Sources of Financing Films for Independents
By Ted Chalmers for
© 2003 Chalmers Entertainment Corporation
MINING GOLD FOR FILMMAKERS:
Sources of Financing Films for Independents
By Ted Chalmers for
Disclaimer: This report is not to be construed as legal advice in any matter or form. The
examples used are not based on any actual project, and the hypothetical dollar amounts
are shown for placement and layout purposes only.
The information provided herein is accurate to the best of my knowledge. However, no
claim is being made that all of the information is current at the time of publication with
respect to contact information and or the state and federal laws referenced herein. Please
consult a qualified entertainment and securities attorney before embarking on any fund
This document should be read online as opposed to printed as it contains dynamic web
links that, when clicked, will take you to a particular web site for more information on a
subject or product.
Here is my list of sources:
1. The Studio System
2. Other independent Production Companies
3. Producers Reps
5. Completion Bond Companies
6. Foreign Equity
7. Foreign Sales Companies (Presales)
8. Foreign Tax Credits
9. U.K. Sale and Leaseback
10. Grants: Funding for Independent Media
11. Cable Companies like HBO, Sci-Fi, etc.
12. Venture Capital (“VC”)
13. Investment Capital Groups
15. Private Investors
Let’s talk about each source of financing available to independent filmmakers.
The Studio System
Yes, they still are a strong backer of indie films. Getting the attention of the acquisition
executives can be a daunting task. It is recommended that you find representation
through a Sales Agent or Producer’s Rep (more info below on both). However, you may
approach the studios directly if you have the patience. Getting a quick answer or any
answer is difficult.
The best way to approach a studio is to appear as professional and qualified as possible.
You will need letterhead and business cards to start off with. You will also need a well
designed business package or proposal that includes cast, completed script and budget.
As for cast, a studio is more likely to get involved if your cast is well-known. Putting
together your package will be covered in a future report. But, suffice it to say that it is a
long process to put a package together that has any merit.
One method, the Negative Pick up, allows you to retain freedom and can occur any time
during the production process. You usually enter into a negative pick up deal before
production is completed. The deal can be used for post production. A negative pick up is
an outright purchase of your film’s rights for a pre-negotiated sum. They end up owning
the negative. In most cases, this is a contract and not actual cash. You still have to
deliver the film. But, it is possible to have the contract (or paper) discounted by banks
(see below) to get the funds needed to deliver the film. Then, use the cash to pay off the
loan and your production costs.
Studios also can acquire your films distribution rights for a specific length of time. This
is a straight acquisition deal. This can occur any time before during or after production.
Again, in most cases the money is not due until after you deliver (with very strict delivery
schedules). Again, you will have to “bank” these contacts to get cash. A downside of
working with studios is that they will take a lot of control away from you. So, the later
into the production you sign with them, the better.
Below is a list of the studios and certain key acquisition executives. For a complete
listing of development and acquisition executives, I recommend a subscription to the
Hollywood Creative Directory. Well worth the price.
Seth Nagel Debbie Holbrook
Manager Acquisitions Universal Pictures
Columbia Tristar Motion Picture Group 100 Universal City Plaza
10202 West Washington Blvd. Building 509, Suite 1900,
Culver City, CA 90232 Universal City, CA 91608, United States
Tel 310-244-4000 Phone: 818-777-1000
Fax 310-244-2485 Fax: 818-733-0250
Ellen Pittleman Jim Tauber
SVP, Worldwide Acquisition VP, co-productions & acquisitions
Paramount Pictures Twentieth Century Fox Film Corp.
5555 Melrose Ave., Hollywood, CA 10201 West Pico Blvd.
90038, United States Los Angeles, CA 90035, United States
Phone: 323-956-8292 Phone: 310-369-1000
Fax: 323-862-0300 Fax: 310-369-1558
Andrea McCall Quinn Coleman
Dreamworks SKG Worldwide Acquisitions
100 Universal Plaza Bldg. 479 Warner Brothers
Universal City, CA 91068 4000 Warner Blvd.
Tel (818) 733-9300 Bldg. 139, #25
Fax (818) 733-9984 Burbank, CA 91522
TEL (818) 954-6978
Sara Rose FAX (818) 954-6511
VP, Production & Acquisition
2500 Broadway Street ,
Santa Monica, CA 90404, United States
Fax: (310) 449-3100
Other independent Production Companies
These may have studio deals and or other sources of funding available for you. Many of
the studio’s films they release are actually produced by independent production
companies with studio deals and or strong studio relationships. The advantage of going
to these companies is that there are more of them. This means a better shot at getting
your project actually looked at and covered. The independent production companies
have a number of in-house development people that far out number the studios
development departments. The right company can get your project into the studio system
and get a co-production going with the studio in much less time that you trying to set it
up with a studio directly.
To find the right company to work with, you should research each company to see what
studios they have affiliation with and what picture shave they recently produced. You are
better off teaming with a company that has recently produced something similar. You
can find this information in the Hollywood Creative Directory. You will need to address
the letter to the head of development.
