CEO, Media Society
There are various financing methods for independent filmmakers, with the majority being highly unlikely and highly risky for the filmmaker. If you are looking to have all your financial savvy ducks in a row, then you need to review the following methods of financing a film as an independent filmmaker.
Private Equity Financing with Film Angel Investors
One of the most traditional methods to finance a film is through Private Equity investments, typically funded through private equity and venture capital films, as well as accredited angel investors. Film Angel investors are individuals who finance different types of startups with the hopes that they flourish and make money in the future. Film Angel investors are similar to venture capitalists, except that they work with their own money or will work alongside others by collaborating on an investment. For decades, angel investors have become quite organized, forming professional corporations or groups that band together to fund projects, including films, that speak to them. Affluent angel investors have become increasingly attracted to private-equity film investments because of the potential for a substantial ROI.
Financing as a Limited Liability Company
Establishing a Limited Liability Company (LLC) allows a business and its owner(s) to behave both like a partnership and a corporation. Just like a partnership, owners are granted the freedom to structure their business and financial interests, while maintaining limited liability, like a corporation. Investors interested in your project can become involved as members of the LLC by agreeing to the terms and conditions of the LLC’s operating agreement, otherwise known as the members agreement. All LLC’s are taxed as a partnership, and financials are fully transparent for its members to report on their personal tax returns.
Once a pre-sales financing deal has been reached, the film developer will be able to take out a bank loan or secure equity funding from investors using the pre-sales deal as a form of collateral. Pre-sales agreements are a popular form of collateral for filmmakers seeking a production loan from a bank. Such arrangements are made between the developers of the project and a distributor, who must provide an advance as a guarantee to distribute the film in a given territory; these advances are also commonly referred to as receivables. Once completed and delivered, the distributor pays the producer the remainder to distribute the film in their territory. The bank makes the decision to supply the loan based on the agreed receivables, which are unique the payment terms and the associated risks and reputations of each distributor in their specific territory. Many banks will also require a company to oversee the production to ensure that the project is completed on budget and in time to be delivered to the distributors. Furthermore, the bank will require keeping hold of all receivables until the loan is paid back. Therefore, once the film begins to generate money, the producer cannot claim any profit until the loan is fully paid.
Crowdfunding is a growing trend of sourcing funds on a donation-based model. It allows capital to be raised without having to relinquish any equity of the film. This is an attractive option for many individuals for a variety of reasons. It attracts those who wish to see a project developed that otherwise would not due to the lack of funding from a studio or through other means.
For instance, there was a huge demand for a movie to be made based on the television series “Veronica Mars.” A page generated through a popular crowdfunding site was able to secure enough donated funding to make the movie. Those who donate to such projects typically have a great passion for it, and are willing to put money in the proverbial pot to see it developed.
Overall, we have seen many projects come to fruition, thanks largely in part to these the film financing methods listed above.
— Wade Bradley is the Founder and CEO of Media Society, a provider of end-to-end managed-risk investment strategies for the entertainment industry, serving high-net-worth individuals, wealth managers and institutions.