Are your investors idiots?

dougspice

dougspice

Veteran
Lately I've been reviewing a bunch of independent film investor pitch documents that I've accumulated in the last year or two, and I've been noticing a recurring theme throughout them – they all treat the potential investor as a moron, or at least a mark!

Here's a couple quick examples. First is from a certain $300,000 spy/action movie that was rather notorious on these boards...

Using data on the top 253 "low budget" independently produced B pictures covered by The Hollywood Reporter, the average 10 year gross for each feature (adjusted for 1996 dollars) was approximately $9,000,000.00 USD. The lowest picture in the sample earned $1,600,000.00 USD.

- source: James Jaeger, http://www.mecfilms.com/moviepubs/memos/moviein.htm
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If the "sample" is the "top 253" (and that's a pretty weird, arbitrary number, isn't it?) then yeah, I can see how it's not real hard to show some big numbers! Also, I find it very curious that given this document was produced in 2008, the numbers are in 1996 dollars? Is all of this data obsolete? It also certainly sounds like almost every other movie in the sample certainly had a higher budget than this movie by far... but I can't be sure, because no further data is provided. Following the link, Jaeger spends a lot of time talking about the VHS home video market and briefly mentions DVD as an exciting new technology with lots of promise – hardly signs that any of this information is actually compatible with today's indie film climate.

Another example, from the same document.

Several annual publications (available upon request) list the average sales price per territory and medium for a quality "B" picture that contains the six elements above. The miminum gross if domestic theatrical release cannot be achieved is approximately $500,000.00. Since _______'s budget is less than half the minimum gross and ______ has already demonstrated ______'s ability to make a project that meets the above critera, the likelihood of the project's investors earning a substantial profit from this project is high.
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Hmm. I'll leave it to you to find the huge logical leaps in that paragraph.
 
Another example, from an independent animated film seeking an unknown amount of financing (shouldn't this be in the document?), but presumably less than $2-3m and likely far less than that.

< extensive chart of film budgets and grosses >

Notice that even those films which did not breakeven or were not well critically received, grossed at least $15.5 million dollars, well over our production budget. This chart shows that success of an animated film is not related to the technique or technology that is used to animate the film. The motion pictures that have enjoyed the greatest success have been those with strong and engaging stories as well as detailed characters who’s struggle is one with which the audience can sympathize.
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First off, the example that grossed $15.5 million is Happily N'ever After, which lost over $30 million dollars at the box office! Maybe not a great example to use! But the assumption they seem to be making here is that you'll see "$15.5 million dollars" and think, "Wow, that's a great return against my $1m!"

But actually there's not a single movie on their chart with a production budget of less than $15m. In fact, the average production budget of their selected samples is $74 million dollars. Given that many A-list pictures are released with roughly a 1:1 ratio of production budget to marketing budget, and given that this little animated film is unlikely to have a $74 million dollar marketing push behind it, we're not really playing in the same league, are we? No. The rules are completely different.

And it's the same through many of these documents I'm looking at. Meaningless quotes with zero relevance to the film in question, inflated numbers that have zilch to do with any sense of realism, declarative statements with no backing behind them whatsoever. Since some of these films are actually getting made, I have to assume some of these tactics are working.

So my question is this: have I been wrong in assuming that most people with money have a lick of intelligence? That outright insulting that intelligence in your pitch document might be a bad thing? Obviously any kind of investment is at least partially fantasy... but can you sell the whole thing as fantasy, even with no track record of success behind you?
 
It's not the investors that are stupid...it's the people trying to make these movies. And they don't have to be, I guess they just can be bothered to put in any time to learn the business side of things (which makes me wonder how much time they spent into the artistic side as well).

To say nothing that some of what you posted seems illegal to be used in documents used to solicit investors (i.e. strongly "hinting" at an obviously inflated number of what kind of return an investor can expect).
 
These guys will never raise that kind of money. Investors are not stupid believe me. I just raised money for a no-budget genre film ($200,000 'ish) DVD release with a distributor interested in it and it was the hardest thing in the world (we did do it). I've talked to several 'Filmmakers' they spew box-office numbers and such. Using numbers from 1996! The whole industry has changed since then. And if I see another business plan with 'Big Fat Greek Wedding' or now 'Paranormal Activity' numbers I'll shoot myself! (figuratively speaking of course).

It cost so much money to do a Theatrical release. Your budget is $1.5M but you'll spend $25M in P&A. John Sayles spent $4M making and $1M releasing 'Honeydrippers' and that was considered 'grassroots'. This is with Danny Glover as the star and John Sayles (one of the god fathers of indie films) directing. They didn't make but $268,000 gross box office!