Another thing to keep in mind is that most big name actors have their own production
companies. If you have a strong script that is suitable for a star that just might get them
an Oscar nomination, there is a good chance they will consider your script very carefully.
In the past, I have had many meetings with such companies. You also make good
relationships with their in-house development people, and you can come back with future
projects even if they don’t make the first movie with you. I have been successful at
meeting with production companies owned by Madonna, Kevin Costner, Jim Belushi and
Eddie Murphy to name a few, based on projects that were suitable for them. Again, if
your project is tailored to an actor and it is strong, you can really get a lot of progress by
teaming with an actor’s company. The downside is that if its too pigeon holed for one
actor it may be hard to set up anywhere else.
Production companies not only are owned by actors, but also by writers and directors.
Any one of them can be approached the same way if your project is open to attaching a
writer or director.
For a complete listing of development and acquisition executives, I recommend a
subscription to the Hollywood Creative Directory.
The term, Producer's Rep, has become a catchall term for an agent, manager or anybody
who knows how to sell a film. They can also find capital from a variety of sources but
usually are involved with finding distribution deals.
A Producers Rep is usually an attorney or former Distribution Executive that is well
versed in distribution deal terms. They can help you set up your film project with the
major film studios, independent distributors and sales agents. They usually have an
extensive contact list that they are constantly nurturing by taking their contacts to lunch
and setting meetings consistently over the year. They usually attend all of the major film
festivals and film and TV markets around the world.
Some of the producer’s reps will charge you an upfront fee or retainer for their services
while others will either take their fees from the money they generate for you or take a
percentage or commission on the deal.
A Producer’s Rep is highly recommended if you are seeking a distribution deal. In the
end, they can be less expensive than an entertainment attorney while still providing the
same knowledge and protection (and in some cases they ARE an attorney).
On the financing side, a producer’s rep can be very advantageous. They can hand carry
your project into all of the major studios and networks to see if a pre-sale or pick up is
possible. Their extensive contact list makes them a highly valuable resource in this area.
They may require that they become an executive producer on your project should they
secure the amount of financing you are looking for. They may also want to get hands on
in the development of the project which can be a good thing as their contact list may
extend to agents and managers and even talent directly.
When choosing a producers rep, get plenty of references and find out which festivals and
shows they attend. Also, choose a rep that is familiar with the genre and budget level of
the film you are making.
Below is a small list of some producers reps that I have worked with.
Harris Tulchin Steven Beer
Tulchin Entertainment Attorney at Law
11377 W. Olympic Blvd., 2nd Fl. Rudolph & Beer, LLP
Los Angeles, CA 90064 432 Park Avenue South
Tel (310) 914-7900 2nd Floor
Fax (310) 914-7927 New York, NY 10016
Tel (212) 684-1001
Fax (212) 684-0920
David Garber Mark Litwak
Lantern Lane Entertainment Law Offices of Mark Litwak
2nd Floor 433 North Camden Drive
15422 Ventura Boulevard Suite 1010
Sherman Oaks, CA 91403 Beverly Hills, CA 90210
Tel (818) 222-2309 Tel. (310) 859-9595
Fax (818) 224-4028 Fax (310) 859-0806
They do loan money for movies but they expect a lot of protection in return… like your
house as collateral or more! Lots of paperwork, too.
Banks loan money to finance movies only under certain conditions. The most important
condition is that there be some distribution contracts with some form of financial
guarantee already in place. For example, if you have a film with a budget of $1 million,
you will need to have enough distribution contracts with cash guarantees that will cover
the entire budget AND the bank fees of around 12%. So, maybe you end up with 1.2
Million in distribution contracts and you can make the movie, right? Well, not exactly,
these contracts must be from stable companies with a proven track record of fulfilling
cash guarantees, etc. The bank will scrutinize each and every contract.
If there is a shortfall in the amount if contracts, for example, say you only raise $1
million or $800,000. Then you will have what is known as a “gap” between your budget
needs and your guaranteed distribution deals. In this case, and in rare instances only, the
bank may decide to loan an amount of money equal to the shortfall. This is called “gap
Gap financing is harder and harder to get. A few years back, some insurance companies
provided policies to the banks that insured the gap amount and virtually guaranteed the
amount to the bank, thus making it possible for the producer to secure the loan. But,
most insurance companies involved with this scheme lost money and I do not think it is
offered any more. After all they were looking to make money on premiums, a small
amount , and the film business is a risky venture, so in many cases they had to pay the
claims to the banks and lost a lot of money!
Here is a sample Letter of Interest from a Bank Finance Entity:
Re: Production Financing for “Joe Movie”
Dear Mr. Producer:
Thank you for contacting our Bank (the “Bank”) to discuss your financing needs for the feature
films entitled “Joe Movie” (the “Picture”). This letter will confirm our interest in providing the
interim production financing for the Picture, subject to the completion of our due diligence, and
formal credit approval by the Bank's Senior Credit Committee. The following is for discussion
purposes only and is neither a commitment nor obligation to lend. The proposed terms and
conditions for our involvement are predicated upon the following assumptions:
Borrower: A newly formed special purpose company, the sole activity of the
Borrower is the production of the Picture.
