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.
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.
Before we go any further, let's define the most common categories of film finance.
What are the different kinds of film financing?
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 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.
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.
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 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."
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.
Buffalo 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.