04.19.08

An Evening With Lew Horwitz, Part 2

Posted in Classes/Books, Film Financing at 9:08 pm by Amanda Rogers

Okay, picking up from last Saturday’s post, An Evening With Lew Horwitz, Part 1, let’s continue the discussion about financing films using debt financing.

Lew had an interesting comment about banks:  They don’t care if your film makes money.  That struck me as a rather odd statement, but it makes sense when you think about it.  Banks just care about getting their loan paid back with interest.  And getting their money back really has nothing to do with whether you make money or not on your film.  What they require is a guarantee that they will get their money back and that guarantee is in the form of collateral.  No, they don’t want your house or car.  Collateral in the film world is distribution contracts, also known as presales.  The term presale is a bit misleading because Lew emphasized that you must never, ever sell your film to a distributor.  You always want to retain ownership of your film in order to keep the profits.  Instead, you’ll want to license your film to distributors for a specified period.

The world is divided up into many territories, a domestic territory and many foreign ones.  Preselling your film to as many of these distributors as possible can give you the collateral you need to get a bank loan.  These distributors promise you a minimum guaranteed amount in the distribution contract and it is against those amounts that you can take out a loan with a bank. 

Before 1995, it used to be that presales could cover the entire cost of a film.  Not anymore.  After getting burned a few times, distributors became more cautious.  Now, you can expect, on average, around 30% to 40% of your film’s financing to come from presales…sometimes it’s more, sometimes it’s less. 

If you approach distributors after your film is finished, instead of before, you can usually negotiate a better deal.  But that means that you’ll need to get your funding from other sources and, if you’re like most, you’re cobbling together the financing for your film wherever you can get it. 

You really should try to get a U.S. theatrical release because it will help with getting foreign sales.  Also (and I’m going to interject something here that I learned from a Dov S-S Simens’ class I took a couple of years back), if you want to license your film to HBO, Showtime, and other pay cable networks, you need to get it out in theaters, even if it is only a limited release, because, according to Dov, the pay cable networks only air films that have had a theatrical release.  That said, Lew did mention that straight-to-video films can do very well.

Well, that’s all for tonight.  Part three of this series deals with getting a sales agent.  

04.12.08

An Evening With Lew Horwitz, Part 1

Posted in Classes/Books, Film Financing at 10:00 pm by Amanda Rogers

Lew Horwitz has been described as one of the true greats in independent film financing.  He has over 35 years of experience in the entertainment financing business and has funded hundreds of films during that time, including the very successful My Big Fat Greek Wedding.  So when I found out that IIFF was sponsoring a film financing workshop featuring Mr. Horwitz as the speaker, I knew I had to attend.

Wednesday night’s workshop was located at the Academy of Art University’s auditorium on New Montgomery street in San Francisco.  It’s not the usual location where IIFF workshops and meetings are held, so I made sure to leave early so that I would have plenty of time to find parking, which can often be a challenge in the City.  Fortunately, I got there in plenty of time and was able to chat with other attendees while we were waiting.  I, also, caught a glimpse of actress Diane Baker, who attended the workshop, and is currently a Co-Director at the University. 

Lew was very charming and entertaining.  Occasionally, he would take a break from speaking and entertain us with magic tricks, which were a lot of fun to watch.  He’s quite good. 

Some of the material he covered I already knew, some of it clarified things for me, and some of it was new.  Starting with the basics, there are three ways to finance a film:

  1. Studios
  2. Investors
  3. Borrowed Money

Studio financing is great if you can get it, and that’s the trick…if you can get it.  It’s rare for independent films to get studio financing, which is why independents usually fund their film by means of borrowed money (debt financing) and/or investors (equity financing).  This is a good time to define what debt and equity financing is for those of you who may be unfamiliar with those terms.