Facility Type: Production loan.
Purpose: Solely for the purpose of financing a portion of the production costs of a
theatrical motion picture, presently entitled “Joe Movie”.
Loan Amount: US$1,750,000. This amount is subject to prepayment at closing of
interest reserves as customarily calculated, loan fees, legal fees and
disbursements and other lender charges. The total estimated bank
charge is $190,000.
Interest Rate: Daily floating rate equal to 1/360 of Bank of America “prime” rate plus
2.0%, payable monthly.
Loan Fee: 2.25% (US$39,500) of total Loan Amount earned and payable at
Gap Fee: N/A
Legal Fees: Reserve established in the amount of US$15,000. A deposit of US$5,000
will be remitted along with the acceptance and signing of a commitment
letter, if provided by THE BANK, with the remaining balance of
US$15,000 due at closing.
Interest Reserve: To be calculated based upon the production cash flow. Currently
estimated to be approximately US$135,500.
Repayment: Interest is due monthly and will be capitalized under an interest reserve
included in the facility. The Bank will receive 100% of gross revenues
generated from the Picture until 100% of principal, interest, and
miscellaneous expenses, including legal fees have been repaid in full.
Maturity: 24 Months from closing.
Security: Borrower to assign to Bank and grant to Bank a first position security
interest in all rights, title, and interest in and to the Picture, all accounts
receivable, general intangibles (including copyright) relating to the
exploitation and distribution of the Picture, all existing and future
distribution agreements, and all proceeds from the distribution,
exhibition, and exploitation of the Picture, subject to inter-party
agreement(s), Notice of Acknowledgement and Assignment(s), inter-
creditor agreements, security agreement and loan agreement. Security
to include all rights to receive proceeds from any tax or subsidy
transactions relating to the Picture. Standard security filings for
facilities of this type including (but not limited to) mortgage of copyright,
UCC filings, as well as laboratory pledgeholder agreements, and guild
Bond Company: The Bank will be a beneficiary of a completion bond covering the
amount of our loan, from a bond company acceptable to THE
BANK, covering the delivery of the film.
Requirements: E&O insurance - Additional Insured Full Production Insurance - Loss
1. All Distributors to execute either an Interparty Agreement or Notice of
Assignment and Acknowledgment on THE BANK's standard form,
waiving all defenses, rights of offset and approval rights and
subordination of liens.
2. Borrower to have good and marketable title to literary rights subject to
no liens or encumbrances. Chain of title documents to be approved by
THE BANK's counsel.
3. Any existing liens against Picture to be terminated.
4. No material adverse change in Producer’s or Distributors’ financial
condition or results of operations.
5. No pending litigation against Producer or, as may relate to the Picture,
against or by any Distributor.
6. All Loan Documents to be prepared by THE BANK's counsel and to be in
THE BANK's customary form. THE BANK and its counsel to review and
approve all documents and other matters relating to the transaction,
including other financing arrangements.
7. The producer will be YOU.
8. Joe Sales Company will be the sales agent. Sales agent fees and
expenses will be subordinated until the loan is repaid.
9. THE BANK will be in first recoupment position from all world
10. Net presales/investments, after deposits, as follows:
Distributor/Investor Territory Amount Owed
Maximum Pictures World Ex US 1,000,000
Fright TV* US 750,000
*payable over a 24 moth period
Once again this is not a commitment to lend. The final terms and conditions may change and
are subject to bank credit committee approval. Any changes in the aforementioned assumptions
will directly impact our ability and interest in considering your loan request. This letter
supersedes all prior discussions and agreements, if any.
I trust this letter meets your needs and outlines the general terms we have discussed. I would be
happy to speak with you to further explore the prospects of a production loan. If you have any
questions, please call me.
Here is a List of Banking Organizations that specialize in Entertainment Lending.
Bank of America NT Banque Paribas
Commercial Banking Entertainment Contact: Michael Mendelsohn,
Office Contact: Kapil Sharma Consultant; Douglas Hansen, VP;
2049 Century Park East, Suite 200 Rene Turin, Entertainment Coordinator
Los Angeles, CA 90067 2029 Century Park East, Ste. 3900
Tel (310) 785-6015 Los Angeles, CA 90071
Fax (310) 785-6100 Tel (310) 551-7300
(For productions of $5,000,000 or more) Fax (310) 556-8759
City National Bank Lewis Horowitz Organization
Entertainment Division Contact: Lew Horowitz, Pres.;
Contact: Daniel Zbojniewicz, Sr. VP Arthur Stribley, Sr. VP; Brenda Dolby,
400 No. Roxbury Drive, 4th Floor VP
Beverly Hills, CA 90210 1840 Century Park East, 2nd Flr.
