or artistic entrepreneur should learn how to make their money back, it’s not the sole purpose of any cultural or artistic endeavor.   It’s about communicating an idea, perhaps for entertainment or perhaps to spend a different level of consciousness.  

If there’s a cause you care about, you should fund some filmmakers looking to do more to spread awareness of that cause.  Then when you tell your friends to watch it to share your views, you also get the benefit of making a sale.  Many ideas were only able to take root through the power of mass media.  ​

5. Non-monetary incentives.

We all have hobbies, most of them cost us far more than they make us.   If you’re the sort of person who can afford to lose 5 figures here or there, investing in films can be very interesting.  if you can’t afford quite that much, you may want to look into different funds.  I’m in the process of starting one, you can find out more here. 

Some of my best friends became my friends because we talked about the money behind the film industry.  These non-monetary incentives might even be useful sooner than you would think.  If you start networking with filmmakers you may even get a deal when it comes time to make your next whiteboard video from the filmmakers you invested in.  ​

6. Do something other people aren’t

I hear you.  that Nerd you were shouting in #4 has been replaced by hipster.  Don’t worry, you’re about to go back to nerd, since I’m going to lay some science on ya.  If we look at the general attractiveness of beards, we learn that as they’re less common, they’re more attractive.  Now, whether or not to invest in film is a multifaceted concept.  I’m not saying ti will help you find a lady, (or gentleman,) but I am saying that it’s almost certain to start an interesting conversation.  

If you’re at a Silicon Valley Networking event, it’s important to seem like a very interesting person.  The same is true for any party.  Attraction is somewhat based on scarcity, so you want to stand out from the pack.  Investing in films is a good way to do that.   You never know how it might help you stand out from the pack and talk to that person over by the bar with their eye on you, be it for your interesting investment or your beard.  

7.   Glitz and Glamour

If you’re a tech investor, you may have made a lot of investments that made you a very good return.  Some of them may have been solely for the strong potential for ROI, or because the entrepreneurs could execute and build something that made a return.  It could have changed the world of B2B Payroll invoicing.  But while those make a difference in the lives of many myself included, it’s not really exciting.  

Film is different.  You get to meet interesting creative people.   You get to talk about things other than how that API with that box shaped thing that processes your payments isn’t working as you planned, or the calendar integration isn’t as easy as it should be.  You get to see what happens on set, or what it was like meeting that guy from that Quinten Tarantino movie for a day.  And when you’re done, you can talk to the people at the tech event and share some awesome stories. 

Thanks for reading.  I’ll be back with more next week about why more people don’t invest in film.   In the meantime, if you want to consider investing in film, try joining Slated.   They’re a great resource to help you find projects that give you the best chance at a return.   While all of the things above are great, they’re not worth losing every cent you put in.  Slated helps you rate your projects, and find the ones with the best chance of success.

This entire 7-part series examines why film is an unsustainable investment.  Part of the reason for the lack of sustainability is the fact that not enough producers understand the investment metrics of the film industry, and not enough filmmakers understand the business side of their craft.  To help counter this, I offer all of these blogs plus a FREE film market resource pack on you can get by clicking below. If you want to take your career to the next level, the resources it has in it are a great place to start. Plus you’ll get monthly blog digests with recommended reading to help you parse through the 100+ blogs on my site and more easily reference them when you need them.  

Which Investment Was More Profitable, Twitter or Paranormal Activity?

Note from the Web Port: Not all blogs are evergreen. This has nothing to do with Elon Musk, or the state of the platform in 2023. This is an older blog I wrote to illustrate tech breakouts vs. film breakouts. The principle remains, but it’s aged a bit like fine milk. I’m leaving it up as a solid illustration though, since this is basically a 7 part thought experiment. If I were to do it again, I’d compare Skinamarink and Outbrain, Bumble, or DuoLingo. If I get some comments requesting it, I will. Probabably as a video.

BEGIN BLOG PORT

Every tech investor is looking for the next Snapchat, Twitter, or Facebook, and every filmmaker thinks their project will be the next The Blair Witch Project, Paranormal Activity, or Insidious.  While there are lots of reasons this ideology is similar, they are far from the same.   This week, we’re going to take a look at what an early stage investor in each of these projects or companies would have walked away with.

Films have breakouts, tech has Decacorns.   While an interesting word, a Decacorn is easy to describe.  It’s a company worth 10 billion or more pre-exit.   

Defining a breakout film is somewhat more difficult.  There are many ways one could describe a breakout film.  In an article for the American Film Market Industry analyst Stephen Follows and Bruce Nash of The-Numbers.com defined it as a film budgeted between 500k and 3 million dollars that the returns to the producer were more than 10 million dollars.  

