But what do financiers consider too big of a budget for an indie film? And how do you find financing for your film in the first place?
You can't use monopoly money to pay for a crew, cast, locations, and more that may be needed to pull of your dream film! According to finance experts on a SXSW panel titled Bitch Better Have My Money: Financing Indie Films, their recent experiences suggest that films over $15 million are risky propositions because they haven't been seeing those films do as well. "We're seeing that under $10 million or under $5 million has potential for success because of the market. Really, that's because it's a wild west with streaming," said panelist Sophia Dilley of Concord Music. "$3-15 million is a safe zone," concurred panelist Jasmin Morrison of The Fyzz Facility. Phew! If you think that sounds like a lot of money, you're not alone. However, this is a standard for low-budget indie productions.
If you're entertaining the idea of a feature budget in this realm, you may be asking, how does one put together that kind of money? Luckily, the panelists had a few solid tips on how to get started, and from that, we've compiled a quick crash course!
Understanding where the money comes from
Panelists mentioned a few different types of financiers and ways to get money. Here are some of the main ones:
1. Debt financing
Morrison explained that she is a debt financier. What's that? The Investopedia definition of debt financing is "when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid." So, as Morrison explains it, you may find yourself waiting for some cash to come through from an SVOD platform like, say Netflix. "Do you need the cash now, or can you wait five to ten years?" Because even if you have an SVOD platform take you up on a deal, you may need to wait a very long time to see the money come in. A deal from an entity like Netflix may only pay out quarterly over a long period of time. But you need all the money now, to get the film made! Adds panelist Tiffany Boyle of Ramo Law, "Debt financing can be loaning directly against an SVOD sale." You know that saying, "You can take this to the bank"? Well in this case, if you have a prospect of funds coming in, you can take that prospect to a debt financier and they will lend you the money for your production now.
Pre-sales for a film may be something you've heard more about. Pre-sales can come from the number of digital downloads you pre-sell on your Kickstarter campaign, or for a budget in the $3-15 million range, we're talking about substantial pre-sales or guarantees of pre-sales to different entities and territories. (If you can get a pre-sale offer from a distributor, you can also take that to a financier or bank and get a loan for the money.)
3. Gap financing
As the name implies, gap financing is funding needed to fill in any gap not currently being met by debt financing, pre-sales, or equity. It can often be an interim loan you get from a bank that is leveraged against the yet unsold rights or territories you have left for your film. According to Morrison, sometimes you need a gap loan just to close on everything else, and this is a loan you'll want to pay back quickly. Morrison explained that this is "a bridge loan or high risk money to make sure you close, and you'll pay it back as soon as you close."
According to panelists, this type of financing is the best, but also, the most rare. "It's the unicorn of finance," said Boyle. "Someone is giving you money not collateralized against anything." If you're lucky to have an angel investor to fund your film with the hope that they will get a return on investment (ROI), that's great. Just don't expect to find it too easily.
"Go to a sales agent before you shoot a film. Otherwise, it's hard to ascribe value [to your film]."
Before you seek out financiers, meet with a sales agent
If you don't have any kind of deal from anyone in the film industry, your best bet is to reach out to a sales agent before approaching financiers. That is because a sales agent will have relevant industry experience about what your film is worth, and until you have the opinion of someone like a sales agent, a financier is unlikely to feel comfortable with the idea of lending you any money for your film. "Go to a sales agent before you shoot a film. Otherwise, it's hard to ascribe value [to your film]," said Morrison. "Without real industry knowledge of finance like that of sales agents, we can’t pull numbers out of the air because we are risk-averse. It's best to understand your plan for the film from the very beginning." Panelist Kristin Harris of Good Deed Entertainment added, "Or have multiple plans for your film."
How to formulate a plan (and know how to answer questions you will get from financiers)
First, if you're going to approach a financier, make sure you've researched what they do. Don't email a debt financier asking for equity, as the panelists all agreed that is just plain rude! How can they be asked to read your pitch if you haven't taken the time to read about what they do? Below is a list of points you must know, not just for financiers to feel confident in you, but so they can actually get an idea of how and where they can get loans for your project.
- Do you know when you are shooting?
- Do you know where you are shooting? (Is there a film tax credit we can collateralize against?)
- Who is your cast?
- Have you been offered equity, and are there strings attached? (e.g. Do you have to cast someone's girlfriend in the lead role?)
- Are you going to bond your film?
For the record, a completion bond ensures that you don't run out of money before you can finish the film, and never deliver it. "A completion bond is important to a lot of people, especially debt financiers," said Morrison. Panel estimates for the cost of a completion bond is roughly 10% of the budget.
Prepare a financial structure
Boyle described a common mistake by novices to film funding: not understanding what a financial structure is when approaching her about help packaging a film. "I get an email asking for help, like, 'Can you look at my project?' I ask them to send me a financial structure. Then they tell me the budget is $2 million. That's not a financial structure!" A financial structure is something like this:
- This is who is getting paid in what order
- This part of the budget comes from tax credit
- This part of the budget comes from equity
- This part of the budget comes from grant XYZ
- This part of the budget comes from what I expect in pre-sales (based on what I've agreed on with my sales agent)
- This is the gap in the budget that I need
Also good to know, the loan you can count on getting against a future guarantee will be at most 50% of what that collateral is worth. In other words, if your sales agent thinks your pre-sale guarantee is $300,000, the loan you would get against that wouldn't be more than $150,000.
Work with financiers you like
The final word of advice from panelists was that it can be a lot of work to get a film financed, but it can be worth it. And because it's such a long journey, if you don't enjoy a positive working relationship with a financier from the beginning, it will only get worse from there. So like all relationships, choose people you can foresee working with for many years of your life!