Tel (310) 888-6183 Los Angeles, CA 90067
Fax (310) 888-6159 Tel (310) 275-7171
Fax (310) 275-8055
Union Bank of California
Contact: Christine Ball California United Bank
495 S. Figueroa, 16th Floor Contact: Gwen T. Miller
Los Angeles, CA 90071 16030 Ventura Blvd.
Tel (213) 236-5828 Encino, CA 91436
Fax (213) 236-5852 Tel (310) 475-2342
Fax (310) 446-3101
Entertainment Industries Group Mercantile National Bank
Contact: Morgan Rector Entertainment Industries Division
9777 Wilshire Blvd., 4th Floor Contact: Melanie Krinsky, Exec. VP
Beverly Hills, CA 90212 1840 Century Park East
Tel (310) 338-3100 Los Angeles, CA 90067
Fax (310) 338-3171 Tel (310) 282-6708
Fax (310) 788-0669
Chase Manhattan Bank Entertainment J.P. Morgan Entertainment Ind. Group
Industries Group Contact: John W. Miller, Managing
Contact: John W. Miller, Managing Director;
Director; P. Clark Hallren, Christa P. Clark Hallren, Christa Thomas,
Thomas, Kenneth R. Wilson, VP's; Kenneth R. Wilson, VP's;
Elizabeth Fjelstul, associate; David 1800 Century Park East, Suite 400
Shaheen, Analyst Los Angeles, CA 90067
1800 Century Park East, Suite 400 Tel (310) 788-5600 Fax (310) 788-5629
Los Angeles, CA 90067
Tel (310)788-5600 Comerica Entertainment Group
Fax (310)788-5629 Contact: Morgan Rector, Pres.
9777 Wilshire Blvd., 4th Floor
Chemical Bank Entertainment Group Beverly Hills, CA 90212
1800 Century Park East, Suite 400 Tel (310) 281-2400
Los Angeles, CA 90067 Fax (310) 281-2476
Tel (310) 788-5600
Fax (310) 788-5628
Completion Bond Companies
Banks want to loan money. But more importantly, Banks want to make money. They
make a very small amount on the money the loan. So, they have to be very careful about
who they loan money too. Your film with have to be bonded, i.e. a completion bond
company must be paid to guarantee to the bank that the film will be completed. Look at
this as a form of insurance policy. Most banks have a list of Completion Bond
Companies that they work with. But, a list can also be found here:
Film Finances Incorporated International Film Guarantors
9000 Sunset Boulevard Suite 1400 10940 Wilshire Blvd., 2010
Los Angeles, CA 90069 Los Angeles, CA 90024
Phone: (310) 275-7323 Phone: (310) 208-4500
Fax: (310) 275-1706 Fax: (310) 443-8998
email@example.com Steve Mangel
WorldWide Film Completion, Inc.
2901 28th Street, Suite 290 Motion Picture Bond Co.
Santa Monica, CA 90405 1801 Avenue of the Stars, Suite 1010
Phone: (310) 450-1600 Los Angeles, CA 90067
Fax: (310) 450-3399 Phone: (310) 551-0371
Contact: Robert Mintz Fax: (310) 551-0518
firstname.lastname@example.org BJ Rack: BJRack@mpbond.com
Complete Film Co. LLC
3000 W. Olympic Blvd., Suite 1432
Santa Monica, CA 90404
Phone: (310) 315-4767 Fax: (310) 315-4768
Contact: Mark Fink, President
A natural source of financing are the very buyers who need product. Many times they
will take their territory as part of the deal, in addition to their equity stake. Has suffered
some over the years as local production in Foreign countries has proliferated. A Foreign
Sales Company can help with this kind of financing.
To find foreign sales companies, please visit the web site of the American Film
Marketing Association (“AFMA”) at:
For a complete listing of foreign distributors and buyers, I recommend The Hollywood
Creative Directory Foreign Buyers List available at http://www.hcd,com.
Foreign Sales Companies (Presales)
Sort of combines 4 and 5 above. Can include equity positions for foreign buyers but is
basically a sale of the territorial rights before the film is finished. Then, if the buyer is a
strong distributor in the territory a bank MAY lend money to the production based on the
amount of the contract, with a deep discount, high interest or both. Pre-sales have come
and gone over the past few years. Unless your project has valuable name actors, it is very
had to get those going. It also take a very long time to put together.
To find foreign sales companies, please visit the web site of the American Film
Marketing Association (“AFMA”) at:
Foreign Tax Credits
Foreign Tax Credits are basically rebates from Foreign Governments on money that you
spend in their country while making a movie. The amount of the rebate can be
substantial, like 25% or higher! Canada is a big Tax Credit hot spot for American
Producers. When combined with a Canadian Content deal, where some of your major
cast and talent are Canadian, this rebate can be increased even higher! But, trying to
make a movie fit within the content restrictions can limit your powers as a producer.
Also, you most likely will have to either form a Canadian company or partner with one.