Another way to look at it would be any film that returned their investors at least 10 times what they put in (10X)  Perhaps with a minimum return around half a million dollars to avoid a 500 dollar film making 5,000 dollars being considered a breakout. Technically, the two examples of highest ROI films most people think of fall outside this realm.
​
​We’ll be looking at the films people generally think of as winning investments, against the tech companies investors would love to have put some money in early on.

​I’m sure every tech investor reading this is thinking a film investment doesn’t really stand a chance.  In most instances, they’re right.   However, purely as a thought exercise, let’s look at the numbers.  

The seed round for Facebook was 500,000 Dollars, and if you’re an aspiring Venture Capitalist or a big fan of Darren Aronofsky, you know that largely came from Peter Thiel of Founders Fund.  By the time he cashed out, his initial 500k investment netted him around 1 billion dollars.   That’s a return on investment of more than 2,000X!  Not all of the money went to him, but a significant portion did.  That’s according to this CNN article.   

I couldn’t find another similar investment profile for Twitter.  Perhaps because no one made a movie about it.  So we’re going to have to extrapolate a bit, and estimate what a Series A Investor would have gotten from their investment using largely standard practices and math.  

Crunchbase doesn’t have an exact amount that any individual invested, but since it was into a Series A round of 5 million dollars with 11 other investors several of them funds it’s reasonable that a single angel investor could have invested around 250k.   Given that 250k investment was against a valuation of 35 million, that means this investor had owned 0.71% of Twitter.   

Now, just because this nameless investor owned 0.71% of Twitter then, that doesn’t mean it stays at that percentage.   Any time new stock is issued, that share dilutes.   Given the valuations of future rounds, we can assume that the 0.71% of the company diluted to around 0.45% of the company by the time the company exited. Given that the company was evaluated at 14.2 billion dollars when Twitter IPO’s in 2013, the initial investment of 250k was worth 65.3MM.  That means a 261X return

A 250X to 2,000X is a phenomenal possibility, and they're not the only tech companies to have offered such gigantic returns to their early investors.   So how does film stack up?

Let’s look at the Blair Witch Project.   According to this article from movienomics, the Blair Witch Project Sold at Sundance for 1 million USD.  Since the Budget was only 22.5k, the filmmakers made a return of 4340%, or 43X.   From the filmmaker side that’s not bad, but it’s not where the story is.  Artisan, the company that bought the rights to the film, spent another 1 million US in a grassroots marketing campaign, and the film went on to gross 248 Million.   That means they had around a 123X return on their 2 million dollar investment. ​

We’re going to look at this two ways.  From being an investor in the film and an investor in Artisan.  If you happen to be that rich uncle who ponied up the 22.5k, you probably would be entitled to around a 20% stake given that almost all of the crew on the Blair Witch worked for free.   So, you investment would return about around 200k, or nearly 9X. 

What if you were an investor in Artisan?  On an entirely hypothetical and not entirely connected to reality basis, let’s just say you were an angel investor who got their money from inventing a new washing machine.  You sold the invention to a big company and now you’re flush with cash.  You’ve always liked movies so you invest 2 million in Artisan.  In return, they give you 20% of their company.  So, with that 2 million dollar investment, you get a return of about 25x.  That’s a very healthy number. 

Paranormal Activity is such a low budget, the filmmakers almost certainly put it in themselves, however for the purposes of this exercise, we’re going to assume the entire 15k budget was put in by a single investor, and they took a 20% stake since the filmmakers clearly raised much more in soft costs including deferred payments and sweat equity.

Even though the first film in the paranormal activity series made about 89 million in theaters, not all of that went to the filmmakers.   The theaters often keep around 50%, then the exhibitor takes another 30-50% of what’s left, and then the filmmakers and investors get a cut.  Further, the distributors tend to recoup their costs first.   

To simplify this, we’re assuming that around 50% of the costs go straight to the distributor, and that they recouped another 2.5 million on in expenses before they paid the filmmakers.  That’s a low marketing spend, but the campaign Paramount did was very innovative and low cost.

So, if we assume everything above, 89 million gets reduced to a bit shy of 43.5 million once it reaches the Production Company.  The investor is then paid out 8.7 million on their initial 15,000 dollar investment, which means a 579X ROI, roughly twice the ROI from the series A of Twitter!

So films are a better investment than Twitter, right?  No.  No they are not.  Paranormal Activity is the highest ROI film of all time, Twitter isn’t the highest ROI tech company within 10 years on either side of it.   Further, the returns I listed from Twitter are relatively well verified, I had to extrapolate the deal points for Paranormal activity based on different deal memos I’ve seen as a producer’s rep. 

