Film Funding 101

Film financing is one of the most difficult and least understood challenges facing a producer and it is fraught with perils for the unwary. Many independent film producers find themselves caught in its legal and financial morass. Given that most film producers do not want to use their personal assets to fund their films. The most important issue for many producers is how to finance their film project with OPM (other people’s money).

The methods of financing film projects are as diverse as the film projects themselves, the most common ways being; “debt” (borrowing money); “equity” (selling membership interests); or a combination of both (a production support agreement). If the producer has a track record of successful film production, then additional sources such as “pre-sale” of film distribution rights or studio financing are available. There are also producers who merely package a project and assign the rights to another, better financed, production company. However, for most independent producers film financing is limited to debt and equity.

Financing a project with debt is that such agreements require the payment of a sum-certain, with interest, on or before a specific date. 

The other major source of funds, equity financing, is problematic because a securities offering memorandum and full disclosure is required under the securities laws and notice filings are required by the federal Securities and Exchange Commission (the “SEC”) Violations of the SEC requirements and the applicable Blue Sky Laws carry both criminal and civil penalties.

http://en.wikipedia.org/wiki/Blue_sky_law

A business plan IS NOT a Private Placement Memorandum. A business plan and a securities offering memo serve very different functions. In order to safely comply with these laws, a producer should work with an attorney who is familiar with both entertainment and securities regulation.

The following is a summary of some of the issues that arise when preparing a private placement investment offerings 1. No General Solicitation. 2. Accredited investor requirements . 3. Disclosure requirements. 4. Filings.

For more information on SEC filings;

http://www.sec.gov/info/smallbus/qasbsec.htm

As you might expect, an essential part of any request for financing is for the producer to develop a credible budget and production timeline. Without both of these documents, prepared by someone with experience in film production, the producer should not undertake any serious fundraising.

So, how do you solve the Producer’s Paradox? One possibility is to start with a short film. The technology is the same and the logistics are the same, just in micro. Work up to a feature film project. A short is far less expensive, allows you to develop an understanding of the difficulties you will face with a feature film, allows you to develop relationships within the industry and it can become a calling-card for potential sources of funds.