  • Debt financing is money that is borrowed from a bank and must be repaid with interest.  One of the advantages to debt financing is that the lender does not gain ownership interest in the film.  Once the debt is paid, your obligations to the bank are over and all profits from your film are yours to keep. 
  • Equity financing is money received from investors in exchange for interest in the film.  The advantages to this type of financing is that you don’t go into debt to obtain funds and the risks are distributed among the investors.  A disadvantage is that you don’t keep all of your film’s profit.  

Most films are financed using a combination of debt and equity financing.  That’s putting it very simply.  It actually gets far more complicated as you will see later on.  I already had an idea how complicated financing can get and I find the whole process very fascinating.  During the break, however, I overheard conversations from some in the audience who were hearing the information for the first time.  They were freaking out a bit when they found out what was involved to get their film funded.

Lew taught us about funding our films using the third option:  borrowed money (debt financing).  I’m going to stop here for the evening and pick it up again in part two.  There’s a lot of information to cover and I think it would be better to split it up into several posts.

03.29.08

Film Financing From a VC’s Perspective

Posted in Classes/Books, Film Financing, I-Man Cast Film Update at 11:34 pm by Amanda Rogers

Last Saturday I was back in San Francisco for a one-day workshop.  This workshop was taught by veteran venture capitalist (VC) Frank Green, Ph.D, and sponsored by the Institute for International Film Financing (IIFF).  IIFF is the same organization that put on the workshop that I attended last month featuring IFP founder Sandra Schulberg.  It’s a forward-thinking organization that offers good opportunities for education, networking, and financing for filmmakers.  I’ve been attending so many of their meetings lately that I decided to go ahead and become a member.

After getting a producer’s take on film financing last month, it was nice to get a venture capitalist’s viewpoint this time.  The workshop was called the One-Day MBA Leadership Workshop for Film Entrepreneurs.  A great deal of the day was spent on leadership skills where we learned the VRE Leadership Execution Strategy.  I’m not going to go into detail about this but, basically, we learned how a leader must have a vision (V) for their project, cultivate relationships (R) to be able to work as a team, and be able to execute (E) a plan to get the desired results.  One of the things that really impressed me was his emphasis on working with people of different personality types and temperments.  This is not the kind of information I was expecting in this workshop but, as you will read later, it makes perfect sense why this would be important to a VC.

Interestingly, he didn’t cover subjects such as what a VC looks for in a business plan or how to find VC money.  I guess he figures that you should know how to get that information.  However, he did offer a couple of valuable tips: 

  • When pitching to a VC you better know what your vision and strategic goals are.  He said that 90% of the people looking for capital don’t have a vision or any strategic goals and many don’t have a clue as to what those are.  So you better do your homework. 
  • One of his favorite tactics is to interrupt a presentation early on and ask a question about something that is covered later on in your presentation.  He does this to see how you’ll react.  Will you accomodate his request right away and be professional about it?  Or will you get all huffy and insist that he wait until you get to that part of the presentation?  If it’s the latter, you can forget about getting any funding from him.  You just failed his test.  See (and this goes back to his emphasis on working with people), he wants to find out how easy it will be to work with you.  He also wants to know if you crumble easily under pressure.  If you can’t handle this simple request, how can he have confidence that you will be able to handle the pressures of producing a film?  Okay, this I understand perfectly, because I admit that I sometimes do it myself.  Without being rude, I’ll throw something unexpected at someone and see how they react.  This is a great way to judge if I’m going to be able to have a working relationship with that person.

Later that afternoon, the entire class split up into teams of four.  There were five teams total.  Our assignment was to develop a project strategy for one of several films:  a big-budget action packed thriller, a medium-sized-budget documentary, or a small-budget comedy.  We then had to give a 10-minute presentation in front of the class with each team member giving part of the presentation.  The other teams acted as judges and venture investors and had to decide how much of a $100 bill (for each project) they wanted to invest.  My team chose to do a small-budget comedy.  Everyone else chose documentaries.