For more information on Canadian Tax Credits, please visit the following:
Canadian Film and Television Production Association: www.cftpa.ca
Ontario Media Development Corporation website: www.omdc.on.ca
Telefilm Canada: www.telefilm.gc.ca
U.K. Sale and Leaseback
The leasing structure developed in the UK enables a qualifying film to be sold by a
producer to a partnership. That partnership is a see-through vehicle for tax purposes and
enables tax losses to be passed on to the individual partners in that partnership. The
partnership then enters into a finance lease, usually for a period of 15 years, leasing back
the distribution rights to either the original producer or a third party.
As far as the producer is concerned, the distribution rights will be exploited in the normal
way. The only change that has occurred is that the original "freehold interest" that the
producer once enjoyed has now been turned into a leasehold interest under a 15 year
lease. You will find below a diagram which shows the way in which the structure
In order to fully exploit this structure, the production must be a British production. The
qualifications of such include the primary producer being British and 70% of the budget
being spent in Britain. There are ways to structure this for American companies.
There is an excellent web site on this subject from Scotts Atlantic, a company that can
help you structure a U.K. Sale and Leaseback. Please get in by going here:
Grants: Funding for Independent Media
These are also available for the filmmakers who are eligible and are willing to deal with
Here are some informative web sites on applying for Grants:
The Independent Television Service (ITVS): Established by Congress " to encourage the
development of programming that involves creative risks and that addresses the needs of
underserved audiences", ITVS has more than 115 single programs and 17 limited series
in production or distribution. Their site contains funding guidelines for all initiatives
including OPEN CALL and LiNCS.
National Endowment for the Humanities: supports films and videos with humanities
Corporation for Public Broadcasting: Includes information on programs, grants and
public television stations.
The Indie Scene on PBS: PBS’s web site for providing information about procedures and
guidelines for PBS and other public television entitites. Highlights and provides
information on indie films on public television and connects makers to resources. Has
excellent explanations and links to and of the public television system.
Fundraising consultant Morrie Warshawski has compiled an excellent bibliography with
many links to resources and publications about fundraising as well as to funding sources.
The Moving Image Fund - a three year special initiative of LEF New England to focus
support on the media arts in New England. The goal of the initiative is to strengthen the
independent voices of New England film and video artists and to increase audiences for
their work. new guidelines are available at: www.lef-foundation.org
Massachusetts Foundation for the Humanities: Funds humanities initiatives and
programs, including film and video. The site includes information about their grant
programs, as well as links to all the other New England Humanities Councils.
Massachusetts Cultural Council: Listings of all the Councils programs and services.
http://www.nyfa.org/vaih: A program of the New York Foundation for the Arts, the
Visual Artist Information Hotline is a free national information service for individual
artists working in all visual arts media (painting, sculpture, photography, film, video,
drawing, printmaking, crafts, etc). The Hotline empowers visual artists by providing them
with information about resources to facilitate their work.
Artists can speak directly with staff at NYFA by calling (800) 232-2789 between the
hours of 1 and 5 p.m. EST, Monday through Friday. During other hours, artists can
request information either by leaving a message on their voice mail, or by e-mailing them
The Foundation Center
The Paul Robeson Fund for Independent Media: supports independent social issue film,
video and radio. Check their site for guidelines and application information.
Massachusetts Media Fellowships:
Grantscape: A resource about funders and fundraising for non-profit organizations and
projects. Check out their "funder of the day".
The Moving Image Fund: A three year special initiative of LEF New England to focus
support on the media arts in New England. The goal of the initiative is to strengthen the
independent voices of New England film and video artists and to increase audiences for
their work. new guidelines are available at: www.lef-foundation.org.
Cable Companies like HBO, Sci-Fi, etc.
They have been making indie films for years. Used to be a great source, but dried up as
they started their own in-house divisions and now rely less on indie producers. For
example, HBO used to co-producer with indie producers some 13 movies a year and now
it is something like 3 a year. They also pick up less and less “premieres” which would
get you some funding.
On the brighter side, channels like Sci-Fi Channel are actively pursuing co=productions
with indie producers that can deliver on the genre they are acquiring. The kinds of deals
they are looking for vary, but at the script and development stage, they would commit up
to 50% of the budget for the TV rights. In most cases they will insist on having the first
window of exhibition, i.e. a Premier Movie or Original. All other media like Theatrical,
video, etc. would have to go after there premiere. But, for half your budget that’s not a
bad deal! You can also sell your video rights or remaining Global rights to a studio or
video company that will put you in profit before you even shoot a frame of film!!! Other
channels to target for this kind of deal would include COURT TV, LIFETIME, ABC
For a complete listing of development and acquisition executives at these channels, I
recommend a subscription to the Hollywood Creative Directory. Here are a few
Chris Grunden Tom Vitale
HBO Enterprises USA Networks
1100 Ave. of the Americas V.P. Acquisitions
15th Floor, 1230 Ave. of the Americas
New York, N.Y.,10036, New York, NY,10020-1513
Tel. (212) 512-5055 Tel. (212) 413-6531
Fax (212) 512-5903 Fax (212) 413-5703
Gary M. Garfinkel Taly Johnson
Showtime Networks Inc. USA Networks
VP Acquisitions 1230 Ave. of the Americas
10880 Wilshire Blvd., Ste.1600 New York,NY,10020-1513
Los Angeles, CA 90024 Tel. (212) 413-6530
Tel. (310) 234-5392 Fax (212) 413-5773
Fax (310) 234-5281
Brett Marottoli Lifetime Television
Starz Encore Group SVP/Planning, scheduling, and
Senior Manager, Multi-Cultural Acquisitions
Acquisitions 309 W. 49th St. 16th Floor
8900 Liberty Circle New York NY,10019
Englewood, CO 80112, Tel. (212) 424-7383
Tel. (720) 852-8455 Fax (212) 424-7024
ax (720) 852-7316
Venture Capital (“VC”)
Not an ideal way to go as Venture Capitalist tend to be very hands on. Also, film
ventures are usually far too risky for them.
