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Financing Your Independent Film

Financing Your Independent Film

“Exit Strategy” is a feature-length film I wrote and am producing. In a future column I’ll talk about the writing, working with a screenwriting partner, and getting initial feedback on the story and on the film’s future marketability. Today I want to share with you a few pages from the fundraising adventure.

Step two in the funding hunt for “Exit Strategy” (after writing the business plan, which I’ll discuss in another post) was approaching friends of mine who have money. I knew how much the script as written will cost to produce ($ 6,000,000) and how much marketing will cost if a distributor doesn’t pick it up early or if I don’t get any pre-sales (highly unlikely in both cases). So, it’s very probable that I’ll have to raise the money first and shoot later.

When I say “friends of mine who have money,” what I actually mean is former colleagues of mine from my previous life incarnation; and these colleagues (now to be known as friends) who have M*O*N*E*Y.

“Don’t worry about approaching them,” my friend Murray told me. “Rich people are just like you and me … only they have money.”

Thanks, Murray.

Rich people are just like you and me. NOT. That myth is popularized in motivational speeches and in sales training classes. It is not true. Sob.

My first Friend With Money was my ex-boss Rob. Rob had been the president of a small tech company that was purchased by Amazon back in the day. He came out of that deal with $100,000,000. Me, I came out of it with $100,000. Time was, after we had stopped working together, we would chat on the phone periodically. Rob was getting richer and I was writing screenplays and looking for another job because in San Francisco with a mortgage, you can’t get by for very long, even with $100,000.

He would tell me on the phone, “Without your work and contribution, we wouldn’t have been able to make that sweet exit.”

“Sweet exit” is code for, “I (Rob) got a boat load of money from the deal.”

Rob subsequently sold two other companies to Google and to AOL, and at the time I approached him about “Exit Strategy,” was running an investment firm.

Why do individuals invest in films? A number of reasons, depending on the person. They are attracted to the glamour, the cachet. They want to hang around with impossibly skinny young actresses. They have a story to tell. To make money. To support the arts. To promote their self-image. To help a friend. In Rob’s case, I figured I would leverage a couple of reasons: making money and helping a friend, mostly the latter.

Let me explain how investment firms work. The company takes in money from a number of sources, depending on how the company is structured — either high net worth individuals, funds, companies, banks or some combination of those. Rob’s investment firm was rather small, with perhaps $800,000,000 (that’s 800 million dollars) under investment. The firm then invests in a select portfolio — a collection of small companies — again depending on its own objectives. Generally the partners (investors) expect to make overall from 1000% profit to obscenely more than that.

The firm will carefully vet start-up companies and invest in a portfolio of, say, a dozen of them. Out of those 12 new companies, the investment firm is betting they will lose everything on seven of them (the companies will spend the money and go bust without making any profits). Perhaps another four will make some revenue, enough to return 110% to the investors in a few years (if the firm put $5,000,000 into a company, they might expect to get back $5,500,000 after three or four years). One investment will pay 1000%, so the investment firm will get back $5,000,000,000 or 5 billion dollars on a 5 million dollar investment. This can be true especially in technology, biotech, robotics, internet and other high-risk, high-growth industries.

It is not true in film, even in studio films. You’ll see numbers for Hollywood films that show a budget of $150,000,000 that return only $200,000,000 in box office; that’s not even 110%. Of course, these numbers are not the whole picture. Normally you don’t ever know (unless you were an insider on that particular film) the marketing money spent, the back-end owed or the corollary revenue (non box office). But … it’s not a high percentage game.

However, I had a business plan that showed a modest film — remember, about $6,000,000 to get through post — that could earn what we spent. Very little return, but not a case of going broke and losing the investment.

With this in hand, I thought to approach my Friend With Money.

I was at a party with a bunch of other friends, business types. You do get to hear the best gossip at parties. In this case, I heard out of the corner of my ear Lil (a millionaire) talking to Rakesh (a multimillionaire.)

“Have you talked to Rob lately?”

“No. Didn’t you read in Forbes that he is now a multi-billionaire? Ever since then, he doesn’t speak to mere millionaires.”

Uh-oh.

Come to think of it, I hadn’t talked to Rob for about a year, either. So, I put in my phone call. He didn’t pick up his office phone. No surprise. I left a voice-mail.

No answer.

Emailed him.

No answer.

Called his cell phone.

Got a call back from his secretary. “Oh … we don’t use this number any more. Please take it out of your contact database.”

And now I know that Murray is overly optimistic. Rich people are just like you and me, only they don’t return calls from their used-to-be-friends.

Who is the next potential funder I approached? Find out next week when I share more adventures from the film financing diary.

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