Kunkhe Direct

I am always looking for over investors who are interested in joining with me to fund film projects.  I would also like to talk to you if you have invested in a film in the past and hear about your experience and what sort of result you ended up with.

One of the things that I look for in assesing any project is just how committed are the producers to their project.  The only thing that determines were a project makes it to the “can complete” is the producers’ committment and passion to their project.

Don’t mistake hype as passion.  They’re easy to tell apart, passion shines through the eyes, lack of committment doesn’t.

There is plenty of money out there, it just depends on what your objective is and who you are willing to partner with on your project.

The first port of call for alot of producers is the government funding authorities.  I personally like to steer clear of them.  Whilst relatively speaking getting money from them is easier than raising it yourself, it comes with too many strings attached and on an equity basis is very expensive.

It is better to look for money in other places it you really want to make a decent proift and maintain some level of control over your project.

In earlier posts I have mentioned different sources of money, it is worthwhile checking those entries out again.

Always remember, you are the person witht he passion about the project it is you vision and desire that is going to get the project up.  Don’t delegate funding to others, as you are the driving force, investors are going to want to see the “whites of your eyes”

If you are interested in what I have had to say and you are also interested in investing in film projects.  I would like to here from you.

Just to let everyone know I am working on putting together a guide to investing in film from the investors’ point of view.  It will be a short document on what to look for and what to avoid.

I cannot reilterated how important distribution is, without it you have no way of making money from your production.

It sounds obvious but most first time producers get so wrapped up in “THEIR” production that they come to believe falsely that “if they make it the distributors will come”. To refer to the old saying “that only happens in the movies”. The Commercial reality is a lot harder, yes it has been known that a film gets picked up by a distributor after its made but usually only if the producer has spent a reasonable amount on it and it has decent production values. In any case the distributor can see what is being offered for sale and unless the production is something “out of the box”, the distributor sets the price not the producer.

So here again we see a prime example of the base issue. The producer takes all the risk but gets little of the reward.

I just thought that I would explain what 10BA is and how it works.

10BA refers to part 10BA of the Income Tax Assessment Act 1936. It was a special section introduced in the early eighties, believe it or not, by John Howard when he was Malcolm Fraser treasuer.

The original section allowed for 150% of the capital invested in an Australian Film to be written off if certain conditions applied, in particular the film had to registed with the Department of Arts.

The problem was that the 150% deduction meant that scheme could be put together where by the taxpayer could make and investment and get a greater tax deduction than the amout invested on a cash basis. That is the taxpayer, provided the film lost money, made a profit on the tax deduction alone.

You can imagine what happened, there was lots of hot money chasing the tax deduction and lots of “crappy” films getting made, although the occasional good one emerged e.g. Picnic at Hanging Rock.

The concession ended up costing more than the Government had planned and over a number of years the size of the concession was wound back to 100%.

The key advantage of 10BA is that it allows the cost of production to be written off for tax purposes immediatly, thus delivering an immediate deduction to the taxpayer/investor. The disadvantage is that the very first $1 of income back to the taxpayer/investor is taxable. In essence 10BA provides a deferral of tax rather than a permenant deduction to the investor.

Please note that these are marketing ideas. I am assuming that you have taken the correct legal approach to packaging your investment. Don’t take short cuts with the Corporations Law because you will get caught. Not only will you lose the money you have invested to get to where you are, but you will get fined or even possible get a gaol sentence. Worst of all you could be banned from raising money for life. So don’t do the wrong thing.

People like success and investors will invest in successful people. If you follow this rule getting money is easy. This is a principle that applies to all business ventures not just film making.

So start out small with a small project but demostrate that you have made money from it. Your seed project doesn’t need to be elaborate. An example would be making a short film which you can and have sold to a Pay TV channel as a “filler”. End result is that you have made a profit. Now you have a profit making “credit” as well as a production credit.

Learn to network. I know this comment is like tell everyone in the industry how to suck eggs. But how many film makers network outside the production community. If you are trying to attract money then fish in the “right pond”. You need to also network with venture capitalists, successful business people, financial planners, financial advisers, stock brokers and the like. Why because these people all have one thing in common they are connected to people with money.

Do a bit of seminar selling. The financial community has a lot a doubt about the film business and just about every investor has a horror story about a film investment. Start educating your network on why you are different to every other producer/film maker who has tried to get money. But don’t sell a film, sell the industry and how it works, sell your connections and most importantly of all, sell your success.

