non-equity financing ?

Randall_Oelerich

Randall_Oelerich

Veteran
Has anybody financed a $1M+ film budget without using investor equity, using just a combination of pre-sales, state tax-credits, and perhaps some debt gap financing? This is a method of film financing taught by a filmmaker over on another filmmaking website, known by many as the '$1M blueprint' for financing direct-to-dvd film projects in the $1M to $5M budget range. I would like to hear testimonials from any filmmakers that have successfully funded their film projects using the non-equity model, whether you call it the $1M blueprint or simply 'debt financing' (no investor equity, just the combo of presales/taxcredits/gap).
--randall
 
Don't know the special "formula" for $1m blueprint, but as far as gap goes wouldn't that be like really mean equity financing?
If you're netting out 25% or so on tax credits, you'd have to have an awful lot of pre-sales on a $1m movie. How do they manage that?
 
Lustgarten said:
Don't know the special "formula" for $1m blueprint, but as far as gap goes wouldn't that be like really mean equity financing? If you're netting out 25% or so on tax credits, you'd have to have an awful lot of pre-sales on a $1m movie. How do they manage that?
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The producer that finances his films this way explains it like so (below), as best as I understand it. He has produced quite a few $1M-$5M direct to dvd films this way, says it is the way it is done in Hollywood. Seems to work fine for him. I want to replicate this method as it does not involve investors. I just would like to hear that others have or are using this method, not just take his word in spite of his impressive imdb filmography of produced feature films, I would like some additional testimonials. A critical element of this method is that ~40% of the budget goes towards talent so you can attach a couple of A-list name actors that are known for doing direct-to-dvd (you ain't going to get Tom Cruise, but you could get e.g. Tom Sizemore, or Christian Slater, etc), and attaching the talent is possible because of the budget size, and attaching the talent gets the pre-sales. Heck, Sarah Michelle Gellar got I think $400,000 for The Grudge, not that she would be in my lousy direct to dvd film, but it just gives an idea of salaries sometimes paid to talent; the new release Sleeping Beauty stars Emily Browning (The Uninvited, Lemony Snickets) and had a budget of $1M so you can imagine how affordable she must have been for that film project. Lost and Delirious had 3 major female stars (Piper Perabo, Mischa Barton, Jessica Pare) and was shot for $1M and won awards and two thumbs up by Roger Ebert. To do this though, one has to have already done a feature film of any budget level, to show one knows the ropes and has jumped the hoops for making a feature film, so the people involved (talent/managers/agents, pre-sales agents, banker, etc) take one seriously; thus my shorter term goal of producing a $50,000 or less horror feature (because at that budget one can pretty much get the $ back), then make the leap to a $1M-$5M film (assuming the $50k horror feature was decent quality).

($1M budget):
$500,000 or more funding through pre-sales to a number of territories (e.g. UK, Western Europe, Canada); in some cases you might fund the entire project through presales (50-100%), just depends on the deal cut with talent and distributors.
$250,000 to $400,000 tax credits (e.g. IL, LA,; 40% Puerto Rico; even higher %rebate I believe if produced in Canada)
$100,000+ gap financing from pre-selling more territorieis and/or deferred writer/producer/director salary and/or bank loan floated over the short time frame of the shoot or for post (would be a small amount of interest given the short time that $ is dished out). Deferred salary from w/p/d would make the gap financing pretty much moot.
$000,000 = 0% equity financing; no investors.
 
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1. You'll have to have a long track record to get pre-sales...
2. Most tax credits you have to have your funds in the bank before and prove you spent the money before you get anything back and they don't give you're money until after the film is shot.
 
GaryinCalifornia said:
1. You'll have to have a long track record to get pre-sales...
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What I am hearing is just one solid feature length film.

2. Most tax credits you have to have your funds in the bank before and prove you spent the money before you get anything back and they don't give you're money until after the film is shot.
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What I am hearing is you don't, the production services company (PSC) that films the production handles that, fronts that tax credit on their books for the short period it is needed.

Anyhow, don't mean to debate, just saying what I have heard. Gotta jet and get a pizza and toss it in the oven for The Amazing Race.
:)
 
Just my .02 it'd have to be a good money making film and the second film would have to have known actors signed to do the film... as per the tax credit.. most are what I call the give certificate type they'll give you lets say 30% on money spent in the state (not your total budget) and also for crew and talent who live in that state... so at the end of production you send your book keeping records over to the state.. they look it over and then give you let say a credit for a 100k and then you have to then turn around and have a broker sale that to a biz man in the state for lets say .85 to .90 cents on the dollar if your lucky so that a biz man or woman can then turn around and use that credit towards his or her state taxes... I know the other LA... the state will buy back that tax credit for .80 cents on the dollar...