I’m a bit biased, but I think my team totally rocked.  We had a producer, an entertainment attorney, a venture capitalist, and myself on my team.  I came up with a fun storyline that we tweaked.  By the time we had all the pieces put together, we had what would actually be a great little project if it were real.  Oh, by the way, we won the contest.

Thursday, I got a call from the chairman of IIFF who also runs a sister organization called Film Angels.  They are just what their name implies…a group of world-class Silicon Valley VCs who invest in films.  He congratulated me on my team’s win and, even though he knows my project is still in the early stages, he invited me to pitch at one of their meetings when the project is ready.  I’m encouraged that he thinks enough of my project, even at this early stage, to extend the invitation.  Major Hollywood players pitch to this group, so I better have a strong project to present to them if I hope to compete.  It’s not a guarantee of funding, of course, but it is a wonderful opportunity.

02.17.08

A Day Immersed in Film Financing

Posted in Classes/Books, Film Financing at 3:53 pm by Amanda Rogers

Last Saturday, I ventured across the Bay Bridge again to attend a film financing workshop featuring IFP (Independent Feature Project) founder Sandra Schulberg.  Sandra has a very impressive resume that her IMDb profile barely touches upon and that includes expertise in international financing and co-production.  Getting to spend an entire day listening to her was an incredible learning experience.  Some of what she covered I’ve heard before, but I always count a class or workshop worthwhile if I come out of it having learned something new.  By those standards, this workshop was an unmitigated success.  I almost never put my pen down the entire day.  It was eight hours jammed packed with information…too much to try to summarize in one post, so I’ll just hit on some highlights.

Grants

Do you think that grant money is only available for documentaries?  Think again.  If your feature film contains subject matter that is relevant to a cause or issue (e.g., the environment, social issues, etc.) that a grantor is interested in supporting, your project may be able to get funding from grants.

Depending on your budget, grants may not cover all the costs of producing your film, but here’s a little known fact:  You can mix PPM (Private Placement Memorandum) money and grant money.  Sandra called projects that mix funding from these two sources hybrids.  Of course, the paperwork gets more complicated when you go this route, but it is quite doable.

Some grants are more like a loan.  They are called Program Related Investments (PRI).  This is a grant that the grantor wants back.  Some may charge interest.

Private Placement Memorandums (PPM)

PPMs, also known as offering memorandums, are legal documents that state the objectives, risks, and terms of an investment.  Here’s what must be included in an offering memorandum:

  • Story synopsis.
  • Chain of title–The script rights must be assigned to the LLC.
  • Bios of key people.
  • Talent agreements.
  • Who controls final cut?  This can be a touchy and difficult subject, but one that must not be avoided.
  • Budget summary.  This should include development budget.
  • Production schedule.
  • Bond (if required).
  • Describe overall financing plan.
  • Deal structure.  Usually, profits are split 50-50 with investors, but this is negotiable.
  • Minimum threshold to break escrow.  Examples:  When there are enough funds to shoot the film or enough funds to shoot and do a rough cut.  Advantages to shooting sooner is that the film gets into the market sooner.
  • Distribution/marketing plan.
  • Risk factors–Never ever try to hide the risks from an investor.  Disclose all risks.  Be transparent.
  • Tax treatment.  This section must be written by an attorney.
  • Wind-up provision–You want to put a cap on your relationship with investors.  In the past, the usual cap was seven years.  Nowadays it can vary greatly.
  • Define accredited investor–Currently a qualified investor for a private offering must earn a minimum of $200,000 per year or have a minimum of $1 million in assets.
  • Financial projections–Do three sets of projections for realistic scenarios.

Whew!  Got all that?  As you can imagine, a lot of work goes into creating a PPM; and the SEC (Securities and Exchange Commission) has very strict rules about how PPMs are distributed. 

International Financing/Co-Production

Looking for money for your film project?  Consider going international.  There is money out there, especially in Europe where many governments subsidize film productions.  Interestingly, the U.S. is one of the few governments that doesn’t subsidize films.  Go figure.  Though you can find tax incentives in various parts of the U.S.