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Your Company: How to raise venture capital Week of Week of February 10-14. How to
raise venture capital. Obviously, it's not easy-but here are some tips from VC execs on
the things they like to see in a proposal.
Investment Capital Groups
Companies that have raised large sums of money specifically fore entertainment
investing. Will probably cost as much as a bank with the control of a VC.
Newmarket Capital Group LP
Contact: Chris Ball, Will Tyrer, Co-founders
202 N. Canon D. Beverly Hills, CA 90210
Tel (310) 858-7472
Fax (310) 858-7473
Won the lottery lately? Robert Townsend did with credit cards, which I would not
advise. Robert Rodriguez allowed pins and needles to be poked to his body for a fee.
What can you come up with? Making movies with your own money is the easiest way to
go. No one will tell you how to make your film. But, since film is so risky of an
investment, I don’t recommend this. It is always safer to use other people’s money. I
have seen more than one filmmaker blow a life’s savings on a film that nobody will ever
The most accessible source of financing for independent filmmakers. Private investors
are doctors and lawyers and whatever other profession is out there that has a little capital
to play with. When I was in Cannes recently for the festival, I had lunch next to a couple
who just happened be in town from Texas and they were telling me how excited they
were to have recently invested in a low budget independent film. He was an engineer!
The most popular method to raise private money has been the Limited Partnership
Agreement. A limited partnership gets its name from the fact that the investors in such a
project are “limited” only to there investment amount in terms of liability. They have no
say in the running of the partnership. They are “passive” investors. You , the General
Partner, make all the day to day decisions.
In order to solicit private investors for a limited partnership, you will need a Private
Placement or Investment Memorandum. To buy a template you can edit, (or to get a
FREE sample), please got to: www.movieplan.net.
How do you find actual real investors?
Again, there is no magic to this. You will need to compile a list of people you know that
can afford to invest large sums of money. If you don't have a list, you will have to go to
someone who packages investments. The trick here is there are S.E.C. rules for soliciting
an investment. They have to be people known to you. Maybe you have a doctor who
would consider such an investment. If so, he will probably know other doctors. I know it
sounds lame, but this is how it's done. It would be easy if you could just run an ad and
ask for investors, but its just not legal.
Certainly, you could call a list of potential investors from whatever source you have and
ask them if they would be interested in such an investment. If they are, then you can send
them the investment memorandum. If they like what they see, then you can send a
complete prospectus (which is the actual offer).
There are many problems to indie filmmaking and financing is just one of them. Probably
the best filmmaking book is "Independent Feature Film Production" by Goodell. This is
one of the only indie filmmaking books that actually includes information on film
financing and the documents and procedures required.
When you speak to someone about financing your project you MUST be VERY careful.
Investing in your film is a SECURITY and as such is regulated by the SEC. That's right,
the Securities and Exchange Commission (aka: The Feds). Improper procedures or
discloser can result in fines or more.
When seeking investors make sure that you're not speaking to people that you're not
acquainted with. If you do, the Feds can classify it as "solicitation". That's illegal.
Here is another problem. If you offer it in the wrong way say, announcing it at a party or
placing an add in a magazine or similar media, they can classify it as a "Public
Offering"...Again, this is illegal. This one would cost you, the filmmaker, dearly. You
would be required to register the stock with the SEC and that is quite costly.
Be careful and make sure you're attorney looks over the information before you proceed
to financing. If you don't have a lawyer, usually there are some local support groups that
can help you find one. Contact you're local IFP or the closest IFP office
(http://www.ifp.org) to you.
REGULATION D : A popular option
As mentioned above, you need to follow certain rules or you will get in trouble. When
raising money, securities must be registered with the Securities and Exchange
Commission. This entails detailed disclosure, historical financial statements, and third
party audits that take time to assemble. The whole thing requires many hours of
assistance by attorneys and accountants, and the SEC review can last from 20 to 60 days.
It can cost a business thousands of dollars even before the offering makes any money.
HOWEVER, a private placement using an Investment Memorandum, however, is
EXEMPT from federal registration. Exemptions have always been available under the
Securities Act of 1933 (the Act), but the original exemption provisions were vague and,
therefore, risky for business owners to invoke.
