August 7, 2014

How to Fund Your Movie: A Guide to the Basics of Film Finance

Financing is an important (and often dreaded) aspect of the making of any movie. Without money, films can't exist, but it's often the topic with the least amount of information floating around. If you're considering funding a movie or producing a film, Matthew Helderman has come up with a handy guide to get you started understanding all of the different ways you can get financing for a movie.

This is a guest post by Matthew Helderman of Buffalo8 and BondIt.

The difficulty in raising capital for any venture is two-fold: firstly, the market is crowded with opportunities that are currently earning strong returns. The stock markets, the bond markets and the traditional high yield sectors of real-estate, speciality finance and lending all present solid outlooks financially. Secondly, speculation is the killer of many financial deals. Who wants to invest in an opportunity when the return not only is unlikely, but the timeline is completely unknown?

When raising capital for a film project -- even more elements come in to play: talent, timeline, creative, and multiple financiers needing to feel comfortable with the structures and scheduling. Having raised capital many times in the past -- our overview here is a sample of the realities currently presented in the private equity financing arena of independent feature films -- and furthermore our eBook details a breakdown on best-practices for structuring raise specifics.

Buffalo 8 Film Finance eBook

Before we go any further, let's define the most common categories of film finance.

What are the different kinds of film financing?

Equity

Hard cash investments made to your project by a single investor, a group of investors, and personal investments from colleagues/family. Equity investments require that the investor own a stake in the film (the LLC or operating structure) and must be paid back (typically on their principal investment + 20%) before profit is seen on the side of the filmmakers.

Pre-Sales

Pre-sales agreements are pre-arranged and executed contracts made with distributors before the film is produced. These agreements are based on the strength of the project's marketability and sales potential in each given territory. A distributor will generate a value for your project given the script, the attached talent, and crew, as well as the marketing approach, and then enable you to take out a bank loan using the pre-sales deal as collateral. Pre-sales can also result in direct payment (at a discounted rate) from the buyer themselves. Pre-sales investments require that the producer pay back the bank its loaned capital before profiting on their respective upside.

Gap

With partial equity raised you are then able to procure a loan from a bank or a private lender on the unsold territories of the film (and additional elements of collateral such as the intellectual property “IP” or corporate guarantees). Gap financing is only available when other elements have been assembled and there is adequate security for the investor to “bridge” against.

Tax Incentives

Individual state and country legislation enables producers to subsidize spent costs for production. Tax incentives require a producer to hire a certain number of local crew employees, rent from local vendors, and run payroll through local services. Tax credits are based on an application process and are often lengthy (12-18 months) & difficult (tedious paperwork) to procure. Certain credits are sell-able, transferable, and even trade-able based on the local legislation. States such as New Mexico, North Carolina, Georgia, New York and Michigan offer the strongest solutions.

Deferred & Crowdfunding

Producers are able to avoid nearly all costs on a project if they are able to negotiate a deferred deal. Deferred agreements basically state that crew, cast, vendors, locations, and services are all rendered up front at no cost until the film generates money upon release. Deferred financing is difficult because experienced cast and crew are unwilling to work under these types of structures. Crowdfunding (Kickstarter, IndieGoGo, etc.) enables a donations-based model for capital to be raised without selling equity.

Private Equity

Private equity investors are flooded with opportunities today, with the traditional markets performing well, the venture capital sector offering incredible teams and projects, and the re-emerging performance of real-estate and lending.

How do you make your project stand out to these investors?

We’d like to believe it’s as simple as a strong script, a great team with experience, and a game plan for success -- but it’s never that simple. The key factor to private equity investors is to remove speculation -- meaning, when are they going to start earning a return and can you guarantee that? The more speculation you remove (by utilizing the steps below), the better chance you’ll have of securing capital assets in “hard money."

Agencies

The talent agencies are a difficult nut to crack. They are well guarded, highly established, and protected entities. They are the gatekeepers of taste, talent and possibility -- and more than anything they are the lifeblood of the independent producer seeking to put projects together with financing.

Step number one is finding a piece of material that excites you and that you believe you can rally a team behind. Remember, you’ll be living with each film you produce for many years -- so choose wisely.

Once you have a piece of material, get an agent/agency excited about the project as well. As with most of the entertainment business, agents think in numbers --how much will my firm/I make from this deal? Incentivize the agency by offering them the ability to package the project -- place multiple roles with their roster rather than just one or two roles -- which gives them the ability to earn 10% of multiple deals across the board.

Furthermore, offer them the ability to have a first look opportunity for domestic sales representation -- again, finding ways to incentivize. By packaging these elements early on, you’ll be able to bring strong talent to the project and gear up to be more ready to approach equity players.