My suggestion to these 'filmmakers' is raise $100,000 make the investors their money back plus a little more , then do a $200,000 film and make money on that. Then investors may take you seriously. Sorry for the rant, like you Doug I saw one of these 'business plans' and you started a good thread.
Good luck
 
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At least one of them DID raise the money. Maybe just from family and friends, but they did it somehow. I do find it hard to believe that they've have raised the money on the basis of these documents – which seem actively counter-productive – but I suppose investors can be just as susceptible to absurd impulses as anyone else? It seems likely that the world is at least as full of failed investors as it is of failed filmmakers. Perhaps there is a 1:1 correlation between many of them!

This reminds me of the Mad Men episode with the heir to the fortune and how he is going to spend millions making jai alai the next great American pastime. But even in that case he was investing in a passion of his own discovery, as mistaken as it might be.
 
People think they're salespeople without knowing how to sell; they skip the part about being honest. If you approach an investor with honest information, having thoroughly done your research, they'll be a lot more receptive than if you treat them like an infomercial audience. They don't expect you to be a high end blockbuster, so there's no reason to pretend your project will be.
 
Allen Green said:
These guys will never raise that kind of money. Investors are not stupid believe me. I just raised money for a no-budget genre film ($200,000 'ish) DVD release with a distributor interested in it and it was the hardest thing in the world (we did do it). I've talked to several 'Filmmakers' they spew box-office numbers and such. Using numbers from 1996! The whole industry has changed since then. And if I see another business plan with 'Big Fat Greek Wedding' or now 'Paranormal Activity' numbers I'll shoot myself! (figuratively speaking of course).

It cost so much money to do a Theatrical release. Your budget is $1.5M but you'll spend $25M in P&A. John Sayles spent $4M making and $1M releasing 'Honeydrippers' and that was considered 'grassroots'. This is with Danny Glover as the star and John Sayles (one of the god fathers of indie films) directing. They didn't make but $268,000 gross box office!

My suggestion to these 'filmmakers' is raise $100,000 make the investors their money back plus a little more , then do a $200,000 film and make money on that. Then investors may take you seriously. Sorry for the rant, like you Doug I saw one of these 'business plans' and you started a good thread.
Good luck
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I think this is exactly right. You need to establish a track record first and show that you can do it, and be pretty confident about your business sense before you start asking other investors to take you seriously.

I know for me, it's likely that even if we double our money on my first feature, I'll probably still finance my second feature myself as well, simply because it'll make it happen a lot faster than trying to seek outside financing and it will allow me another chance to build my track record on another script I like and believe in. Then it'll be easy enough to use my own track record for bringing in two features on time and on budget (hopefully) and making a marginal profit to get a larger budget on my third film, especially if I'm partnering with the same production company that has their own much-more-impressive track record producing.

The problem with financing is that it's easy to get if it's really that great of an investment. I mean if I made 3 films for $100,000 and each one made $500,000 back, I would have people begging me to take their money because it'd be the best return they'd get on their money and would be perceived as not that risky after all. And the irony is if that was the case, and I were to do a fourth film at $100,000, I obviously wouldn't want to take anyone else's money, I'd rather just invest my own, because if it's that great of an investment then I want all of the money myself. That's why when you get to that stage it's time to move up and raise financing for something new, like a $3 million film, where you know you can't sell it as a "slam dunk" by any means, it's a risk, but you can show your investors, hey, this is what I did for $100K and I did it several times, we made really solid money, now take a risk on me for this larger amount and we'll do even better.

It reminds me of people who say they really want an agent and they're wondering how they can go find one. Well, by the time you get agents interested, you really don't need an agent, it's just a convenience. Agents are busy (or lazy, depending on how you want to look at it) and aren't going to go "find" new talent that may develop over the next 3-5 years, usually speaking, they want easy money (who doesn't?) so it's a lot better to sign someone who is already fielding offers and already needs an agent to negotiate business deals and contracts. It's a lot like that with financing, by the time people are throwing money at you, you may not need it so much anymore.

On your first feature, who is going to be really stoked about giving you even $100,000 to make a film? Probably nobody who isn't family or friends. But watch, you make that first feature somehow, and you double your money or better, oh suddenly THEN everyone wants a piece and believes in you. That's human nature, gotta prove yourself first ;)
 
The basic problem I see is that figures in these plans use boxoffice revenue. That is not the money going back to the investors, not to mention that getting a movie into a theater these days is near or plain impossible with the distribution landscape changing as fast as it is. Even Paranormal Activity with its $100M+ boxoffice was a $300K purchase from the filmmakers (and thus investors). Still a good return on $15k, but not the $100M boxoffice.

