| Finding
Investors – Network, Network, Network!
excerpt
from MAKE MONEY MAKING INDIE FILMS: An Independent Filmmaker's
Guide to Obtaining Worldwide Distribution and Raising Private Capital
by Michael Valverde
It
seems every time I speak to filmmakers about film financing and
distribution, several people rush me afterwards to ask the million-dollar
question – "Where do I find these investors?" –
as if I have a Palm Pilot full of names I am selling. The unfortunate
reality is that no one does - not even the hotshot brokers who claim
to.
Finding
investors is about networking. While you may only know a few people
who have the financial wherewithal to pull out their checkbooks
and write a check with lots of zeros, there are people you know
who know other potential investors. It's time to open your old Rolodex
and scan your personal database for leads. Be sure to call your
attorney and your friends who are attorneys and get them to provide
you with some additional contacts. If you don't have a broker, call
your friends', parents', grandparents', and uncles' brokers and
pick their brains at length. Call your banker too, and everyone
you know in the world of finance (CFOs, Accountants, Financial Planners,
etc.). Tell your dentist and other physicians, and have them tell
their friends!
Make
a list of names and categorize them into direct and indirect leads.
The direct list should consist of those people whom you know personally
and believe have the ability to invest themselves. The indirect
list should consist of the investors you've heard or read about
in your community whom you would also like to approach. Next to
the names on your indirect list, write the names of people you know
who might be able to help you get in touch with each of them --
then start tracking down those digits.
Approaching
Investors
Before you approach, call, or write
anyone, prepare a concise statement on paper. Your goal is to entice
them to attend a meeting where you will outline the "investment
opportunity." I like to use lines like, "I would like
to share with you a unique investment opportunity in the entertainment
industry." You can tailor your pitch to your personality and
to that of the potential investor, but be clear that you want them
to consider investing. If they give you an immediate negative response,
ask them to please attend anyway as a favor to you. Tell them you
would like them to evaluate the presentation and give you some feedback.
Then ask them if they know anyone else they believe would be in
a position to consider such an investment.
Upon
initial approach, a lot of investors will ask you to provide them
with more data. They may request an "Investment Summary"
or "Executive Summary," which is essentially an abbreviated
version of your investment proposal (see the sample business plan
included for a reference). If you can get them to agree to attend
the meeting without this data, it is much better, but send it if
they are insistent.
Investor
Presentation Meetings
Book a conference room at the local
hotel or ask a friend to let you her company's conference room after
hours. Having several investors in the same room sitting around
a table creates some powerful dynamics. I suggest a minimum of three
and a maximum of eight investors per meeting. I also suggest having
someone act as a "plant" to help encourage participation.
I don't mean have people who fake wanting to invest. I mean have
them ask intelligent questions to help create an open atmosphere.
Investors are traditionally highly competitive ego-driven people,
and if one steps up and shows interest the others will typically
seek to compete. This is the ideal situation in which to present
your opportunity. If your presentation skills are limited, be sure
to get some help from your management and/or advisory team (to read
about how to form a management team for your film, see Chapter Six
of Michael Valverde's book). If you are the executive producer or
producer, you should at least open the meeting, give a general statement
about the company, and introduce the people who will present the
investment offering. Try not to have more people from the company
than potential investors. Have a contingency plan in case someone
doesn't show. In this case, one of your team members might leave
and another pick up that part of the presentation. Having a strong
accounting/money-type in attendance is critical to answer the return-on-investment
(ROI) questions.
Start
the meeting by thanking everyone for coming. Then let everyone briefly
introduce him or herself. Be sure to ask your team members to share
their excitement about becoming involved with this project. Once
the introductions are over, make a clear statement about the intent
of the meeting. You plan to present a unique investment opportunity
in the exciting world of entertainment. You would ask that those
present consider the opportunity and ask any questions that will
help them reach a decision.
Go
through your business plan from a cursory level -- do not read every
word, hit the high points and keep asking if anyone has any questions
or needs clarification. If someone asks a question and you or your
team do not know the answer, it is okay to say, "I don't know."
Do not make something up on the spot just to save face it will come
back to bite you. Be sure to focus on the major selling points of
your plan. If you have a great cast ready to commit, tout their
credits and the returns of the films they've been in. If you have
an award-winning writer or director, be sure talk him up. Also be
clear on which market will afford the project the most opportunity,
and don't forget to talk about the successes of the distribution
partner you have chosen. Investors will also want to know the timeline
on the payback scenario. Most films return the largest portion of
their revenue between 6 and 12 months after they enter distribution,
depending primarily upon the timing of international and domestic
markets (AFM, Mifed, Cannes, MIPCOM, etc.). So if you expect your
production schedule to be at least 6 months, the timeline for the
return is between 12 and 18 months from the production start date.
Be prepared to answer this question based on your proposed schedule.
The
other thing investors will want to know is the upside and downside
scenario for the venture. The upside should be presented as a conservative
but attractive number. If you've done your homework (Marketing Feasibility
Study) you should have a pretty solid idea of the best-case scenario;
reiterate the numbers in your projections spreadsheet. Be prepared
to state your expectations somewhere on the upper-middle range of
the projections so the investors understand that you are being sound
about the project's returns but feel confident it will be a success.
On the downside, investors want to know that at the very least you
have constructed the opportunity to provide them tax relief in the
event the venture fails. Consult your attorney and accountant about
establishing corporate status for your LLC and about classifying
the units in the LLC as 1244 stock; they can explain the specific
tax implications. Also ask your accountant about the implications
of loss pass-through on all expenses classified as non-production
(LLCs allow you to assign profit and loss in some interesting ways).
If you pass these losses through to your investor in the first year
(before your film even hits the market), your investor will receive
some tax benefit out front, which will increase their overall return;
a nice gesture appreciated by savvy investors. Your goal is to provide
your investors the greatest upside, while being sure not to neglect
the downside realities of a high-risk investment. Of course, always
consult the professionals on your team to keep it legal and as simple
as possible.
A word
about accountants and attorneys
Many professional service folks do
not think outside the proverbial box at all. If you do not ask the
right questions, oftentimes they will not make any suggestions.
Be sure to seek out those individuals open to some innovative thinking.
Don't be afraid to challenge the standard notions and look for ways
to use the system to the advantage of yourself and your investors.
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