More than likely, the filmmakers put in the 15,000 dollar budget themselves.  Even if they didn’t, given that paramount paid around 350,000 up front for Paranormal Activity, the the filmmakers wouldn’t have seen much more from it than that.  After all, on paper Star Wars Return of the Jedi never broke even. If the filmmakers only got 350,000, then the investors ROI would have been more like 4.5X given that in our scenario,  only owned 20% of the film.

Further, in the real world, both of these projects were largely backed by people who owned the project, and there would have been far more players in the waterfalls. So this is a fun throught experiment more than anything, and mainly proves the point that filmmakers should be focusing on other issues aside from potential ROI when selling their film.

Thanks for reading. This blog was a lot of work to port. If you’re browsing these archives and found it, you probably appreciate my work. If so, I’d ask you to sign up for my mailing list, support me on Patreon, or subscribe on substack. Thanks so much!

Can a Film Slate Make More than a Tech Portfolio?

Edit from the future: Maybe, but probably not, and don’t count on it.

In a quote often attributed to Albert Einstein, “The most powerful force in the universe is compound interest.” He also called it “The 8th wonder of the world, he who understands it, earns it.  He who doesn’t pays it.”  In this post, we’re going to be examining how we can use the notion of compound interest in comparison to tech and film investments.  

In the previous installment, we looked at the average ROI of a film slate vs. an early stage tech portfolio.   Here’s what we came up with before.  For the full tables and Metrology, check out last week’s post.

Unfortunately, the numbers don’t look good for film.  By the math above, we can see that tech portfolios make on average of 7.5X what a film slate would over their lifespans.

But, film does have one advantage over tech.  The amount of time that it takes for a film to recoup [if it’s going to] is much shorter than what it would take for a tech exit would be.  

For instance, the average time from when an Angel becomes involved in a project to when they see their money back is around 12 years.  For a film to at least start recouping investment, that time period is around 2-3 years, if it’s done well and distribution is planned from the beginning.

Why is that?  Generally, for a tech investor to get their money back, the company they invested in has to either be acquired by a larger company or make an initial public offering [IPO] and be listed on a stock exchange.  Sometimes an investor will be able to list their stock on a secondary exchange, but that’s a little beyond the scope of this article.  Acquisitions tend to happen more quickly than IPOs, but there’s generally less money and less prestige. 

​Given that the size of venture capital [as opposed to angel investment] rounds have ballooned in the last decade, many venture capital firms are pushing their companies to IPO instead of be acquired.  This may make the time from an early round angel investment to exit take even longer than the 12 years mentioned above.

Films, on the other hand, start getting some of their money back shortly after they start distributing the film.  If the filmmakers get a minimum guarantee [MG] they may get a decent check up front.  If they don’t, they may not, and it may take an additional year or so to start getting their money back.  I should note MGs are more the exception than the rule. 

So for this exercise, we’re going to look at the APR of both a technology investment portfolio and a film slate.  We’re going to make the assumption that both investments are early stage, since the angel round for a technology company is very early in the investment process, generally directly after the friends and family round.  Later rounds are generally dominated by institutional investment firms.  A similar scenario can be said about film.  Most angels from other industries get involved very early, since they don’t have contacts with completed projects.  

Since revenue from a film tends to come in over time, we’ll count the lifespan of a film investment to be 3-5 years as opposed to the 2-3 years mentioned above.  3-5 years should be enough time for 60-80% of a films total revenue to come in on average. As such, since this series is largely a thought experiment we’re going to think the general earnings of a film to come in overt that shortened timeframe. Tech exits on the other hand generally come with a large lump sum for the investor after a quite a long time that may be getting longer, we’re going to do the math based on 12-14 years to exit for a tech company. Some do come in much faster, but some films also get bought out for millions after 18 months. They’re outliers and not generally worth accounting for when planning to pitch an investor.

Tech portfolio APR

When we compare APRs, this is starting to look a little more reasonable, but still not great.   When we compare the APR of a film as opposed to a technology company, we’re only looking at around a 1.5X to 3X instead of a 7.5X differential.  Unfortunately, looking at things through this lens raises other issues, in that the average mutual fund pays out around 5-7% APR, depending on the health of the entire economy.  