But if you’re willing to give up some parts of your copyright to get your film made, partnering up with a foreign production company may be a way to go.  Rules may vary, but, most likely, you will be required to do at least some part of the work in that country, such as shooting or post production.  You might even consider teaming up with production companies from several of the countries under the European Co-Production Treaty and taking advantage of the subsidies from each country.

Pre-Selling Foreign Rights

Pre-selling foreign rights is one of the most common ways to raise funds for a feature.  Foreign sales account for more than 50% of a film’s revenue, so by pre-selling your film to foreign distributors, a large portion of your budget can be raised from this market and you’ve also set up distribution in the foreign market. 

Hiring a foreign sales agent is great if you can afford it.  At  12% to 40% commission plus costs, they can be quite pricey.  But Sandra recommends selling the foreign rights yourself.  It’s a great experience that she encourages filmmakers to try for themselves.

So how is this done?  By attending international film markets and selling your film to the foreign distributors who attend and are looking for films to buy.  Here’s the list of the film markets she recommends attending in the following order:

  • IFP Market–This takes place in the fall.
  • Toronto–This takes place right after IFP.
  • Rotterdam–Focuses on indie films.
  • Berlin–A little more complex, but compares to Cannes.  IFP has a booth there.
  • Cannes–Much more difficult to navigate, so you’ll want to take advantage of the resources of the IFP booth.
Collection Agencies

When selling your rights to the world (excluding the U.S.), you’ll want to be sure to use the services of a collection agency.  A collection agency, in this sense, is not the type that you would normally think of that hounds you if you’ve fallen behind on your credit payments.  No, these collection agencies function as funnels for all the various countries in which you may have sales agreements.  They collect and distribute the various funds and can provide you with peace of mind in that you don’t have to worry about keeping track of funds from each country.  They charge between 1% and 2% and are well worth the cost.  The two collection agencies are:

  • National Film Trustees–A British Company
  • Fintage–A Dutch Company

12.07.07

Speed and Angels

Posted in Film Financing, Inspiration at 11:00 pm by Amanda Rogers

I love success stories.  I really do.  In a business where you constantly hear how much the odds are stacked against you, it’s encouraging to hear stories about people who have been able to beat those nasty odds.  It’s not by any means easy and the common theme in most of the stories is the need for absolutely unrelenting and tireless perseverance.  The following story illustrates that. 

I was in San Francisco last Friday evening attending a filmmakers/investors meeting.  The very first speaker was a first-time producer who was able to raise 1.5 million for his first film.  Now that’s pretty impressive on its own, but becomes even more impressive when it was revealed that his film was not a narrative but, instead, a documentary.  If you know anything about this business, you know that documentaries are notorious for being money pits.  It’s hard enough for a narrative to make any money, but even rarer for documentaries, so trying to talk an investor into parting with his money for something that has a track record of losing money is quite a feat.  

To add to this already impressive accomplishment, he was able to get theatrical distribution for his documentary.  I’m not sure if it’s getting limited or wide distribution, but it is, nonetheless, going to be shown in theaters. 

So how did he raise the funds?  Well, he found an investor willing to put up a portion of the needed funds.  It wasn’t enough to complete the project, but it was enough to get started on the project.  Documentaries often have the luxury of being able to shoot over a long period of time and, in this case, the story takes place over a period of about two years.  So they started shooting.  And while they were were shooting, the producer continued to look for the rest of the funds they would need to finish the project.  He said that over the course of those two-plus years, he must have gone to 100 to 150 different business meetings.  Remember what I said about perseverance?  This guy has it. 

As they continued shooting, he kept in contact with his initial investor, keeping him up to date on the progress of the project.  In the end, it was that initial investor who ended up bankrolling the entire project.  He believed in the project, wanted to see it completed, and decided to support it fully.

Pretty cool story, eh?  I thought so. 

The name of the documentary is Speed and Angels.  You can check it out at http://www.speedandangels.com/.

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