Strength of Team & Experience

A first time producer/director/star is a tough sell for many in the film business. Sales teams are unable to project value (pre-sell), agents are unable to place large name talent (packaging), and financiers are unable to gauge project ROI (basic returns).

Find a director who has carried a project before, find an agency who is interested in packaging and will keep you/your project in the stratosphere of content that matters, and you’ll be in a great starting position.

If you have to utilize unknown talents to make your project -- surround them with experience on all fronts. An unknown star with a strong director, DP, producer and writer is a reasonable recipe.

Tax Incentives/Pre-Sales/Debt/Domestic MG

With your packaged talent signed on, a strong team on board, and a well-developed script, you can now approach “soft money” options.

Tax incentives are nothing new, they offer a percentage of the in-state spend back in rebate form. Meaning, you can bankroll/cash-flow this piece to offset your investors risk.

Pre-sales are nothing new -- they offer projections of value based on the elements you’ve brought together. Meaning, you can bankroll/cash-flow this piece to offset your investors risk.

Debt options are nothing new -- is this starting to sound like a trend?

Try to find ways to cover 50 cents of every dollar your investor is putting up before the cameras even turn on.

Shoot in tax incentive rich states, with a strong pre-sold package, and with a great sales-team on-board to execute. You can then reduce the level of speculation and guarantee a return of X% based on Y investment in a tangible timeline.

Plan of Execution

With these elements on-board, make your investment proposal personable, professional, and tailored to your investors specifics. Do not pitch high level film financing to first-time entertainment investors. Keep it simple, above-board, and remind them that while smoke & mirrors often run throughout the business, you’re putting together a basic structure returning X% on Y investment over Z timeline -- they will respect you and your approach much more.

Lastly, look into completion/guarantor bonds as a way to assure your investors that the project will be completed on time, schedule, and budget, and with the elements they have agreed to finance. The liability is now removed via a bond company and their return is partially guaranteed via incentives and additional soft-money.

Pitch smart, often, and confidently knowing that you’ve done your homework and that the investment is well-structured for a return.

Link: Fund. How to Finance an Independent Film. -- eBook

[Images courtesy of Milad MosapoorBuffalo 8]


matt-helderman Buffalo 8luke-taylor Buffalo 8Buffalo 8 Productions was founded by independent film producers & media entrepreneurs Matthew Helderman & Luke Taylor. With a feature film, commercial production and post-production facility in-house - Buffalo 8 offers a top to bottom solution. Touting a library of 35+ feature films, 40+ national campaign commercials, 2 television series and colleagues/partners such as Viacom, Lionsgate & Cinedigm. Located in Beverly Hills, the facilities house full production offices, a fully integrated post-production business with editing, coloring, VFX, sound and deliverables capabilities along with our production staff equipped with a camera rental stock of RED, Alexa and Canon platforms. From development through distribution Buffalo 8 offers tailorable services for any production.

Your Comment

16 Comments

It's difficult to say with a straight face to investors that any independent film project has a good chance of return because the odds are really that it does not.

Hopefully the crowd funding model continues to evolve and dominates as it theoretically promotes a more sincere end product.

Money gained from investors on shakey claims of financial return encourages the making of films focused primarily on financial return. More genre films, horror films, derivative films and endless films set in New Orleans and Atlanta cause that is where the tax breaks are.

Of course there is room for all types. Creativity and business are inseparable when making features, I would just personally prefer to see ones that the content is driven by creativity more than the business.

August 7, 2014 at 1:59PM, Edited September 4, 11:56AM

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TruthNuggets

Good thoughts. My hope is that crowd-funding will continue to evolve in the direction of creativity with a mix of balanced business principles. My fear is that the biz will figure out how to manipulate the structure, and I worry government will regulate the innovation out of it. I hope I am wrong about this.

August 7, 2014 at 2:31PM, Edited September 4, 11:56AM

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refugee1

If you think like a great producer you turn a negative into a positive. Be upfront about film investment being a straight up gamble . . . and then talk up the elements in your package that excite them, that make them think that if they win they can win big even if the odds are against.

August 8, 2014 at 8:03AM, Edited September 4, 11:56AM

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JPS

What is the point of "talking it up" like this, though? If the producers ultimately do not get the return they are promised, that will inevitably become public information. (Shit spreads wider than margarine.) Whereupon, further proof is added to the pile that independent film is a no-go for investors.

With full respect to you, I must disagree with your definition of a great producer. Such a producer will not merely "talk it up" but actually find ways to realistically achieve the ROI they promise, even if that return is modest.

Who needs a "talker"? This town is full of those already.

