On March 23, 2009, the New York City chapter of the Institute for International Film Financing (IIFF) held a Town Hall Meeting at the School for Visual Arts on the topic of “Financing Your First Feature Film.” Once again, media consultant, David Rosen hosted a distingushed panel consisting of the following film industry experts: high-powered entertainment attorney, Bianca Bezdek, Esq.; producer/distributor, Larry Meistrich (NEHST); producer, Ted Hope (This Is That Productions); and independent filmmaker, Kimi Takesue.
Ted Hope mentioned his perception that in LA, more than NY, entertainment attorneys may be more willing to be compensated by a percentage on the back end, as many independent filmmakers may have difficulty budgeting payment of traditional legal fees when raising financing. Larry Meistrich emphasized the critical nature of utilizing a qualified attorney to prepare a private placement memorandum (PPM) to solicit investment from “accredited investor” (over $1.2 million net worth, or at least $250,000 per year income in last two years)participants. Bianca Bezdek, Esq. advised that soliciting investment in a film constitutes issuing a financial security, subject to state “Blue Sky” laws and federal securities regulations, hence the need for retaining a qualified attorney to prepare the offering.
Bezdek suggested a strategy of setting up three levels of companies. The top tier company is utilized as a development vehicle; the middle tier company serves as an investment vehicle; and the bottom tier company functions as the production vehicle. A savvy investor will want to see chain of title in the creative property pass into the investment vehicle.
Meistrich stated that so-called “1-off” (single project) film financing is no longer particularly viable, and proposed the innovative strategy of “selling a piece of you” for filmmakers to offer percentage participation (e.g., 10%) in one’s future career development as a financial incentive to potential investors. Most first films lose money, so that if a burgeoning writer/director manages to get signed for further projects on the strength of a first effort, it may be fair to offer participation (or at least “make whole” protection) to investor(s) willing to take a risk on an undiscovered talent.
Hope provided the practical advice that it may be preferable to negotiate business terms and put them in writing up front at a time when the parties are both enthused and getting along, to protect against disputes when problems arise. As an independent filmmaker, Kimi Takesue recommended finding a way to connect directly with investors, to be able to impart one’s passion in the project. Meistrich offered the sobering counterpoint to advise that passion or sacrifice are essentially meaningless to a sophisticated investor, who is only interested in whether investing makes good business sense.
Meistrich characterized raising money for independent films as “begging for a living,” and recommended compiling a list of potential investor prospects three levels deep (i.e., friends of friends, etc.). Within the last 45 days, he indicated that a lot of investors “have their money on the sidelines,” the downturn in traditional investments such as the capital stock or real estate markets increasing interest in alternative investment opportunities.
The panel provided a strong ”wake-up call” to filmmakers to really do their homework to determine why an investor should want to invest in their film, and how the film could be marketed. Hope emphasized that a filmmaker needs to make completion of one’s film project seem “inevitable,” by identifying your audience and figuring out how to reach your audience. He mentioned with the recent plummeting of the domestic distribution market, and the 40% drop in the foreign sales market, that films in the $10 million budget range are finding it increasingly difficult to raise money. Conversely, small indie film projects with low (under $500,000) budgets, perhaps as low as $200,000, may be more attractive possible investments, as recoupment is less inherently risky.
In raising money from potential investors, Bezdek emphasized that “pitch is everything,” and shared the rare anecdotal story of a client who literally got a $1 million commitment from an investor on a pitch alone. One should keep in mind the “Three Cs of Lending”: Collateral, Creditworthiness, and Character. The last of these (Character) borrower characteristics is an element that should come through in delivery of the pitch.
Michael
WinGateFilms
www.wingatefilms
Tags: 1-off, bianca bezdek, character, collateral, creditworthiness, david rosen, film financing, film industry, independent film, independent filmmaker, institute for international film financing, kimi takesue, larry meistrich, lending, private placement memorandum, ted hope