Michael
 
That's a good point, Michael, that I failed to mention... none of these documents bother to ever mention that the filmmakers will likely have to hand over at least 30% of gross to a distributor, plus fees, plus anyone else who comes up along the way with skin in the game. And I know for a fact that these films were not all planning on self-distributing.
 
I'm perpetually amazed that people can be such terrible negotiators or have such a clueless disposition about business at all that they would give away a film for some set rate. I don't care if it's a good ROI, if you have a film you don't just sell it completely for $1 million and walk away or $300K or whatever. You at the very least make some terms like, "Ok you will pay $300,000 now, but if the film happens to break $10 million in domestic box office, from that point forward we want 15% of the gross revenue of the box office take." Since that would be seen as an extremely unlikely scenario, I doubt any studio would have a problem with that. Heck even if you negotiated tiers like you want 5% of the box office from $10 million to $30 million, and 10% if it goes above $30M, 20% if it goes above 50M, etc., it would take a paragraph of your contract and nobody would think twice about signing it because if you're the studio you'd just be thinking, "Ha, we should be so lucky to have a $10 million hit on a $300,000 purchase!" It's the 1-in-1,000 film that does that, but at least protect yourself and put it in the contract so you don't just flat-out look like an idiot when it's a massive hit and you made nothing. That's embarrassing.

The same goes for James Cameron. Fox compensated him fairly in retrospect on Titanic, but he still shouldn't have given up his directing fee, he should have given it up provisionally and said, "I'll forfeit my fee BUT if the film makes over $400 million at the U.S. box office or $750 million worldwide, I want my fee back plus percentage points on the back end," etc. Nobody seems to negotiate for best-case scenarios, which is stupid because it doesn't take much work to do that at all. Certainly that's how Lucas became a billionaire -- he gave up the writers fee, $500,000, to get sequel and merchandising rights to this day worth more than $15 billion gross.
 
No major studio or distributor is going to give a small indie a gross percentage in todays market, not going to happen. I'm speaking in terms of under a $1M or $2M feature.
 
I was having a similar discussion in a different thread, mainly about screenwriting and how networking gets your screenplay purchased, not, necessarily, talent.

I think there are probably a lot more low budget (not micro-budget) indie films being made by people who know someone who has money than there are people who know how to effectively structure a budget, pitch and business plan to some random investor.

Investors who invest in movies are investing in the movies of people who they know or people who know someone that they know. Investors do not invest in films on a business2business platform. Can you imagine a more risky investment? As an investor myself I would never, ever, ever invest capital in a film unless I was a film studio -- unless my sole business was the production and/or distribution of film.

Nearly every other kind of investment on the planet has a safer ROI than does film. Unless you're making the kind of multi-million dollar film that only large production studios finance, you're almost certainly going to lose money.

So if your business is NOT film production (and if it is then why would you need any information whatsoever from some guy trying to sell you on financing film?), the only way you're going to give someone copious amounts of money to film something is if you KNOW THEM. Even a rich person interested in film production is not going to invest in someone who they don't know (or isn't already famous/marketable).

To me, if someone is trying to do a 300K or 1mil script and has no studio ties or an extremely wealthy network of family and friends, they should probably find a different script to film or re-write the one they have to make it a 10-30k feature.

The only smart investing in film is to not invest in it. 50K and under I call "found money" as in anyone anywhere (in the US) can find 50K.

All of the books I've read on financing for film I found, as a business person and salesman and investor, honestly, laughable. I was like, "So, basically, you were trying to sell a book to desperate people aaaaaand that's pretty much it."

Think about the absurdity of YOU telling an INVESTOR why they should invest in FILM. I'm talking about the kind of investors who can invest hundreds of thousands of dollars in a pinch. It's all false and they know it. Just because some movie with Johnny Depp in it made money doesn't mean your film will; just because some movie made money doesn't mean yours is going to make money.

If I paint a picture and sell that painting for 50K, do you honestly think that an investor is going to invest 25K in your painting materials based on the fact that I (not you) sold my painting (not yours) for 50K?

LOL

You want to find investors for your films, go make friends with rich people.

Ta da! See, and you didn't even have to buy a book!
 
To be fair, "making money" isn't the only interest of some investors, at least not in the short term. Some have a genuine interest in getting into the movie business, but know that they too must start somewhere. So if they can invest in a movie, even if it doesn't make money, that still buys them legitimacy, an actual product.

But that's a totally different mindset from what prompted me to post this.

