Funding Basics for the Independent Filmmaker

This article was originally published on Yahoo! Voices.

Every filmmaker encounters the same question early in the filmmaking process: how are you going to fund your project? Unless you happen to be financially secure, or your budget will fit within your credit card’s limit, there’s a good chance you’re going to want other people to invest in your baby. Even if you’re self-funded, most indie film makers don’t have unlimited resources, and it’s important to make very dollar count.

Creative, right-brained filmmakers who are well versed in the art of making a film are often intimidated by the business side. Just remember that filmmaking is business, and that’s exactly how you must approach it. The key is to plan, plan and plan some more. Many filmmakers are so anxious to go out and create that they don’t have a clear idea of what they’re going to do when the film is finished. This is potentially disastrous, especially if you plan to seek investors. You have to know what you are going to offer a potential investor in return for his or her money. “That’s easy,” you might think. “They’re going to get a piece of the film. When it sells, they’ll get money.”

But how are you going to sell it? How much of the revenue will they get? What are you going to do to ensure that there is revenue? And just what, exactly, is “a piece of the film”? All of these questions, and many more, need to be answered whether you plan to seek investors or not. After all, even if you’re self-funded, filmmaking is a terribly expensive hobby. Getting paid for what you do is the only way to ensure that you can keep doing it.

You should start by developing a business plan/prospectus. The contents of the business plan should answer all of the important questions an investor will have, so it will take a lot of thought and effort to put it together. It will also force you to think about all of the different aspects of your film–in addition to principal photography and post production, you’ll need to address development, distribution, marketing, and corporate structure.

One of the first pieces of the business plan you should put together is a detailed budget. Everything you do will be built on the back of the budget, so it’s important that it be thorough and accurate. When working on the budget, don’t estimate. Get quotes. Include everything you can think of. Have a contingency item for cost overruns. Once you raise funds and begin shooting, you can always spend less money than you have. You can’t spend more. And going over budget has more implications than just needing to find more money. If you have made an agreement with investors, failing to produce the film on time and within budget has multiple legal implications.

There are also some basic contracts that you must put in place if you are to seek investors. For instance, even if you wrote the screenplay and based it on nothing but your own imagination, you will need to option the rights. Many filmmakers who have never used investors don’t even think about this; if you are going to use other people’s money, they need assurances that the rights are in place at a set price. If you didn’t write the screenplay, or based it on someone else’s work, before you promise the rights to investors, you better make sure you are able to secure them. This is also true if you are going to promise the services of a particular person, such as a named actor. Before you promise Mr. A-list, you will need an agreement from him promising to appear in your movie if the funds are raised.

You should consult a good entertainment attorney. In addition to ensuring that your contracts give you the rights you need without saddling you with obligations you aren’t ready to deal with, you will need to consider the legal effects of asking investors to invest in your project. Securities laws are designed to protect private investors when investing in other people’s projects. This applies to films, too. While independent films may not need to worry about federal securities laws (as of now, the threshold is in the low millions), state securities laws may be a different matter. If you are asking other people for money, you will need to be sure you don’t do it in a way that will trigger state review requirements. Having an entertainment attorney to keep you out of trouble up front is well worth the expense.

Your business plan should address distribution. Investors are going to expect a return on their investment (and if you are self-funded, you should, too). They won’t expect any guarantees and you should NEVER give them any; in fact, you should make multiple disclaimers as to the risks involved. However, they will expect a carefully thought out plan for how you intend to distribute and market the film in order to increase its chance of generating income. “We plan to try to get a distributor” isn’t nearly enough. Who are you going to approach? Why are they a good fit? Do you have a contact there? If not, what are you going to do to increase your chances of actually getting the film reviewed? What is your plan if you can’t attract a distributor? Be thorough. It’s one thing to tell investors they may not get their money back. It’s another to tell them you don’t know how they’re going to get their money back.

You will also need to spend some time thinking about business structure. Typically, you will want to put your investors into a business entity of some type, and then that entity will contract with your production company to produce the film. Will you own any of the business entity? How will revenue be split between the business entity and the production company? If there is any non-release related income, such as film incentives, sponsorships and the like, will the investors be allowed to share in that revenue? If not, what do you plan to do with that income? A detailed example of how income will be distributed will help investors understand what you are offering and will also show them that you are thinking about more than just getting the film in the can.

You should address film incentives, too. Many states offer film incentives in the form of tax rebates or credits for people that spend money in their states on film productions. These incentives can be fantastic tools for a filmmaker that is trying to raise capital. You can use the incentives, for example, as a guaranteed return to your investors, as collateral for loans or as marketing funds once the production is complete. However, as with everything else, planning is key. In order to take advantage of incentives, you have to comply with the state’s incentive laws. That means you need to know what the requirements are, and you need to make sure you incorporate those requirements into your budget and your production schedule. As you can see, the use of film incentives is something you need to have nailed down in the very beginning.

Of course, there are many more things you should put in your plan. These are just a few of the big ones. The business of funding a film can be complicated. However, for the filmmaker that wants to see his or her baby on screen, it is well worth the effort. Just remember to be thorough, realistic, and up front about every aspect of your project. And if you don’t have all of the answers, don’t be afraid to ask a professional for help. A consultation with someone that knows the business can save you time, effort and money, in addition to saving you from potentially devastating mistakes.

This article is not intended or offered as legal advice. It is presented for educational and information purposes only. This should not be construed as legal advice or a legal opinion. Please consult a qualified attorney for any questions that are specific to your situation.

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