Film Financing From a VC’s Perspective

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.

A Day Immersed in Film Financing

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.


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

Speed and Angels

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

Do Lower Ratings Equal Greater Profits?

So I received a phone call the other night from a young woman doing an opinion poll for the Dove Foundation.  Never heard of it.  And why am I receiving this call when I’m on the National Do Not Call Registry?  Oh, they’re a non-profit organization and thus excempt. 

Now, usually, I try to get off the phone as quickly as possible with telemarketers, which is why I joined the Do Not Call Registry in the first place.  Duh.  But then I heard words such as “Hollywood” and “movies” coming out of my phone.  Okay, now that caught my interest.  So I endured listening to questions that were obviously scripted, read in a monotone voice, and sounded as if they had been repeated hundreds of times…they probably had been.  (Maybe if they gave telemarketers acting or public speaking lessons, it wouldn’t be so painful to listen to them drone on.) 

Anyway, I was asked questions such as:  Do you believe that offensive material in TV, Movies and the Internet is on the rise?  Do you want to see more wholesome family entertainment made?  And others along the same vein of thought.  I answered her questions, and asked a couple of my own.  Her explanation seemed to imply that they were creating a new way of distributing family-friendly movies directly to the customer and bypassing the traditional Hollywood distribution system.  Huh?  Non-profit?  That didn’t add up. 

In order to learn more I had to agree to have another person call me back with more info.  Well, I guess they haven’t trained their telemarketers on what to do when they call someone who is trying to make films themselves, because she quickly hung up on me when she found out. 

Still curious about this group, I did a quick search and found their website. Turns out that the Dove Foundation is a non-profit organization whose mission is to “encourage and promote the creation, production, distribution and consumption of wholesome family enterainment.”  They plan to let Hollywood filmmakers know the desires of the public by presenting their findings to studio heads, as well as the media, with the hope of influencing Hollywood to clean up its act.  So I’m not sure what that young woman was talking about because there is nothing on their website (that I could find) about a new distribution system. 

What was really interesting, though, was their Profitability Study of MPAA-Rated Movies.  According to their study, “during the last four years, the average G-rated movie was 11 times more profitable than an R-rated movie.”  They also claim that G-rated films “produced an average rate of return on investment (ROI) three times greater than R-rated films.”

This raised the question, how do they calculate ROI when many costs incurred in making a movie are usually not disclosed by studios?  According to the report, this was done by subtracting negative costs, P&A (prints and advertising), and video manufacturing costs from worldwide box office, TV, and video gross revenue.  While using this method doesn’t give us the actual profit, it does give us a relative assessment of a film’s ROI, which is viable because the same formula is applied equally across-the-board to all the films. 

Now, I’m not going to go into moral issues or artistic/creative reasons that may or may not influence the content of a film and thus its rating.  I do have a personal opinion on this subject and if I’m fortunate enough to be able to make a career out of producing films, my viewpoint will become apparent in the types of films I choose to do.  But considering this from a strictly business perspective, the study makes some good points. 

Just because G-rated movies tend to be more profitable doesn’t mean that audiences are looking for an endless bombardment of kiddie flicks.  However, according to the study, just lowering an R-rating to a PG-13 or a PG-13 to a PG can increase the audience and thus the potential profitability of a movie.

Whether the findings of the Dove Foundation have any impact on what we see at theaters remains to be seen.  Hollywood, with its deep pockets, can get away with producing fare that doesn’t always make a profit; but independent filmmakers rarely have that luxury.  A producer who hopes to make a living from making films and an investor who hopes to see a return on his/her investment should give serious thought to whether the project being developed/backed is reaching as big an audience as possible.

How Fans Can Help

First of all, let me say that it is a pleasure to have Mike McCafferty join this blog as a contributing author.  Without Mike and that conversation we had last year, I would have never been able to take on a project such as this one.  But Mike helped me realize that collaboration between a cast and fans is very possible.  It just takes willingness on the part of both parties to work together and get it done.  We’re definitely going into new territory here.  Already, old rules are being broken and new ones are being created.

In his post, Mike asked for your help to promote this project.  Now you may be thinking, “Of course, I will help!  As soon as that movie is released, I’m going to tell everyone I know about it.”  And that’s great.  But instead of waiting until the movie is released, how about start now?  Seems kind of early, doesn’t it?  Well, bear with me and let me explain.

