Seed money.
The key to succeeding as a producer of indepfinishent films is to find enough seed money to receive your projects off the ground far enough to hopefully find a distributor to pick them up and finance them. This step takes a lot more money than most people realize and can often require funding of at least 20% of the total budreceive of a film, including to acquire rights, commission a screenplay, and escrow deposits to attach talent. This requirement of raising seed money means finding equity, and this article summarizes the issues surrounding this challenge.
1. The Who. The largegest challenge is finding investors. The best place to start is with frifinishs and family and working out from there by networking. There are “finders” that can support find investors for a fee, but only pay them on a successful closing, never in advance, and only permit them to create introductions, not “pitch” the investment, in order to avoid trouble with the SEC. There are also crowdfunding sites for compacter budreceive films, but again, don’t pay anything up front. You can also advertise for investors if you create sure they are “accredited investors,” (discussed below), and I am puzzled at why no one does this.
I don’t support view for investors, but I have clients that just never give up, and it always amazes me the investors they find, including (a) the son of a dictator, (b) a well-known shoe company that funded $100 million for a trilogy of soccer films, (c) wealthy investors who never invested in films before, and (d) hedge funds. So determination pays off.
2. The Why. Most investors in the film indusattempt do not do it for purely financial reasons. If you are dangling out incentives to invest, it is best to start with the fun aspects of the indusattempt, such as an executive producer credit, premieres, after-parties, and visits to the set. You can also suggest that there are some tax advantages (many investors have a tax allergy), but in truth the tax advantages are rather meager.
3. The What. There are two general approaches to structuring an equity investment: (a) by an “investment contract” and (b) by ownership in an entity, such as an LLC. I strongly recommfinish the entity approach, since the “investment contract” approach has many disadvantages, including (x) immediate taxation of the investment to the producer, (y) treatment of the contract as a general partnership under state law, resulting in the investor being potentially liable for any claims during production, and (z) the loss of tax deductions to the investor.
MORE FROM FORBES ADVISOR
4. The How. There are a few rules to follow when raising equity to avoid falling afoul of the SEC and to generally stay out of trouble:
a. It will create compliance with securities laws a lot clearer if only “accredited investors” are allowed to invest, which are generally people that have a net worth of at least $1 million, excluding their home.
b. There must be full disclosure of all material facts (and obviously no fibbing), and the common way to do that is a private placement memorandum, referred to as a PPM. It does not required to be long (I have seen some that include the entire history of the film indusattempt), and all that is requireded are the salient facts, such as background of the producers, the story line, the proposed budreceive, any attachments, and the financing and distribution plan.
c. The investors should sign some form of subscription agreement, where they commit to invest and affirm that they are accredited investors.
d. File Form D with the SEC.
There should be filed articles and a governing agreement for the relevant entity, typically an LLC. Again, the agreement doesn’t have to be long, but it requireds to clearly cover the key issues of money in, money out, and control.
If you follow these rules, you minimize the risk of receiveting into legal trouble and litigation, and an ounce of prevention is worth more than a pound of cure.