Could a savvy investor do any better?  Perhaps.  ​

Everything we’ve been looking at so far has assumed that all of these investments were early stage.  If it were a tech investment, we’d say Seed or Series A, in film, we’ve been assuming these investments take us out of development and into preproduction.  But what if we were to include completion funding and distribution funding in the portfolio?  I would do a similar analysis for technology companies, however, given that the VCs and hedge funds dominate that world due to the amount of capital needed. In days and years past, these stages would be overwhelmingly covered by distributors, but that’s nowhere near as true as it used to be. This leaves a hole for an investor to come in and increase their potential returns while lowering their risk exposure.

The assumptions I’ve made on the chart above are that the slate would be made up of half of finishing/distribution funds, and half of the early-stage investments.  As such, the risks are far lower, and since much of the later stage debt may be done in the form of debt as opposed to equity, we can assume not a huge amount of loss on those investments.  Also, since the film needs to be finished and not made from the start, the time for the recoupment of these funds is greatly lessened.  With that in mind, we'll assume that the bulk of these returns come in from 3-4 years instead of 3-5.  

I'd like to take this opportunity to remind you that none of this is meant to be scientifically accurate, but rather a very good estimate and approximation of what these slates could look like given the right set of circumstances.  Take these numbers with a grain of salt, just as you should any revenue projections from a pre-seed stage startup or revenue projections from a filmmaker.  This also should not be considered financial advice, nor a solicitation for sort of funding.

Admittedly, these numbers are highly speculative, [See disclaimer on part 1] but the right team backing up the right filmmakers may make it possible.  Given I work with investors, I should state these do not constitute any legal documentation, it’s really just a theoretical exercise to help compare two asset classes. Again, not a solicitation.

By creating a slate investment that includes completion funding as part of the investment mix, we lessen the risk and decrease the time to getting the money back.   How does that affect the APR?

With the inclusion of completion funding in a portfolio, the APR of a film slate is looking relatively competitive.  If you’re an investor, you may be asking yourself, “Well if it makes that big a difference why not focus only on completion funding?”  It’s a great question, there are many funds that do.  So many in fact, that the playing field is getting fairly crowded.  Especially when you compare it to the other funds that focus on development throughout the film industry.

If a fund only offers completion funding, It would be difficult to establish the long-term relationships with the emerging talent necessary to make an organization like this work.   It would also be harder to attract high-end prospects for bigger films with more recognizable names.   If a fund does a mixture of the two, it can be a very good way to find new filmmakers and help them pass the goalpost on their first film.  Once they’ve done that, you can start to work with them on future projects at an earlier stage.  By doing this, the fund creates a better vetting process and attracts higher-end talent. 

With that in mind, a mix of investments seems to further the goals of the organization and the industry in a much more cohesive manner.   It also starts to sound a lot like Staged Investments, like Seed Stage, Series A, B, C, and the like.  Don’t worry, we’ll have a much more in-depth conversation about this later in the series, as well as a couple of other blogs on the site tagged “Staged Financing”

But first, We’re going to talk about some of the excitement associated with both of these types of investment.  The Decacorns and Breakouts. That blog can be found below. Again, for legal reasons I need to state that none of this should be considered financial or legal advice, as I am not a lawyer nor a financial advisor. Further, this is not a solicitation for funding or investment.

The only thing I will solicit you to do before finishing up this beast is a blog is to join my mailing list so you can grab my free film business resource package. (segues, eh?) It includes a FREE Deck template to help you talk to the investors you’re probably considering approaching if you’re reading this. It’s also got a free e-book, and other money and time-saving resources. Check it out below.

Why Angels Invest and Why they Choose Tech

Why should those Rich Tech [People] Invest in your Film, Part 2/7

In order to understand why an investor should invest in your film, you need to understand why investors invest at all.   What is an angel investor?  What does it take to be a successful angel investor?  Why don’t they just buy that Second Third yacht?

To answer the first question, an angel investor is person of means, who generally has a sizable amount of liquid assets and wants to do something more interesting and potentially lucrative than buying stocks or mutual funds.  In order to be an accredited investor, an unmarried person must have made at least 200,000 USD for two consecutive years, and be likely to do the same in the current year.   If they’re married, that number is more like 300,000 USD.  They could also have 1,000,000 in liquid assets, not including their primary residence.  

The reason this came about was to protect individuals from being taken by scam artists.   The theory behind the income threshold is that if you’re that affluent, you would either have the education or sense to know if you’re being taken, or the means to hire someone who does.

Apart from the aforementioned asset requirement, what does it take to be a professional angel investor? It basically requires two things.  Access to capital and deal flow.  In layman’s terms, money to invest and projects to invest in.  Most of the time, Investors generally assume that about half of their investments will tank and they’ll lose everything due to an inability of the company to exit.  

So why do Angel Investors invest?  This question is more difficult to answer and actually has several answers that we’ll explore throughout this blog series.   But, essentially it boils down to the fact that These investments have the potential to breakout in a big way. 