August 9, 2014 at 7:10AM, Edited September 4, 11:56AM

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Z

I just can't stress enough the importance of self-funding, ie., not waiting til 'someone else' funds your project to make it. Call in favors, go thrift shopping, ask around.

You don't need someone else's million dollars to make a movie that looks like a million bucks.

August 7, 2014 at 2:57PM, Edited September 4, 11:56AM

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good point!

August 8, 2014 at 5:23PM, Edited September 4, 11:56AM

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Right!

September 13, 2014 at 9:12AM

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Tery Wilson
Filmmaker
103

It's good to see some articles about the sharp end of producing here. We do need scripts, we do need to know about new camera's etc but without this kind of info you cannot sustain yourself and move from production to production and grow your business.

August 8, 2014 at 8:09AM, Edited September 4, 11:56AM

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JPS

One thing they don't say about pre-sales is that to bank the contract the pre-sales agent (not distributor) has to be recognised by the bank as being reputable to take the pre-sales estimate seriously. Also the pre-sale estimate is base line, in other words it's the minimum guarantee value, otherwise known as the MG.

The other hiccup is that it's very unlikely a reputable sales agent will enter a MG without a star cast that is sellable in a variety of international territories. That means you have to generally enter into a pay or play agreement with the star. That means cash up front and a first day of principal photography date that's set in stone that if you fail to meet you lose the pay or play, which can be a few hundred thousand. That's high risk money and without it the rest of the contracts are unlikely to fall into place. Domino effect.

This is why funding low budget films through crowdfunding or direct investor relationships are much easier, although still difficult, to achieve.

August 8, 2014 at 8:38AM, Edited September 4, 11:56AM

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JPS

I keep hearing about the LIST.

As in...LIST of acting talent who have big audience followings in other countries, territories outside the U.S.

As in...same LIST of same acting talent, that so many producers, pre sales agents use over and over to impress and try to guarantee reasonble profits to the money people, inotrder to get investment capital.

As in...same LIST of same acting talent, all the STUDIOS use for overseas market-auds projections while in
the process of determining whether or not a certain genre movie has a more highly favorable process of profitabilty
with those specific acting talents in those specific overseas territories.

Lot of good points here in this article, but no mention of the LIST.
Guess access to market - auds information/demographics is more important than a good script.

August 8, 2014 at 11:38AM, Edited September 4, 11:56AM

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MARK11

I make my movies cheaply because I know I'm not going to make money on them. My first film Space Trucker Bruce (www.spacetruckerbruce.com) will probably never make a profit but at least I didn't borrow money or have investors to pay back. At the time I totally wanted to borrow and get investors at the time but I'm glad I didn't. Now I pay my crew and actors what I can afford and get people who are interested. The nice thing about crowd funding is people are not expecting profit but want to help you make the movie.

August 8, 2014 at 5:38PM, Edited September 4, 11:56AM

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walmart hoover linx

August 12, 2014 at 9:10PM, Edited September 4, 11:56AM

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I like how Paul Osbourne put it, he said basically, when approaching investors you should have all your ducks in a row to show them that they have the potential to make money, but remember individuals don't invest in Low Budget Movies to make money they do it because they believe in the film, they want to be able to tell their friends they made a movie, and have fun with the process.

Now if we are talking studio budget films, then that's another story. With these Micro budgets and Low budget, find the people who can spend their "fun money" on an adventure they will enjoy, and work your butt off to get them their money so they can have another adventure with you on your next project.

October 2, 2014 at 1:22PM

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Caleb Pearson
Director / Producer / CEO
168

Investment Company – this is a term you have probably come across while trying to work out your next steps.Well, it is usually some sort of trust or corporation that invests the pooled capital, i.e. assets such as money, of investors in financial securities, i.e. shares or bonds. They can either be publicly owned or privately owned. These investment companies will manage, market and sell funds to the public to gain investors. You can proceed to this sites for more information http://www.themoviefund.com/investing/investment-company.html

May 26, 2015 at 2:06AM, Edited May 26, 2:09AM

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I am an independent filmmaker my company is Street Films3000 and I am looking for support for my second feature film. The first one I did it by myself and I practically did everything. Wrote it, Directed it, filmed it,part of the edition and even I wrote the lyrics for the songs that we use in it. I am glad to let you know that we were officially selected into eight international film festivals in 2015. That's why I want to work with someone else and create something even better.

March 19, 2017 at 12:50AM

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Indira Killen
Writer, Director
1

Do you need a loan to pay off your bills and start a new business? If yes contact Even Financial loan, I got my loan from them contact them now via email: Even_Financial@financier.com for more information

May 15, 2017 at 2:05PM

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