Thursday, September 18, 2014

Who Invests in Independent Animated Feature Films?

Photo: Wikipedia
Who invests in independent feature films? And how does the aspiring film-maker find those investors? At the European film finance conference, Closing the Gap, Perrine Hamon of Media Deals, and Thierry Beaugard of Peaceful Fish explained what kind of investors are out there, and how to find them. Any animator who has a dream to make their own independent animated feature film needs to know just a little bit (and possibly more) about the nuts and bolts of movie finance.

The good news is, there are plenty of places that specialise in film finance. Wealthy individuals, government bodies, equity investors - the industry offers many choices. The bad news is, getting your project to them in the right shape to make it investable is a formidable challenge.

Thierry Beaugard of Peaceful Fish

Perrine Hammon explained what it is that his company, Media Deals, actually does. They are mainly interested in financing media startups, rather than making content for film & TV. Media Deals is "a network of investors in the media sector". They have "around forty Investors, and they are always finding more".

Types of Investors

What kind of investor is right for you? And what kind of deal terms are typical in the business? There are four principal types of investors in movies:

Not that kind of angel.
1. Business Angels

Business angels are individual investors, who invest in films "on a case by case basis". The sums involved range from "around €10k to €1m". It's generally their own cash they are putting in, and they generally like to be personally involved in the project. They often invest at the start of the project, helping with its development. Why do they invest? Because of their own personal interests - and also the film's commercial prospects. Usually, a business angel is a very wealthy individual "who really likes movies".

What kind of deal terms will a business angel want? 

The chances are they will want "at least a 50% uplift" for their investment. After all, film is risky. And if they are investing in the company making the film, they will want to take a percentage of the company.
Where are they to be found?

Business Angels tend to "congregate in networks". These include, for example, the European Business Angel Network , the European Venture Capital Association (EVCA), and other loose networks of like-minded individuals. Film-makers might also "try family and friends" for start-up assistance. Many angels are alumni of business schools, former bankers and businessmen. These are the kind of people who might "invest around €10,000 in a movie". They are not easy to find and you will need a credible business presentation to get in the door.

How do you pitch to business angels?

Once you have found them, you will have to "make presentations to groups of angels". A bit like Dragon's Den, but for movies.  The best advice to start with your home market first, pitching to local entrepreneurs and business networks. Especially good are business angels who have "never invested in films" - they have yet to be disappointed.

One problem that film-makers face is that most business angels tend to prefer investing in companies rather than individual projects. Usually they tend to prefer companies, as these can be sold at a profit. Projects are - generally - less profitable than investing in companies.

How Venture Capital Works. Image: Wikipedia

2. Venture Capital Funds

Venture Capital funds, or "VCs", tend to be applicable to bigger businesses rather than very small start-ups. They tend to have "big funds, with a big portfolio, and rather higher costs" than individual investors. Usually, they are "not interested in small projects". Rather, they tend to seek "high-risk high-reward projects, and tend to invest in companies". They usually invest after the development stage, in the "production stage" of the business plan.

How Do You Pitch to VCs?

For a successful pitch, you must have the following in place:
  1. Financing Plan
  2. Marketing & Distribution Plan
  3. Revenue Projections
  4. Corporate track record.
It goes without saying that at this point you need a credible producer on board who can help you prepare this kind of material.
Now close the deal. Photo: Wikipedia

What are the Typical Deal terms for a Venture Capital Fund?

VC investors expect to recoup their investment, plus a significant premium. Many will want an equity stake in the company. They will also likely want a revenue share of the IP [intellectual property] rights of the project.

One way to present your own project is to set up a Limited Liability Company (LLC) which holds the rights for the project you are developing. The VC investor will likely get a stake in this company, which is known as a Single Purpose Vehicle (SPV) because its sole purpose is to hold the rights for your film.

Another approach, suggested by Dutch producer Emjay Rechsteiner, is not to give shares in the SPV, but rather to make your investors a partner to the collection agreement [the agreement that governs the payment of revenues for he film]. Why? Because an SPV can go bust. By contrast, the collection agreement is transparent and clear, and that way "you don't have to keep the SPV for 20-30 years, paying for book-keeping and accounts and so on". This approach "gives investors security". The revenue from the IP rights "streams through the collection agency". What you will have in place is known as "The Collection Agency Management Agreement (CAMA)". The agreement is run by a neutral third party, the collection agency, who collects the revenues for the film. If you don't do this, "problems may arise with IP rights over time", whereas "a CAMA helps to keep the rights simple". Other investors however, said that they "would only lend to an SPV". Their lawyers "would not allow him to follow this collection agency model".

3. Public/Private Funds

The size of the sums invested by public/private funds tend to vary from €10,000 to several million. These investors tend to like "projects that satisfy a mix of public and private interests". Some development money is available (generally, development money is the hardest money to get). Usually, there is a "regional spend requirement". In other words, they want you to spend the money they give you in their own region or area. Quite likely they will want a share in the Intellectual Property (IP) as well.

Mediatech investors like companies that make stuff, not just creative content. Photo: Wikipedia

4. Mediatech financiers.

Mediatech financiers generally invest in companies, mostly hi-tech start-ups. These are usually a "marriage of content & technology". Typical deal terms include an equity stake in the company, board membership, and an exit strategy to sell the equity stake within a given time frame. These investors tend to want technology more than content - but the two can and do often go together.

What do equity investors want? And what are the typical deal terms that investors look for in film?

We'll be taking a close look at the nuts and bolts of film investment, and how to structure your deal, in a separate blog post.


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