In 1982, the SEC adopted Regulation D, which set forth objectives and rules for
exemptions from registration with the SEC. Offerings exempt under these rules 504, 505
and 506 have become the most common cost and time saving methods for indie
filmmakers to raise capital from private investors.
Here is a brief breakdown of the rules:
Rule 506 : Allows you to make limited offers and sales of investor shares regardless of
the dollar amount of the offering. This exemption does not limit the number of accredited
investors (An accredited investor is any one investor with a certain net worth and or
experience in the purchase of stocks.), but the number of nonaccredited (i.e. your friends
and neighbors, most likely) investors may not exceed 35 investors. All nonaccredited
purchasers, either alone or together with a designated representative must be
sophisticated enough (i.e., have the knowledge and experience necessary) to evaluate the
merits and risks of the investment. (An offering company typically determines the
sophistication of its investors with a questionnaire subscription agreement.) Rule 506
requires detailed disclosure of relevant information to potential investors; the extent of
disclosure depends on the dollar size of the offering.
Rule 505 : Offerings may not exceed $5 million, less the total dollar amount of securities
sold during the preceding 12 month period under Rule 504, Rule 505 or Section 3 of the
act. This exemption limits the number of nonaccredited investors to 35 but has no
investor sophistication standards. Rule 505 requires disclosure similar to that required for
Rule 506 offerings, under $7.5 million.
Rule 504 : Offerings allow a business to raise a maximum of $1 million, less the total
dollar amount of securities sold during the preceding 12 month period, under Rule 504,
Rule 505 or Section 3 of the act. However, a business can raise only $500,000 by the sale
of securities to persons residing in the states of Montana and Alaska, which have no
disclosure laws applicable to the offering. For the states that do have disclosure laws,
which are 48 out of the 50 states, a business can raise up to $1,000,000. Rule 504 has no
prescribed disclosure requirements, no limit on the number of purchasers, and no investor
Rule 504 is the most commonly used Regulation D exemption. Offerings that are exempt
under Rule 504 are relatively simple to prepare, which reduces cost and delay and can
generally be underwritten by the offering company (the securities being sold by the
company's own officers, directors and employees).
How To Approach Investors
Finding investors is always the trick. You should first approach your "soft" market
around you, i.e. friends, family, doctors, etc. Anyone that has enough money to be
qualified as an investor, i.e. Can lose their investment with no effect on their lifestyle.
Once you start talking to people, ask them for the contact info of other investor
possibilities. The trick is that your investors must be "known" to you in order to avoid
SEC filings. So, if they are a friend of a friend you will need to have your friend set up a
meeting with the three of you to discuss something other than the film investment first. If
the bring it up, then its ok. Sounds lame, but the law is the law.
You also have to check your state's laws with regard to the number of people you can
approach. This is limited if you want to avoid the SEC filing. In California, you can
solicit any number of investors, so long as this is direct solicitation and not a public
solicitation on the Internet or in a publication. There is also a limit to the number of
investors allowed in the partnership. In California, for example, this number is 35. You
should be able to look these rules up on the internet or consult a securities attorney.
You can also create a web site for your film, promoting the production, cast, story,
yourself and – in a limited way – the investment opportunity (although, you should never
call it that). You can then create an "info link". Then you can email them some general
info and start a "relationship". Get them to join your email update list first. Then, get
them to somehow ask you for a memorandum. But, again, you cannot say” anyone who
wants to invest, please request a proposal”. That would be a public offering and you
could go to jail. This is serious stuff! Please check with a securities attorney first or
make sure you are in compliance with all your states laws.
My understanding is that there is a way around this on the Internet which is interesting.
Since a traditional limited partnership is considered to be a “passive” investment, i.e. the
investors have no say in the running of the production and partnership, you can offer an
“active” investment vehicle without having to register with SEC. An active investor is
someone that is putting up money, but also helping you make decisions on the project.
You can advertise for an executive producer in this way. But, keep in mind that active
means active and that you may have disagreements on how to run the production. While
you may or may not have to listen to them, a disgruntled investor could file a complaint if
you do not treat them like an active participant.
If after assembling a number of active investors you still do not have enough money to
finish the film. You can convert the project to a Limited Partnership and then re-
approach the active investors to see if they want to be involved as a passive investors.
Since you now have a relationship with them, it is not illegal to do this. Then, you can
approach other passive investors (following the laws) to fund the gap amount needed.
For more info, please read this great article by noted securities and entertainment
attorney, John Cones: http://www.mecfilms.com/coneslaw/memos/memo2.htm
You also need to keep in mind that you must adhere to the laws of each state that your
investors are in. For example, if you are in California, and you have an investor in
Nevada, you will need to research the laws of Nevada to make sure you are not breaking
their laws on Securities.
In all these cases, you should be able to send the memorandum after your lawyer has
approved it and after the potential investors have requested it.
Once you have investors who want to participate, then they will have to sign a more legal
and complex document called a Limited Partnership Agreement. But, that is another
report… Suffice it to say that you will most likely need an attorney to draft this
agreement. However, a sample is available to download when you purchase Movie Plan
Questions and Answers on Private Financing. Here are some questions that I have
received from my website at www.movieplan.net.
