How does film investment really work?

 

In order to effectively convince your film financing investors and build a solid feature film business plan, you need to understand the ins and outs of film investment.

 

There are hundreds of ways filmmakers can raise, earn, or apply to fund their film’s negative costs (production budget). Most films are financed via multiple sources, and not all are cash transactions or investing. Usually, all financing can be categorized as either “soft” or “hard” money and both are extremely valuable and can be used to secure the other. In short, soft money does not have to be paid back, and hard money does, usually with an anticipated profit on top of the initial investment. 

 

Soft money is financing where the investment is not made on the basis of the project’s possibility to generate profit and, therefore, the need for recoupment is either minimal or does not exist at all. 

Hard money is any investment made on a commercial basis, with a claim attached. The “claim” may include part of the profits for co-producers/production company and/or equity investors, or interest if it’s a matter of a loan or venture capital investment, with an exit tied to a recoupment plan.  

 

Soft money is especially helpful when used to secure hard money. Not only does soft money enhance your bottom line, but it adds significant credibility to your business plan and investor pitch. Investors like to know you have “skin in the game,” meaning, you have contributed your own money or put serious thought into the finances.

 

Suppose you do not actually have the cash to lend your project. Maximizing your soft financing options shows you have put serious effort into your film’s finances and are not solely reliant on your investors. This makes your project far more attractive from a potential investor’s perspective and gives you significant credibility, even if you are a first-time filmmaker. If you start by doing nothing yourself, and the first thing you do is reach out to investors, it's 99% GAME OVER! It's like reaching out to investors to say, "I want you to buy my stock. I don't have a business plan, budget, P&L, a business or staff but I have a great idea, so please buy my stock." There's a reason you can't have a stock without a business! 

 

Here are some ways you can put "skin in the game" even if you don't have your own cash. Show investors how serious you are about your film: 
  
Soft Money Examples: 

In order to secure funding for your independent film, you don't need to approach billionaires who back corporations and studio films. Most independent film investors are doctors, lawyers or small business owners. Often these individuals are nearing retirement and want to invest in something creative. Rather than investing in real estate, they may want to give you and your independent film a shot. If your film turns out to be a hit, it could be a huge return for them, not to mention a significant tax deduction. 

Start by looking at indie films with similar budgets and research where and how they received their funds. This could be as simple as viewing the credits. Pay close attention to the “Special Thanks” section. Not all investors choose to be listed as an “executive producer;” some are listed only under a “thank you” credit. Google their names, find their contact information and send them an email specifically stating why are you emailing them. Better yet, use all of your networking contacts to see if you can secure a specific referral to the individual.