How to raise $5,000,000+ for film production without committing neither crime nor suicide? Finance your film or TV show in 6 months. Winning funding strategies for content producers

Weather you are an accomplished producer or a founder of an emerging production company, in the current economy you will be solving the same challenges – how to get your project funded without selling your birth marks.

You might already have a commitment for worldwide distribution, interest from the major stars, but… no money in the pocket… Well, at least not enough to produce a decent content.

I would never claim to be an expert in the film industry, but I will put my marketing hat on and share some ideas that are not necessarily new, nevertheless few of them that might give you some hints on new ways of looking at the whole approach to financing.

Here are some items of your action plan.

1. START WITH CO-FOUNDING PARTNERS FINANCING.

Let’s say you formed a team of 5 key people with a strong business and artistic sense.

If you had any even modest success in your career (any career really), finding $20,000 for each to put as a fist installment, should not be a problem. It can be your savings, personal loans, credit cards (last one is not your best choice).

If none of those options look attractive to you, drop the whole idea of getting into a new venture and go back to school, kid. (I’ve invested hundreds of thousands of dollars in my projects and have never regretted even if the most tough times – a decade ago I immigrated from a country where one’s life’s savings could be spent in USA within few months, just to pay the bills).

So, your funding up to now: $20,000 * 5 people = $100,000.

2. PARTNER WITH A SCREENWRITER THAT CAN ADD MORE VALUE.

As you know you can do screenplay rights acquisition through royalty, equity or loan – fully or partially. Depending on the production team’s credentials young screenwriters can agree on 100% performance based compensation.

Nevertheless if the literary material is really strong and the team doesn’t deliver, for a writer it is a $500K worth lost opportunity. So be fair, consider splitting the risk.

For example in my case I would be willing to risk about 70% of the compensation. It means that I will require an option, and/or $100,000 upfront in case of acquisition of the rights. Another $100K would be in form of no-interest loan, and the rest is in low % royalty or deferred. Please see my work at olga-kostrova.com. My favorite screenplay up to date is “Anatomy of Loneliness”, a deep character-driven, emotional and thought provoking piece.  In addition to the screenplay itself you would get my full support with marketing and further fundraising – cinematography is the only area where one can buy me cheap, and it’s all for the love of the art  J. I also do photography,  painting, costume design and manage industrial design. If you can monetize on either of it, more power to you.

Funding equivalent up to now: $100,000 – $100,000 + $100,000 = $100,000.

3. FUND THROUGH PRODUCT PLACEMENT.

Get your founding team, interns from film schools and volunteers on the phone and bring 10 Sponsors who can benefit from getting exposure of their newly launched product. Let each put $30,000.

Those who say “can’t be done” 1) are lousy marketers 2) don’t know that more than 50% films are partially funded this way 3) don’t know that there are organisations that do just that – product placement for films.

I am not saying you will make 10 calls and attract 10 sponsors. Dear, get out of Lalalend. You might actually need to make 10000 of calls to marketing Directors, have 100 meetings and find 10 small sponsors. It all depends on your story, lead actors, and of course your sales and marketing skills.

Cash and funding equivalent up to now: $100,000 + $30,000*10 = $300,000.

4. HOST FUNDRAISING EVENTS.

To provide your sponsors with immediate exposure as well as to gain followers, fans and supporters, host 5 fun fundraising events in major cities.

Let’s assume that expenses for event management and marketing: $10,000 per event. Partner with large clubs that will be happy to profit from the bar sales while serving thousands of your guests. Spend on marketing wisely. Take advantage of social media (fan Page on Facebook, Twitter pages and contest, and all that jazz).

Did you know that you can sell your tickets online and advertise your events with no or minimum upfront investment via affiliate network on Pay Per Sale basis? Engage your main actors in the events – give your fans the sense of direct connection with celebrities. Don’t forget to film all your parties, then Youtube them and create excitement on social networks,

Cash and funding equivalent up to now: $300,000 – $50,000 + 5 events * 1,000 attendees * 50 donation = $500,000.

5. ENGAGE MORE SPONSORS BY OFFERING THEM ENTERTAINMENT BLOCKS FOR CORPORATE EVENTS.

Now when you created a sense of suspense and excitement around your film, bring more sponsors when your production team has some materials shot, so now you can create a draft of a trailer.

Many companies constantly organize large events to nurture their relationships with their business ecosystem: customers (new and prospects), suppliers, investors, employees.  Each event has a significant enough budget to pay for various performance blocks in their program.

You can offer them something fun with participation of your stars-actors. You charge for that, but at the same time keep promoting your future film. Tell interesting stories about the film in connection to the company-sponsor (any connection can be always made as you know), show them fun episodes that will not make to the movie – entertain and match performance with messages that a company-sponsor tries to deliver during the event. Take and distribute photos with attendees and management, make them happy to develop relationships for future projects.

So, let’s assume you combined your pre-launch parties and multiple grand opening ceremonies with large corporate product lunches, conferences or other events of 50 companies, and charge each $10,000 for your entertainment block.

The sponsors can be solicited via direct sales / telemarketing or a Pay Per Deal affiliate network that markets business-to-business offers.

Also to a production team that will acquire rights to either “Anatomy of Loneliness” or “No name story“, I will gladly provide (as a bonus) a database of marketing executives (200,000 names)  who can be approached for sponsorship of your next film projects. You can call to ask for permission to send your proposal and then bulk email to your opt-in list. Emails addresses will be provided for each database record.

Cash and funding equivalent up to now: $500,000 + $10,000 * 50 events = $1,000,000

6. CASH OUT ON YOUR FANS BY PRESELLING DVDS.

Now when you get the public hot and wet, presell the DVD’s with a discount and an autograph of your starts, director and other team members. It’s not only more cash in your pocket but more advertising for your future film.

DVDs can be easily marketed via affiliate networks.

Of course you have to be damn sure that the film will actually be produced.

Don’t have funs of your story yet? Then you have lousy marketers on your team. Spread the word using friends of friends via social media. Create a story, create the buzz, make people want to see your story on the big screen. Do you have the slightest idea how many people would pay to see Avatar a year in advance? Yes, your film probably will not have the Avatar’s budget, but you don’t need to raise $500Mln for your film either.

Consult with your attorney how to protect both yours and public interests in this case. Investigate if there is any insurance that is available for this case (I have no answers on this one).

Cash and funding equivalent up to now: $1,000,000 + 10,000 buyers * $5 profit per DVD = $1,050,000

7. ASK YOUR FANS FOR THE LOAN.

Get additional funding by offering your fans free tickets for the opening week (you have to negotiate with the theatres how you will reimburse them).  Free tickets should not come free, of course, they will be a reward for a small loan.

The offer is as following: “Loan us $20, get it back with 2 free tickets for an opening week in your local theatre”. The beauty of this approach – no interest is paid to loan providers, moreover you add more word of mouth ambassadors to your community of supporters.  Don’t forget to manage your email lists and on-line communities spread wide across the net.

This offer as well can be sold via affiliate networks. Be ready to pay 10$ commission on raised amount thou in this case. My calculation below won’t include it in the math for now.

Some people will tell you “this can’t be done”. Don’t buy into it that fast. Asking for a loan is not selling securities. You definitely have to have solid declaimers and think things through with your lawyer. Look at some microfunding web 2.0 sites, see how they are doing it, learn from that and creatively use for your own venture.

Cash and funding equivalent up to now: $1,050,000 + 10,000 fans * $20 loan = $1,250,000.

Note:

You have just raised over a million dollars without giving away your equity.

Now it’s time to do so to raise more.

8. PREPARE TO PRIVATE PLACEMENTS.

Prepare with your attorney a Private Placement Memorandum and issue let’s say 5,000,000 shares priced at $1 per share. I will write a separate article about this process shortly and post a template of PPM document, a draft of the one that I have used in the past.

9. GET PRODUCT MANUFACTURERS ON BOARD.

Find profitable manufacturing companies – local or in Asia, that in exchange for equity will produce merchandize for you or give you a loan worth of $500,000. Use part of this commitment to produce merchandize specified below, the rest after the film launch.

Cash and funding equivalent up to now: $1,050,000 + 10,000 fans * $20 loan = $1,750,000

10. CASH ON YOUR FANS SELLING T-SHIRTS AND OTHER MERCHANDIZE.

Sell t-shirts “I am the founder of the film “___________(name)” and other merchandise produced and marketed before the main launch of the film.

Cash and funding equivalent up to now: $1,750,000 +  $10,000*10 profit = $1,850,000

11. DISTRIBUTE EQUITY TO YOUR TEAM AND SUPPLIERS.

Initially you might have made a verbal or contractual agreement about partnership. Now as your Private Placement documents are ready, you can officially distribute shares to every crew member who agreed to work in exchange for the equity in your production firm.

It can be your stars or 2nd tire actors, equipment suppliers, marketing company, event management company, PR company, casting agents, production insurance company or other contributors.

Let’s assume that all work and donated equipment is worth $1,150,000.

Cash and funding equivalent up to now: $1,850,000 + $1,150,000 = $3,000,000

12. RAISE CASH FROM PUBLIC.

Now it’s time for official Private Placements. Till now you know that you can not sell shares to public, only to accredited investors. Let’s assume you will raise from each investor a very small amount, since you might not have strong credentials, but you will compensate it all in volume of investors. You can engage all your connections that you have made so far from all efforts above but be ready for a hard core cold calling.

If 5 of your team members each call to 40 lawyers or doctors per day (most of them belong to an easily targeted segment of conservative professionals that can get excited by the offer that takes them away from their daily routine. Majority of them is sophisticated investors), it will mean that you will make 20,000 calls during 5 months. With 0.5% call-to-sale conversion ratio (and trust me, with a good pitch you can do way better than that) you will get 100+ investors buying into the deal.  Please not, cold calling is a grey area for the fundraising via private placement, so consult with your attorney on the best way to execute it. You might want to engage a security brocker for that to fully comply with SEC’s regulations. Alternatively see an article How to engage a Pay Per Deal affiliate network in Private Placement and raise startup funding for technology and film projects. (The article is coming soon)

Cash and funding equivalent up to now: $2,500,000 + $5,000 * 100 investors = $3,000,000.

13. SELL YOUR HEART TO A MAJOR STUDIO.

Now you might be ready for a large deal. Your project has progressed so far till now that with a top rated screenplay, great cast and truly creative director you will be a desired target for many large studios. You can go and raise additional $2,000,000 from a major player or sell the project outright.

Cash and funding equivalent up to now: $2,500,000 + $5,000 * 100 investors = $3,000,000.

While considering industry investment you might want to evaluate all benefits and disadvantages of all methods.

I thought this information provided by Golden Gate Film might be useful for those who are new in the erea of film funding:

Advantages and Disadvantages of Industry Financing

The most obvious choice for film funding is industry financing. For example, there are studio development production deals, independent distributor financing, talent agency financing, end-user financing, and completion funds.

Studio Development Production Deals

An in-house studio production will usually start as a development deal. As a filmmaker, you will first have to pitch the concept to a studio creative executive and then submit a synopsis of the project to the creative department. If the studio decides to finance the development, production, and the distribution of your project, then the studio will ultimately own most of the rights associated with your film.

When a studio gets involved in your project, you can expect a tough road ahead of you. The first phase will be a “Development Deal Memo,” which is a short-form written contract between you and the studio. The Development Deal Memo will simply outline the agreement, salary, time schedules, screen credit, and percentage points. Most studios will give points of the net profit to unknown talent. By doing so, this gives you a false sense of security while ensuring the studio to make as much money as possible. Typically, net profit deals do not pay-off. Studios tend to juggle financing for different projects and use creative financing so most films do not “make money” (at least, on paper). For example, a studio could put the advertising budget of your film and that of another film in your budget creating an inflated advertising cost for your film. This means that the studio not only recoups their 30 percent distribution fee, but also recoups the extra money spent on the advertising that was not associated with your film. Therefore, the film’s break-even point will be in flux enabling the studio to continue to generate money from your film. At the same time, their bookkeeping reveals a deficit to eliminate virtually any chance of the studio having to pay net profit participants their due.

The studio will make Development Deal Memo’s contingent on a “Step Deal.” A Step Deal is when the people working on the development of your project are paid incrementally as the project develops. In addition, the development work is reviewed and evaluated at each stage. This may sound great on the surface, but it also means that the studio has the right to stop development of your project at any given point.

However, a Step Deal offers you a few key advantages. You will be able to use the studio’s money, as well as the studio’s development companies. Because you are using these resources along with their professional script developer, you can ultimately make a bigger picture.

On the other hand, Step Deals offer many disadvantages. First, having a studio actually pick up an unknown filmmaker’s project is very slim. Second, there is the “Hollywood System,” which is a relationship driven business. Third, there is loss of control of your concept! It is not uncommon for the studio to copy your concept and have their development team work your idea in a new way. Therefore, you have to be careful with whom you share your ideas and to remember that scripts and treatments are copyrightable, but ideas are not. Fourth, there is also the potential to lose your material to the studio if your project is delayed by the studio. Fifth, with Step Deals you can be fired at any stage, namely if you are not meeting the studio’s schedule or if your work is not up to their standards. Once you are fired, you lose the rights to your project unless you negotiated properly before-hand. You must also protect yourself and your ideas against slipping into “Studio Limbo” (i.e. having the studio purchase a perpetual option on your project). Finally, you may run into a situation of not having your film adequately developed. Most studios tend to overbook the number of release pictures in a given year. If a studio picks up your film to meet their quota, then you can expect very quick development, production, and post-production time.

If you are seriously considering studio financing it is highly recommended that you hire an experienced entertainment lawyer. A seasoned studio executive will have more leverage than you and having a good lawyer on your side will only improve your situation.

Advantages and Disadvantages of Independent Distributor Financing

An Independent Distributor is a distributor who is not regularly or substantially affiliated with a major studio. They specialize in foreign distribution and most are members of AFMA (American Film Marketing Association). Although some have production divisions, they do not have the financial resources of a major studio. When submitting a project to an Independent Distributor, you must have some financing in place and be ready for principle photography. The reason being is that Independent Distributors do not have the resources to develop, produce, and distribute your project.

There are some distinct advantages to using Independent Distributors. First, they specialize in distributing smaller films. Second, you can negotiate a better deal, because you and the distributor are on the same level. Third, they will offer more personal attention to you, as well as, support the film. Finally, you have a better chance of receiving net profits.

The disadvantages of Independent Distributors are that they have limited financial resources to put into your picture. This will impact the number of theaters in which your film will be screened. Also, you will have less collection clout with theater owners and overall smaller revenues. Lastly, Independent Distributors have a higher bankruptcy rate.

Completion funds

Completion funds are designed to provide partial production financing or post-production financing. These funds can be provided for films that meet the following requirements: a) have completed principle photography; b) are complete except for post-production; or c) are complete through post-production, but can not be released from the lab due to unpaid lab fees. If you are obtaining financing through a lender, they will require a completion bond which will ensure the project will be finished. These funds rarely put up all the money needed to produce a film. Basically, they are sharing the risk with other investors.

Completion financiers successfully negotiate a higher per dollar percentage in the film. The reasoning is that, without the completion financing, the development and production financing has little chance of being recouped.

With this type of financing, your only advantage is that the completion financier is sharing in the risk as opposed to lending you the money.

Your disadvantages are two-fold. First, you have a weak bargaining position. Because completion grantors are providing the completion financing, they are in a better bargaining position. Secondly, completion fund financiers will not invest large amounts of money in your film because funds are limited.

Also you might benefit from reading John Cones’ article “Five Most Common Film Finance/Distribution Scenarios”. Here is an excerpt for it:

1. In-House Production/Distribution

The selected studio/distributor to which the project has been pitched or submitted, provides the acquisition/development financing, develops the project at the studio under some level of supervision of studio creative executives, gives a “green light” to studio production funding and distributes the completed film with the studio affiliated distributor using the distributor’s funds to cover P&A expenses. An independent producer (or screenwriter, director, actor or actress) may have originally submitted the idea, concept, underlying property, outline, synopsis, treatment or screenplay to the studio, but rights to produce as a motion picture were then acquired by the studio. If the producer or others remain attached, they do so as employees of the studio or project.

2. Production Financing/Distribution Agreement

The independent producer provides the acquisition/development financing (or raises such funds from investors) and takes the deal to a studio/distributor with a fairly complete package (i.e., significant elements are attached). The studio/distributor’s money is then used to produce and distribute the picture. The distribution agreement is entered into (theoretically) prior to the start of production, or at least before the end of production. The distributor will deduct its fee, recoup distributor expenses, collect interest on the production money loan and then reduce the negative cost with remaining gross receipts, if any.

3. Negative Pickups (and other forms of lender production money financing)

The independent producer provides acquisition/development financing (or raises such funds from investors) and obtains one or more distributor commitments and guarantees to purchase the completed picture (for the worldwide, domestic or international markets, or individual territories) if the finished film meets specified delivery requirements (as set forth in detail in the distribution agreement). The producer takes this or these distributor commitment(s) to an entertainment lender to secure production funds using the distributor’s contract(s) as effective collateral. In this instance, the only part of the financing provided by the distributor relates to distribution expenses (i.e., the socalled P&A monies). The negative pickup and other forms of these distribution/finance agreements associated with lender financing are typically entered into prior to the production of the film. Other variations on lender production financing include foreign presales, gap financing, socalled “supergap” financing and partly or wholly insured sales estimates.

4. Acquisition Deal

The independent producer raises acquisition/development as well as production monies, often from investors outside the film industry, but distributor funds are used to distribute the movie. The distribution agreement is entered into after the film is produced). Some in the industry still erroneously use the term “negative pickup” to describe this transaction which is clearly different from the true lender financed “negative pickup” described above. This “pure acquisition” approach to film finance and distribution generally provides the producer and creative team with the most creative control (over scenarios 1 3), but involves greater financial risk for the producer and/or the producer’s investors.

5. Rent-A-Distributor

The independent producer raises acquisition/development, production and some or all of the money needed to distribute the film. This type of distribution agreement is generally entered into after the film is produced. Distributor fees are generally at their lowest with this transaction, (e.g., 15%).

So, all above are few of many possible scenarios of approaching fundraising for your dream. I am sure many of you have a great number of fantastic creative ideas based either on your experience or imagination.

Please add your ideas and let’s help others talents to bring quality content to the theatres and screens. Too much cheap tasteless garbage out there, isn’t it?

You can do much better, as long as you believe in it, believe in yourself and your craft, in people that back you, believe in your purpose and the message that you want the word to hear. Speak up!

Good luck! Believe!
…
by Olga Kostrova, CEO of IdeaMama Group:




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