Below is a chart illustrating that point.  It has been simplified and assumes very early-stage investments.  This chart is generally based on loose feelings and assumptions asserted by many investors I’ve talked to.  Just like it’s very difficult to estimate how many films break out, it’s very difficult to estimate how many investments are completely lost.  It’s very easy to track winning bets, but much harder to track losing ones.  This data is accurate to the dozens of investors I know as to their top-level assumption and the data around films is accurate to my experience as a distributor.

Before we get into any numbers, I should preface I’m not a financial advisor, this is not financial advice, nor am I soliciting for any particular project. This is all conjecture and an extrapolation and explanation of personal experience.

If you’re a filmmaker reading this, you might be thinking to yourself, why are they hunting mythical horses and WTF is a decacorn?  A Unicorn is a company valued at more than 1 billion before exiting.   If you’re a decacorn, your company is valued at more that 10 billion prior to exit.   The reason that you don’t really see it on that pie chart is that it’s only about 1 in 1000 to 1 in 10,000 chance of happening.

So how do investors get their money back from a tech investment?   in order for a tech investor to get their money back, generally the company has to be acquired, or go public [IPO.] Films on the other hand, simply need to find profitable distribution, or self-distribute the product.  Each exit in each sector have its pros and cons, but in the end the boils down to which is more accessible.  So what does the return look like in both cases?  

Let's assume an investor invested One Million Dollars across 20 tech sector investments, each investment is made equally.  I know that these tables are going to be hard to fully understand, so I’ll have a better data visualizations after table 3.     ​

As you can see the overall ROI is about 85%, which means they nearly doubled their money on the entire portfolio.  This is assuming that the investor isn’t completely green and has some idea of what they’re doing, so they make better picks.    At some level, this looks very similar to the studio tentpole system.  Experts making bets are confident that the ones that hit will cover the losses of the ones that miss.  Unfortunately, the numbers don't back that up in the way we would like, partly due to the fact that most angels in the film stlate are not experts, and many filmmakers don't package as well as they should to maximize potential returns.

What does the picture look like for the investor going with no real knowledge of film look like? Well, from my more than a decade marketing and distributing features, here’s about how that would break out.

That’s not Pretty, but it is making a fair amount of negative assumptions about the slate of films.  These numbers are assuming they don’t have distribution going in, don’t know what sells, and the film is financed entirely by private equity. The hypothetical investor made the investment at the outset of the project assuming the entirety of the risk. AND the film isn’t well cast with an eye for international sales.  

BUT, if you structure your slate look to get at least a letter of intent for distribution a North American distributor and work with an international sales company to ensure the best casting for international saleability.  It’s at least possible that you could have a slate that looks ​more like this.

That’s better, but a well-managed tech portfolio still obliterates it if we go solely by total return potential.  The Graph I mentioned is below, to help illustrate my point.   Trying to convince a tech investor to break from what they know to invest in something that has less potential to return is a hard sell.   

Edit From the Website Transfer: If I were to re-do this, I would probably put the 10x return at more like 0.5-1% as opposed to 0.1%, assuming we account for one in 10 portfolios of 20 films gets a breakout hit, the potential average returns end up around 20-22% depending on which of the pool the breakout comes from. if 2 out of 10 of the portfolios happen to have a breakout it’s closer to an average return of 24-26%

​Filmmakers, this is what you’re up against.  But fear not, you may have an ace in the hole.  In fact you may have more than one.  The first ace in the whole is the speed of exit for film projects compared to that of tech startups. Due to that, film projects can return money to the investor faster than a startup would, which matters significantly in increasing the ability for an investor to re-invest and increasing the overall Annual Percentage Rate (or APR) of the investment. Check out part 3 linked below for more information on that.

Part 1:
Why Don’t those “Rich Tech [People]” invest in Your Film?
Part 2: (This Part)
Why Angels Invest, and Why they Choose Tech.  
Part 3:
Examining APR: How does Film Stack up to Tech Portfolios?
Part 4:
Breakouts vs Decacorns
Part 5:
Diversification and Soft Incentives.
Part 6:
What’s really stopping Tech Investors from investing in Film?
Part 7:
How do you make a sustainable asset class out of film?

Thanks for Reading! The numbers in this blog have evolved since I wrote it, but only slightly. If you want to stay up to date on resources, livestreams, and other awesome content I have to offer, you should join my mailing list! You’ll stay up to date on all of my latest content, plus get a free e-book, monthly blog digests, and even a great resource package to help you talk to investors about your film. It’s totally free, so what are you waiting for?