It’s going to take some time to build buzz (which the dictionary defines as “excited interest or attention”) and there are fewer of us now than there was before, so the earlier we start the better.  Not only can buzz help increase the audience for the movie, but it can also help to get it made.  How is that? 

There are two big hurdles to jump over in getting this movie made:  financing and distribution. 

Let’s talk about financing first.  I mention on the About Page that I have had some preliminary interest from a funding source, and that’s true.  But at this point in time it’s not guaranteed.  That funding source might come through for us and provide all the money needed to get this movie made.  On the other hand, it could also fall through for a variety of reasons:  from simply losing interest in the project, to having resources already tied up in other ventures, to thinking that this isn’t a good investment.  Having funding fall through is actually a fairly common occurance in filmmaking and anyone who wants to be a producer has to be prepared to deal with that fact.  I’ve been told to not just wait until the check is in the bank, but wait until the check actually clears. 

People who invest in movies know that it is a risky investment, but they also know that the payoff can be big if the movie turns out to be hit.  There are several factors that they look at when considering whether or not to invest in a film venture, but I’m going to only cover a couple right now:  audience and distribution.

Having a built-in audience is not something that every film has, but producers often try to minimize the risks and make the film more appealing to financiers by getting a “name” star or two in their film.  It doesn’t always work and we could probably all cite examples when a known star was in a film that flopped.  But many times it does work.  How many of you have gone to see a movie just because Tom Hanks, Johnny Depp, or Angelina Jolie was starring in it?  These actors are considered bankable, which is why if producers can get a name actor interested in their movie, they have a better chance of getting their film funded.

We happen to be very fortunate.  We have a very talented cast from an awesome little TV show for our film.  But the show has been off the air for a few years in the U.S. (though it is still airing in a few other countries), so investors are going to want to know if there is still a worldwide audience that wants to see this cast come together again. 

Another thing that investors consider is distribution.  While investors sometimes fund films without any kind of distribution deal in place, having a distribution deal already in place makes for a stronger case.  As a producer, I owe it to the investors to get the best distribution deal possible. To do otherwise is unconscionable.  After all, they are the ones who are putting their money on the line.

So do distributors consider the audience when deciding what films to promote and distribute/air?  Yes, that’s definitely one of the factors they take into account.  Like investors, they too are putting their money on the line.  A film that already has a built-in audience can definitely be more attractive to them.

Now, I’m going to work my you-know-what off for this film and try to make it as good as I can with the resources I acquire.  And, if you, the audience, are willing to support that and show that there is an audience for our I-Man cast, our chances for success will be that much greater. I know we can create something special of which we can all be proud.

Now you may be wondering just what is it that you can do to help, so I’ve taken Mike’s suggestions and added a couple of my own.  These ideas are easy to do and don’t cost anything.

  • Tell a friend–Do you have a friend that is a fan of The Invisible Man or its cast?  Do you know someone who enjoys quality TV and movies?  Tell them about this project and website!  And tell them to tell their friends.  Spread the word!
  • Bulletin Boards–Do you visit any online bulletin boards?  As long as it doesn’t violate the board’s rules or policies, how about posting a blurb about this exciting project?  And don’t forget to include a link to this website. 
  • Blogs and Websites–Do you have a blog or website?  Please consider putting up a link to Shoom Zone Productions.  Links help in a couple of ways:  1)  They help drive visitors to this site, and 2)  They help increase our search engine rankings.  Once you have a link up, please contact me via the Contact Form or leave a comment and let me know that you’ve linked to this site.  Don’t forget to include a link to your website or blog because I want to be sure to reciprocate by adding your website or blog to a new link category I’ve created called Friends & Supporters.  The idea is to grow the list of friends and supporters as large as possible.  When I give presentations to investors and distributors, I want to be able to show them all the people who support this project!  And I want it to be impressive!
  • MySpace–Do you have a MySpace page?  So does Shoom Zone Productions!  It’s located at  Please add Shoom Zone Productions to your MySpace friends list.  The goal is to spread the news and grow the friends list.  Let’s make it huge!  Let’s impress those investors and distributors! 

Those are just a few things that you can do right now to help out.  For your convenience, I’ve posted them on a new page called How Fans Can Help.  This list is by no means comprehensive, so if anybody has any ideas that I can add to this list, please let me know.

Thank you for your support.  Let’s get our cast together again!