LL: Do you have suggestions about when to decide that a potential investor is not real?

This is the major challenge that I think most producers face today. Certainly vetting through IMDB postings and references can be useful, but these are not always reliable indicators of peoples’ bona fides. Many parties will even sign Letters of Intent or MOU’s and then not honor them. Practically speaking, attempts to enforce these can be a costly, and often unproductive, use of time and resources. There are law firms as well as investigative and financial firms that specialize in background-checks, and these can be worth the cost invested in vetting prospective investors, particularly to ferret out a negative history and ensure compliance with national and international laws and regulations relating to making proper investments with the right parties.

Ultimately, even with the above measures as part of one’s business methodology, there are no sure answers, and even experienced industry veterans still face challenges in determining who’s “real” and who’s not. Many people want to “play” in the entertainment business and bootstrap themselves to others. However, for the most part, it’s usually possible to spot the “posers” and “players” fairly quickly by getting to specifics and documentation, which can include “legal” and “proof of funds” type inquiries.

LL: What are the top questions that investors asked?

Joslyn: Who’s in the film from a talent standpoint? How are you going to get my money back and when? More recently we’ve been getting sophisticated questions about soft monies, tax incentives, and various gap and super gap-lending frameworks. Investors are quite savvy that their equity participation is a hard thing to find at this time, and therefore equity financing is becoming more expensive.

Tony: The top questions from investors were (1) Who wrote the script? (2) Who’s directing the film? (3) Are there any cast attached? (4) Who’s producing the film? (5) Is there any funding already in place? and (6) What have the writer, director, and producers worked on previously?

Joel and Tim: Our potential investors didn’t know what questions to ask. Since they had already worked with Tim in real estate investing, they had a comfort level with him and his advice. As experienced investors, however, they wanted to know all the risks. Joel spoke several times about studio films and independent films. He did general education about film and the entertainment industry being sure they knew all the risks in independent film. He also told them there were several thousand films a year that don’t get any distribution, and the worst-case scenario that they might not make any money.

Patricia: Who are the actors? Who is the director? Have your previous projects made money for investors? Give me reasons why I’d want to invest in films. Why do you want to make this film? Who is your audience? Do you have a distributor? They also ask about what type tax write-off or benefits they will get; will there be any income generated from the project and when will it start and how much to expect. Is there information available to substantiate their backgrounds? Is there a prospectus and material supporting this project, and is it currently available? As an investor, do I get the first right of refusal on any subsequent projects? Would there be a role for my daughter/son/wife?

April: These are basic, but they are pretty much the only questions I get asked when looking for money: Who is in it? Who is directing it? Where are you shooting? They don’t ask me about myself, and they ask about the movie only generally. I find that with the one that I am currently working on getting funded, they have a lot of specific questions about the mood of the piece, since it is a “nontraditional rock-film” about a very dark topic. Otherwise, “who is the audience,” “what are your plans for distribution,” etc. has not really been asked of me yet.

Jay: Most of our investors are North Carolinians. Moving Midway had tremendous local appeal to them. They either knew the family or wanted to participate in history, or both. Having said that, the questions we got most were: How much money do you need? How much have you raised so far? Who else has invested? How much did this or that person invest? During the first round of fundraising, we told everyone we had a business plan—with, of course, your credentials, the limited liability company (LLC) paperwork, and who our attorney was. I know a few of them read the paperwork, but I don’t think most did. Only a few asked about return on investment. I don’t think most cared. One of them told me that he thought it was just the right thing to do. Otherwise, there were a lot of reasons: the Academy Award potential; preserving history, education, and race relations. There were a lot of reasons that were not about making money. I think our biggest investor did it mainly for the arts. During the second round of fund-raising after we asked you to update the plan, more people read it and commented. Most of the questions then were making sure they understood what was there. Between the plan and the LLC and the distribution deals, I feel like I got an entertainment law degree. [LL: As happens in many documentaries, events prevented finishing the project in the original timeframe planned; therefore, we updated the financial tables.]

LL: Is there a difference between U.S. and Canadian/European/Asian investors?

Joslyn: Yes, mainly it is the expectations that are quite different. U.S. investors expect to recoup against all world sales on a pro rata pari passu basis, and expect to be in first position behind only the standard P&A expenditures, sales fees, and taxes. They also expect a premium on their investment upfront and to see their names prominently displayed in the credits. European investors expect to recoup against specific territories and are used to international co-productions with many producing partners. There does not seem to be as much of an emphasis on personal credits, though there are arguably many people interested in being involved with quality, prestige vehicles, red carpet opportunities, and networking with film stars. This last applies to the United States, as well. The other significant difference is the approach to content. European and American investors and filmmakers have cultivated different tastes and audience bases over the decades. Europeans are used to auteur-driven filmmaking as much as they can also appreciate a Hollywood blockbuster. I don’t think the reverse can be said of Americans, and American audiences are notoriously allergic to subtitles and dubbing—English-language rules, despite emerging successes in the Spanish-language market, which is finding its clout. As a result, U.S. investors tend to shy away from foreign films. And the American indie market, with its white bourgeois male 20- to 30-something bias, has also shrunk dramatically. On the doc side, you will find engaged U.S. equity investors ready to put up monies for issues they sincerely care about if they feel the films have a chance of being distributed/seen. In Europe, equity investors for docs are extremely rare, as most docs are for broadcast and funded via broadcast networks and the many soft monies available to filmmakers in Europe. U.S. filmmakers do not have access to as much soft money, few foundations support film at a level that really makes a difference, and those that do tend to fund at the seed stage or the outreach stage rather than to fund production itself. This is actually, I think, a smart approach given the limited funding available and the demonstrable need; but the lack of soft money in general in the United States to support the arts is egregious and frankly outrageous when compared with other industrialized nations.