I know a while back there was a company in NJ who would loan on your credit... but by the time they take their fees (that's if you get accepted)... then they sell it to a biz guy or gal for their tax payment... etc.. you might get .50 on that credit... which if you need the gap to fund your film.. that's not a bad idea to not have other investors... as far as I know most will not loan on a service deal... for example I've had 2 films where a post house did all the post production as their investment in the films.. even if they would have been in the state I shot in... we'd probably would have only gotten a credit for payroll... but that's hard to say they would or wouldn't (I lean towards wouldn't) since the only time I've tried for a tax incentive program was in TN and once we committed to shooting there... guess what we didn't get approved after all...
 
A few things come to my mind:

With pre-sales, hardly any company gives you money upfront; they give you a guarantee to purchase the rights. If they do provide an advanced it will be 10% at best. You're going to have use the purchase guarantee as collateral for a loan with a bank like Comerica.

With tax credits, you're only going to get 20% to 30% of the qualifying expenses (usually 50% to 60% of the total budget) spent in the state. So you get roughly 10% to 20% of your budget (at best). Then you'd go to a tax credit broker, and have them loan you money at between 65 and 75 cents on the dollar upfront, so you can actually use it for production. So you'll end up with between 5% and 15% actually useable upfront for your budget. So on a $1 mil budget, you'd get no more than $150k for production.
 
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Andrew McCarrick said:
A few things come to my mind:

With pre-sales, hardly any company gives you money upfront; they give you a guarantee to purchase the rights. If they do provide an advanced it will be 10% at best. You're going to have use the purchase guarantee as collateral for a loan with a bank like Comerica.

With tax credits, you're only going to get 20% to 30% of the qualifying expenses (usually 50% to 60% of the total budget) spent in the state. So you get roughly 10% to 20% of your budget (at best). Then you'd go to a tax credit broker, and have them loan you money at between 65 and 75 cents on the dollar upfront, so you can actually use it for production. So you'll end up with between 5% and 15% actually useable upfront for your budget. So on a $1 mil budget, you'd get no more than $150k for production.
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That is quite a different equation than I am hearing from the debt financing method over on filmspecific.com , where you set up an LLC for each film produced, in the state you film in so the money flows to that, the LLC is the producer, even talent can set up an LLC in the state filmed in, you use a PSC in the state you film in and that PSC handles the tax credits, but yes the presales (negotiated directly with distributors, avoiding sales agent fees) are a contract on paper that is then used along with the tax credits to have the indie film bank front the money as needed to make the film. No tax credit broker (the PSC handles the tax credits, has relationships with the state film commission, state tax board, etc, they do it to get their income as PSC.

I am not saying you are wrong, or right, or that the filmspecific.com method is wrong, or right. I am saying I am hearing two very different equations and that bothers me. Which is right, when both claim to be right? I sent out emails to a dozen or so direct to dvd prodcos in the $1M-$5M range or so, yesterday, did some emails back and forth with one such prodco/producer who has very extensive (20 or so films) under his belt, and he confirmed that indeed he has made his films using the filmspecific.com method (as explained by Adamo Cultraro, who has produced quite a few direct to dvd films using the method).

So what I am to believe, what is true or not?
 
Andrew, what movie did you produce using that method you describe where you got only "10% at best" in presales, and such a low amount ("5-15%) of financing in tax credits? What was the budget of your film?

As I said, I have corresponded now with two producers (Adamo Cultraro, Jason Hewitt-- Films in Motion) who have made several (jason hewitt has made quite a few) direct to dvd feature films in the $1M-$5M budget who say the method is what it is and that it works, has worked for them for their projects. I have to think that provides some pretty serious confirmation of the method. Maybe some indie producers just do not know of the method, or do not know how to effectively use it?
 
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Hi Randall,

I think what the underlying meaning of Andrews statement is saying is that film financing isn't a "connect-the-dots" type of puzzle where all the dots are right next to each other and numbered for ease of use. The dots are all over the place and you have to find the right ones to make the picture you want to make.