And Jonathan, what you're saying sounds somewhat reasonable, but in practice it's probably nearly impossible. My company just signed a production agreement with a major global entertainment company. Our initial contract was negotiated with a smaller division of that company, and they were happy to deal. But that contract also referenced the Standard Terms throughout. So we said, hey, when do we get to see those Standard Terms? Turns out the Standard Terms override any other terms in the event of conflict, and when we asked about negotiating some of the clauses in it, the answer we got was "Nobody changes the Standard Terms." We ended up signing it after figuring out how to slightly restructure the deal, but of course there are still some terms we are not entirely happy with. Such is life when dealing with megacorporations.

Unless you've really got something that's obviously wildfire, I wouldn't expect anyone at a big studio to lift a finger to add any sort of "reasonable" clause. Why would they? They've pretty much got you right where they want you.
 
ChipG -- I disagree, you could absolutely negotiate that. It's such an unlikely situation they would be happy to concede that if the film was hot. If there was only one studio even trying to get the film, you probably aren't going to get there, but the point is you could absolutely if you have a lawyer whatsoever structure a better deal than that. I would NEVER give away a film that I own without a percent of the profits, anyway who does that?

Where in the world does this even happen? Not only have I spoken about numerous actual film business deals with my producers, and read probably a dozen books on this subject, but I've combed the Internet and only ever heard of like two movies that DIDN'T do it the right way, which is ironic, both Blair Witch and you claim Paranormal. I've never, ever heard of this before -- when you make a film, which means you financed it or you were the production company that raised investor financing you would never in a million years GIVE AWAY the film. It just doesn't happen. That's what I'm saying, every Sundance deal I've heard of other than these few, and most deals in general, do not involve the company outright selling the film with no back-end participation whatsoever. That is just something I have not once in my life heard of except these two films, because it's always an ADVANCE against future earnings, duh, that's the point of the arrangement.

You think I would sell my film for $1 million even with no possibility of making more money if it made $200 million at the box office, DVD, TV, etc.? Of course I know the odds of that are like 1 in a million, but I still am not going to sell my film without some sort of chance at making more money IF it is a big hit. And every studio would understand that, which is why I say you're crazy to think that wouldn't happen. Maybe not GROSS participation, sure, but you'd absolutely be cut in for a percent of the profits. All I can think of is a situation where we're talking about a writer-director who does NOT raise financing, he goes through a small production company that raises funds for the venture, and that company somehow manages to give him 0 points, but pays him $3,000 or something to make this micro-budget film, they retain 50% of the profits and give 50% of the profits to their investors, leaving the filmmaker without a dime when the film is sold at a festival. THAT I can imagine, yes. But a situation where the investor is the filmmaker and he somehow sells out all rights to the film with no chance of making a percent of anything? That is what I call a man in dire need of an attorney!

Chamber -- I think there is an inherent distrust of the way the film financing model works as a whole, because there are so many disreputable investments out there that legitimate investors are pretty scared of taking the risk. Where I think you can find good opportunities that make sense for both sides is a legitimate production company with a track record of successful indie features, let's say straight-to-DVD family films, faith-based films, workout videos, horror titles, whatever it is they make. And let's say you're not just some dude with a few bucks, but you're a wealthy venture capitalist, someone with hundreds of millions of dollars even. This company, if they are legitimate, is NOT going to want to screw you out of money. Why? Because they know that if they can at least give you a solid ROI, you will keep reinvesting with them over and over again, and that is absolutely worth it for them. If they can make a film for $2 million, and you cover $500,000 of the investment, and 18 months later you come out with $650,000, even though that's by no means a home run, and really not a fantastic return, as the venture capitalist you're thinking ok that was a solid investment, I got my money back, they were legitimate, and IF the next film they do really hits, hell, who knows, maybe I turn my $500K into $5 million. So they're probably willing to up the ante on a bigger picture even.

But when I read books, like you said, about a single filmmaker who has NEVER done a feature film before and has no track record, approaching accredited investors *they do not know* asking for money, I just think wow that is really a tough road, I'm not sure who would finance that. I think if my first feature was a hit, if I was able to make a solid profit on it, I could raise financing for a second feature based on the track record of the production company I'm working with and based on my first successful film, because we also have the crew that can be bonded easily (completion bond, etc.) and the investors know, ok, these guys have done this before and been successful at it.

I think film can be an excellent investment, but you really have to know what you're doing, like anything. There are some people who are very successful at real estate, but that doesn't mean just anyone should go and get into it and expect to get rich fast. It takes a LOT of skill, and with filmmaking it's so difficult because just being a good filmmaker is an extremely difficult, uphill battle. But then throw into that figuring out how all of the legal nonsense works, the clearances, the rights, the structuring of a feature film company, and then combine that with the distribution puzzle and learning what revenue streams are available to you, how realistic they are, how foreign sales work, etc. and you have something that takes a long time to understand fully.
 
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