Investor Profits

[shutterspeedfilms]

To all those who have gotten so far as preparing a business plan for investment in a feature film, how much of a return did you outline for investors?

It would seem that anything over 50% would be prohibitive. But for a low-budget, independent, first feature film, what range of figures would be enough of a carrot to lure investors to shell out for a project?

 

[shutterspeedfilms]

I can see alot of you have grappled with this issue.

 

[Kegan]

I'd love to have this answered as well. My loan fell through and I realize that I've made a mistake. I've started the casting process, counting on that financial sector and that's no longer there anymore. I'm going to see if I can do it on credit cards, or apply for a business Visa - maybe that'll carry me through. I spoke with my doctor and asked him to invest and he asked me exactly how much of a return he could expect.

I'm in the same boat (low budget, independant, first feature film). Any help would be greatly appreciated.

Thanks,

Kegan

 

[weltonfilment]

Investors don't come cheaply. Using equity investments is less risky but more expensive than using debt to finance your endeavor. Film investments are unlike any other in the market. You cannot predict with any reasonable effort what will succeed and what will not, and even harder than that is determining how much money you could make.

Because these investments are so risky, it would not be out of the ordinary for an investor to want 50% of the profits. The reason for this is the investor is going to be one of the last people on the totem pole to be paid. If you used trade credit with suppliers or had to take out some loans with a bank, then they would be paid first. Then you pay your cast and crew if you had them on deferred payment. Then the investor gets back their original investment. If there's anything left over, then they get their share of the profits.

Now of course if you pitch your project to 10 different investors and they all want to invest, then you have a lot of bargaining power and they will compete to invest in your film (by lowering their required rate of return). Most filmmakers have the opposite problem; they can't seem to find anyone interested.

There are so many ways to structure financing for a film it's crazy, but the bottom line is the investors are taking on a huge risk and providing a very much-needed service. I say a range of 30-50% is on target for what they would be looking for.

However, the rate of return for an investor is a more crucial variable on a film than their ownership percentage. If they own 50% of the profits but the profits are $100, then their return on investment for a $1 million film is extremely small and the investment is not worthwhile. Again, since revenues are impossible to predict with films, they most likely will want to err on the side of caution and get as big of a slice as they can.