Pre-sales is a time tested method to raise funds, but if you talk to producers who have been in the industry for 20 years, I am certain they will tell you that the presale business isn't what it used to be. The climate is always changing, and it's not quite as simple as it once was. A lot of it also depends on the bank, not the fact that distributors willing to give paper on the movie, because ultimately it's up to the bank to loan you that money and the bank is definitely going to want to see a track record. Not only yours, but also with the distributors that you pre-sell to, and your film team if applicable, etc.


Anyway - the point is, if this method worked 100% of the time, all the time, it would be "The Method" to raise money for film, and you wouldn't be here on the forum asking about it. There are dozens of methods for raising money, all of them have worked at some point and will continue to work some percent of the time. So get out there and try one, if it doesn't work, try again, or try a different approach. That's the only way you are going to get a concrete answer to your question.
 
You answered your own ?... a guy with 20 films has a track record that people know he'll finish what he started... most pre-sales are based upon talent... I used to know a guy who used to shoot a trailer with an actress who was the lead in all his films (I think she actually funded the trailers)... then get a few cameos from known actors he's worked with before and then get the pre-sales at AFM... but the guy had done 10 films... then he'd go out and make the film... it can be done...

But right now the market is tight... I just think the odds of getting pre-sales on your second film is just hard right now... unless your first film did so much in returns that people know about it... then who knows they might take a chance that lightning can strike twice...
 
And I totally agree that presales might get someone 0%, 5%, 10% or 80% of a film's budget. What I gather is that it has a LOT to do with (1) the talent attached to the project, (2) genre, (3) quality of the script, and (4) previous experience in filmmaking. But talent + genre seems to be huge from what I read. To get the larger pre-sales, you must attach A-list talent that have a track record of direct to DVD productions (e.g. Val Kilmer), then the distributors and banks know the talent will sell the film, so they will finance it with pre-sales guarantees and bank backing. No-name or B-list actors won't get much in the way of pre-sales. That is what I have been told. And thus why some filmmakers get little to no pre-sales, and others get 50%+.
 
Alex said it much better than what I wrote... yes it depends on genre, actors... also when you say A list... you're talking Julie Roberts... Brad Bitt... Sandra Bullock... so on and so on... studio level talent... you're thinking more B and C actors... the Hollywood Reporter used to have a star rating as per level of what they'll get you...

Also look into talent who is a name here... but overseas they might have a better name value... basically they'll give you paper like Andrew and Alex say... you'll take that to the bank... the bank before they'll loan you any money will require that you get a completion bond... which will cost you about can't remember the exact numbers lets say 7% of your budget.. you'll probably end up paying like 3 to 4% in the end...

You have to also look at the world economy right now.... many buyers are leery of uncompleted films right now...
 
GaryinCalifornia said:
Alex said it much better than what I wrote... yes it depends on genre, actors... also when you say A list... you're talking Julie Roberts... Brad Bitt... Sandra Bullock.....
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For $1M to $5M I would be looking for name actors (call them former A-list, lower end A-list, whatever, just a label)-- that are bankable and that you see repeatedly in films in such a budget range, that tells you you can get them in that budget. I mean, heck, Emily Browning (Sucker Punch, The Uninvited, Lemony Snickets) just did Sleepy Beauty, a $3M budget film going nowhere, so she would be affordable; even Sarah Michelle Gellar did The Grudge for $600,000 and Cruel Intentions for $500,000, affordable in a $5M film with $2.5M going to talent, most to the protagonist. Piper Perabo and Mischa Barton did Lost and Delirious that had a budget of $1M. Val Kilmer, Steve Austin, Jean Claude Van Damn-- they are doing direct to dvd in the $5M budget range. Getting name actors like that attached to a script and film in that budget range is doable. And that gets the presales. As for getting a film done, I would likely partner up with another prodco that has a track record, and also hire a production services company to get 'er done, do lots of post, etc. Putting those elements together with the right genre and a kick ass screenplay that attracts talent could make things happen. Or not. :) First I need to make a $50k or less micro budget indie, go through the hoops, earn my chevrons.
 
I would call it a label... A list means something... when you say A list... most people in the biz... think studio level films with budgets over 25m... so when you approach an agent and you say I want A list people that label will mean something to them...

But yes your on the right track former A list people.. but everyone you listed in your last post is B or C people... again.. the goal is to get a film made and that's what counts...
 
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