Again this is my personal view based on my person experience.

I would follow the small capital raising approach made available, i.e the 20 investors, not more the $2 million.

Why?

Because, it allows you to walk before you run. It sends a signal to investors, especially if it is your first project, that you are acting in a professional and business like way.

From a business point of view I would be concentrating in moderate projects with a budget that falls between $750k and $1 mill. Productions which target pay TV and sell through video. This will give you the chance to make back money, pay a dividend to your shareholders and then reinvest the capital and the profits into your next production.

The classic vehicle for raising funds from the public is what is known as a managed fund. This is a legal structure the same as a property trust.

It consists of a fund, a trustee and a manager. The fund is the “pot of money” contributed by the “unit holders”. The trustee is the unit holders’ representative and the entitiy which holds the fund and any assets purchased with the fund’s money.

The manager is the entity promoting the “scheme”, and managing the project in which the fund is investing.

This whole process is controled the Corporations Law and there are strict rules which must be followed.

It is a time consuming approach requiring a Financial Services Licence and a registered offer document (i.e. a prospectus) being registered with ASIC.

It is expensive as everything must be properly documented and checked by lawyers and accountants. While it is not a legal requirement, if you are going to have any chance of promoting a managed fund, then you will need a tax ruling from the ATO.

I have gone down this path and it was one battle after another. But if you can do it then you are able to promote your film project to the world at large, provided you adhere to the law.

This comment applies to Australia law, but most other countries will have similar rules.

I am now about to get into a grey area where some may consider I am giving legal advice. Let me make it clear that I am not, and you should not rely on anything that I say here. All I am giving you is a pointer in the right direction. If you want to go down this path you need to seek expert legal advice.

Having said that lets get on with it.

The second method is a small capital raising. Basically you are allowed under the Australian Corporations Law to raise, via a private company, no more than $2 million dollars from a group of people not exceeding 20.

You are allowed to do this on the basis that there is some connection between you and the people investing, i.e long time associates, accountant, lawyer etc. I assume you get the idea.

The advantage of this approach, in the Australia context, is that you are not breaking the Corporations Law.

The disadvantage is that the tax concession under Part 10BA of the Income Tax Assessment Act is only available to the company not to the individual investors. But hey your going to make money and so you should be in a position to pay fully franked dividends to you shareholders, who needs 10BA anyway.

The other advantage of this approach is that it is a more professional approach to the fund raising exercise. Do it right and it adds to your credibilty with your investors and just as importantly with the government regulators. (ASIC is always watching what people are doing).

The classic way a first time producer gets the funds to make the film is by passing the hat around amongst the family, relatives and friends.

The budget is usually topped up with credit cards or a mortgage over the house (if you’ve got one).

Chances are if you have family, relatives or friends who are wealthy they willl be less inclined to give you money.

End result is that you will in the end not raise much money following this approach, that is not to say that it isn’t any good, plenty of people have used it. However, don’t expect receive a large sum of money this was because it will not happen.

If you use this approach then it is ideal for mirco budget films.

A film investor is firstly someone who is passionate enough about films and film making to risk some of their hard earned cash in a project.

Secondly, if they are savvy, they know that they are making a risky investment.

Thirdly, because they know they are making a risky investment, they expect a decent return on their money.

A producer, if he or she wants to go back to investors a second and third time, cannot take the investor(s) for granted. If you do there are government agencies which which will give you grief.

Investors make your production possible, without them you have nothing, so treat them as “partners” in your project and share a reasonable amount of the profits with them.

Make a good trailer

The first step to getting good sales is to have an excellent trailer. To get an excellent trailer you need a good editor.

We’ve all seen the trailer will all the good parts of the film in it. Well that’s done for a reason to get people to by a ticket or buy the DVD. Make sure you brief your editor in what you want in the trailer and the ptich it should be making to the potential audience.

Also the editor can “fix up” problems in the story line and the acting.

Get a Distribution Deal or Sales Deal First

The film business is not much different to the building development business in that no one builds a 40 Storey building until they know that at least half the building has been let to long term tennants.

It’s the same with a film. A resonable standard feature film production will cost as much as medium size industrial/commerical building. Investors know how they will get their money back with a building, its called rent and if that fails, the building can be sold and the money recovered that way.

So don’t spend a cent on production (you have to invest in the script first) until you know that half the film is sold. i.e. you have distribution or sales deal, signed sealed and delivered.