1. How should we structure ourselves legally to proceed with getting investors and thus
protect ourselves from harm?
[ANSWER: The most common method is to form a brand new company specifically for
the film, like "Angelic Productions". This can be a corp. or LLC. But it should have no
ties to your other companies. Then, as you develop the project, you can form a
development company (for packaging and financing) or a production company (for
actually producing the film). These companies would be Limited Partnerships with the
initial company "Angelic" being the General Partner.
The first company, "Angelic Development Partners LP" can go about and raise a small
amount of money from investors to further develop and package the property. These
investors are in a better position than the production investors as these costs are built into
a budget of a film. They do not count on whether the film makes money. They make
their money back if the film is financed. And then they make money with you if the film
is successful. This is sometimes very attractive to investors. This is also an ideal
structure if you are going to have a third party financing company step in, like a studio.
The second company "Angelic Film Partners LP" will have the script, cast and key crew
positions in place from the first company's efforts. This company will raise production
funds from additional investors. They can also be the same investors.]
2. How should we approach investors and yet maintain control over the casting, location
and direction of the picture?
[ANSWER: The nature of a limited partnership is that the general partner makes all the
decisions and keeps all the control. That is why they are limited. Make sure they know
this up front. They need to trust you as the general partner.]
3. How do we approach Directors, Producers and known actors to get our intentions
recognized with emphasis on commitment letters etc.
[ANSWERS: You have to do this the old-fashioned way. You will need to call their
agents and managers and pitch the project to them. Times are tight, so there is a lot of
interest in indie films these days. Just keep your aim realistic. Also, a director is the first
place you should start. Actors always want to know who is directing and if you get a
good one, he or she will have friends they will want to work with. If you have money
attached, that will also make it easier for people to listen to you. You should also hire a
casting director in L.A. to help approach these people. A good L.A. based UPM can
hook you up with loads of great directors. Hiring key positions like this will help build
4. Should we approach distributors/movie production co's about buy in or collateral
financing minority programs etc?
[ANSWER: You should send query letters to foreign sales agents and distributors when
you have a packaged project. It is important to get the feedback of the companies that
know how to sell movies. After all, they know what is working in the market place.
Many distributors or sales agents will write letters of intent if they like the film.
Equity is a little harder. However, the right package can get interest from distributors
who want rights and equity. Again, you just have to send query letters and call them.
They are always looking at new projects. You can also hire a producer's rep with good
industry contacts to help you pitch it.]
5. what is the sure fire (if there is one) genre being made and sold right now in the Indie
feature realm in the states? If a picture were to be made, what would it be like? Subject
matter, cast, action, etc.
[ANSWER: There is no such thing as "sure fire". But genres that works and actually
make their money back are usually of the more exploitive kind, i.e. horror, action, sci-fi,
erotic. This applies for the States and the foreign markets. Right now, the "urban"
genre is working well on home video in the U.S. There are low budget action pictures
that usually feature a name rapper as the lead actor. Also, Hispanic action movie are
taking off. Other genres that Blockbuster Video is looking for from Indies include
alternative (gay & lesbian) lifestyles.]
6. Same parameters as question #1 but for international markets?
[ANSWER: Action, action, action. Disaster movies. Some horror and sci-fi works.
Also, family movies, especially with animals are very big in the international markets.
These animal movies can be made fairly cheaply, when you think about it.]
7. A while back you had mentioned that you could possibly assist with securing
distribution or at least direct me places. What do you require as a starting point for
getting the ball rolling?
[ANSWER: You have to have a script and cast or director first. There is also a list of
companies available from www.afma.com.]
8. Straight to video: how is the deal presented to investors differently than a picture that
is going to theatres. And how would I find out what a picture can potentially make going
through this way of reaching buyers? What are the standards? I need to be able to know
what I am talking about when talking with potential investors, especially if they are in my
"soft" market, what can you tell me?
[ANSWER: Straight to video movies are hurting more these days than ever before. The
top renting movies are still theatricals that have grosses more than $10 million. But, if a
film is made for the right budget, say a few hundred thousand and it is a marketable
genre, like an urban action picture with a Hispanic and African American cast (maybe
even a rapper), it could translate domestically and overseas. On a budget of $300,000 a
film could gross $500,000 to $1 million.
9. Am I right to think that presenting internet sales, video rental and retail (here and
abroad), and cable broadcast is enough to entice investors to invest in a picture? Or do I
present a theatrical release aspect even though it may be a long shot and not really in the
overall plans (with the exception of a premier in a few choice locations)?
[ANSWER: You should try to include a best efforts clause where you will try to secure a
theatrical distribution deal. But, you should outline the difficulties of getting such a
For a complete list of reports and products available on the subject of film development
and financing, please visit www.movieplan.net or email to email@example.com.
© 2003 Ted Chalmers Software / Chalmers Entertainment Corporation