The single hardest task in producing films is financing them and, when it comes to financing them, you always need an element of private equity. There are many ways to raise private equity, some involve friends and family, and others involve private placement offerings and even crowd funding—- with each method, the costs associated versus the rewards, also vary wildly.
Private placements, can cost thousands of dollars whereas borrowing money through loans, credit cards and personal relationships carrys a heavy weight of responsibility and can potentially create an outcast of you, especially if your film isn’t the success you want it to be, and most films aren’t.
Each method of raising private equity to produce your film should be considered seriously and if in doubt, the services of a professional should be engaged. If for no other reason than to give you a reality check, as well as to protect yourself and those you are soliciting investment from.
In deciding what direction you are going to fund your film, your first consideration should be the budget of your film and this is going to be decided to some extent by your screenplay, which in turn is driven by your desire to make a particular type of film. Ask yourself: Will it be a small set piece with limited actors, such as ‘Death and the Maiden’ or ‘44 Inch Chest’, or a special effects extravaganza such as ‘Avatar’? Since this post is not aimed at James Cameron but at independent producers who have most likely never produced a film before, I think we can safely assume that we are talking budgets of less than $2m, and in all likelihood sub $1m.
So, the question becomes, Where are you going to raise this kind of capital, and How are you going to do it? The most likely method is a private placement memorandum (PPM), a Securities and Exchange Commission (SEC) document, which is required when soliciting investment from accredited investors. These should only be prepared by a securities attorney and a business plan is usually needed to accompany such a document, especially prior to engaging such legal services. Many people ask me why? and the simple answer is, “because the PPM is the legal fluff surrounding the business plan”. The business plan is what will convince investors the investment opportunity is a good one and that you are doing everything you can to mitigate the risks on their investment. (See my earlier blog on business plans.
Investors want to know that you have done your research, that the management team spending their hard earned dollars can deliver a product that will sell and you have at least thought of an exit strategy to make their money back plus a healthy profit.
Now should the PPM route be too costly for you, you should consider a couple of things, like, maybe the film business isn’t for you, because if you aren’t prepared to spend the money required to raise the capital for a film, then how can you expect investors who have the net worth to get your film made, to invest in you? Also have you really thought through the entire process of producing a film from script to consumer, is there a market for your film? Just because ‘Blair Witch Project’ or Paranormal Activity’ were made on next to nothing and made small fortunes, it doesn’t mean your film will too! For every one of those success stories, there are hundreds, even thousands that never made it “big”.
That being said, we all have to get on the career ladder somewhere and not all of us can afford the costs associated with a PPM, we would much rather put that those dollars on the screen.
A person’s passion, drive and the support of friends and family have allowed many people to overcome insurmountable odds in the past and as long as you and those investing in you, whether its your local bank (unlikely) or your mother, father, brothers, sisters and credit cards (more likely) and yourself, are fully aware of the risks you are taking with their money, that (1) you do your research, (2) you just happen to be extremely talented, and (3) you can attract Brad Pitt to star in the film you are making for $10,000, then by all means go for it! It might end up being an expensive lesson in film making, and then again it might just pay off and launch you to super stardom.
The above comments are merely an opinion and meant to give potential producers some insight into what is involved in the case of raising private equity. It is not exhaustive and certainly doesn’t cover the plethora of other considerations to be taken into account when producing a film and that lead to their success.
For more information, contact Mark Andrews