Tony: I can speak to the difference with Canadian investors. Basically, most Canadian independent films are financed with public funds. In our case, 80 percent of the funding comes from federal and/or provincial government entities. The only money that was raised outside Canada for us came from our U.S. sales agent.

LL: How did you find your investors?

Joslyn: When we launched our company we were quite clear about our intentions, and we have been fortunate to work with producer colleagues and superb filmmakers who have realized those intentions successfully. We have been able to attract investors as a result. We are of course in a privileged position as Mr. Glover is a well-known and well-respected film star, so it has been easier to navigate the usual channels of social networking than would likely have been the case otherwise. The key, however, has been building a brand, and we have done that through clarity of intent, adhering to certain principles, and sheer sweat equity!

Tony: The film has been in development for a few years, and we were able to secure development funding along the way from Telefilm Canada, New Brunswick Film, and Astral’s Harold Greenberg Fund. Those three funding sources served as the starting point. From there, we were able to get equity from our home province of New Brunswick. We were also able to include tax credits from the provinces of New Brunswick and Nova Scotia. We went on to secure pre-buys from two broadcasters in Canada (TMN & Movie Central), which were taken to our Canadian distributor for an advance. Our Canadian distributor was affiliated with a U.S. sales agent, who came onboard with another advance. All of this funding was included in our application to Telefilm Canada for production funding, and we were successful in receiving that. The final piece of the puzzle to close out our funding was a producer investment. The final investment percentages of our production budget (just over $1 million) were Telefilm Canada Equity, 39 percent; Nova Scotia Tax Credits, 22 percent; Distributor Pacific Northwest Pictures Advance, 9 percent; Province of New Brunswick Equity, 9 percent; Province of New Brunswick Tax Credits, 6 percent; International Sales Agent Myriad Pictures Advance, 5 percent; Government of Canada Tax Credits, 4 percent; Producer Investment, 4 percent; and Astra’s Harold Greenberg Fund Investment, 1 percent.

Joel and Tim: We didn’t solicit investors at the group. The first person who put money in came up to us after the meeting. That led to another and to another, etc.

Patricia: That’s a difficult one for me to be specific. Having been in the industry for many years working in several countries, I have gathered contacts both in and out of the film industry. I never ask a relative or friend to invest in my own projects. It’s been doctors, dentists, real estate developers, hoteliers, actors/estate agents, government film agencies, an advertising company, commercial radio, and television stations. I also have approached banks for gap financing. There were professional fundraisers at a brokerage firm (in Australia) where I worked some time ago who raised several million dollars for me from 147 investors. In the latter deal, there were a few substantial investors seeking a tax break and many smaller investors along for the ride and a tax break. However, the tax structure has changed in Australia since this project was funded. They didn’t solicit investors at the group.

Jay: Our investors were mostly friends of the Executive Producer, Bernie Reeves, or Godfrey’s (Cheshire, the Director), or mine. Many also came in by word of mouth from our investors. Each had to have a net worth of $1 million minimum. We did have some donations also through our fiscal sponsor, the Southern Documentary Fund in Durham.

LL: What suggestions do you want to make to filmmakers in approaching investors?

Joslyn: Do your due diligence. Make sure that your project is sound. Do you have a great script, a feasible production schedule, and an accurate budget? Do you have people with the necessary talent and skills to execute your project at a professional level? Are you sure of your financial model insofar as possible? Have you tested your sales estimates? Have you vetted your investors? Are you 100 percent sure they are for real? Do they have the monies they say they do? What is their reputation? Have they worked in film before or not? What business do they work in? Seek investors with common interests and goals to your own so that expectations at all levels dovetail. Most people in a position to invest monies in films have made those monies because they are quite savvy business-people. In our experience, such investors appreciate down-to-earth, informed presentations where risk is laid out honestly alongside efforts to mitigate that risk. You may need to educate them about the film business and the kind of flexible mindset it requires. Build long-term relationships. Don’t focus on short-term quick fixes. If you burn through investors, you are not helping anyone, including yourself. Building long-term relationships implies honesty, respect, transparency, delivery, and accountability.

Tony: My suggestions would be to put together a detailed business plan that includes:

Joel and Tim: You have to know what you are doing, or work with someone who understands and can explain the business and marketing of film. Before we took any money, we had an operating agreement for our LLC and a private placement with subscription docs. We also decided to become investors by leaving our finder’s fees for raising the money in the film. [LL: As executive producers, they raised the money for April Showers, a film that April Wade produced. It is coincidental, however, that I have answers from all three. Patricia, who has known her for a long time, asked her to participate in this section.]

Patricia: Know your stuff, and be able to present it cogently. Many potential investors invest for a living or a tax break. The filmmaker’s responses should be substantial and relevant; your enthusiasm for the project should be coherent. It helps to have name actors, a director with some experience, and personnel creative and production—on board who have track records. Not only do these people help get the film finished but also they are pitch points up front when raising money. Less detail about the script itself is better, as it often loses something in the telling particularly to nonindustry folk. Just hit the main pitch points and know them backward. If the investors want to know more about the script, they’ll ask. Other potential investors may be real estate developers, doctors, dentists, or a neighbor. Many of these folks don’t know much about the film or television industry other than viewing the finished product. Be prepared to explain the project and the deal in terms each individual can understand. When dealing with tax incentives, you are dealing with governments and taxpayer funds. Film commissions need to answer to their state or federal government as to why this production and investment is worthwhile for their state or country. All government agencies want to see the merit of investing taxpayer dollars, and they want all the reassurance they can get.

Jay: Three words: DO YOUR HOMEWORK!