I Lost My Investor!

Very sound (and sobering) advice from film finance expert Jeff Steele…

by Jeff Steele

As a finance person, I spend a lot of time cleaning up after producers, which makes it easy to opine on their shortcomings and how they can better themselves. But I also spend just as much time cleaning up after investors who’ve jumped ship.

The contractions in the foreign pre-sale market, coupled with increasingly conservative gap lending, are putting considerably more pressure on the amount of equity required to get a film financed. Unless a project outperforms pre-sale expectations, most producers should expect cash/equity to comprise 45%-50% of their budgets. That’s what it takes to get film financings closed these days. It might appear to only be 35%-40% when you’re first going into your loan closing, but that’s where it’s going to end up, six weeks later – and it’s during those six weeks that most investors leave their producers standing at the alter.

Investors have all sorts of reasons for abandoning ship: market shifts, divorce, investigations, misinformation, epiphanies, moral issues with the plot, something better comes along, they never had money to begin with, and so on. Divorce is probably the leading cause of investor flight, but sometimes it’s something reasonable, like they couldn’t come to terms with the lenders or co-investors.

Nevertheless, raising 50% of a film’s budget, in cash, is a heavy burden. Very few people can cut a check for half of a budget, so it usually ends being multiple investors – and with each investor comes an additional point of vulnerability in your finance structure. Producers can mitigate the risk of structural collapse by insisting that their potential investors are transparent and accountable.

Understandably, most producers are terrified of offending or “losing their investor”, but it’s important to remember that nobody is an investor until the money is in the bank. Until that time, they’re just a person that you may or may not do a deal with.

Therefore, transparency is the only insurance policy against wasted time and money. Proof of funds must be obtained straightaway. If they can’t show you where the money is, then it doesn’t exist. If they stall, move on. If it takes more than 30 seconds to explain how they’ll fund, forget it. Anybody who’s acquired wealth sufficient to invest in movies won’t have a problem putting you in touch with their banker, lawyer, accountant, or business manager. By the same token, knowing who their lawyer will be for the closing is also very helpful; you can tell a lot about a person by the lawyer and firm they use.

Read Entire Article: I Lost My Investor!

%d bloggers like this: