Monday, April 23, 2012

angel investing: top 5 reasons why indie films are like startups

When I tell people that I’ve been an angel investor for five years, they naturally assume I mean investing in tech startups. I do live in Silicon Valley after all, and it is true that since 2007, I have invested in a number of successful (and some not-very-successful) startups. 

But that same year, I also did my very first investment in an independent film, and I’ve learned a lot about that industry in the past five years. I think it’s a good time to reflect back.

Incredibly, the number one question I get asked by people who have no problem with the idea of investing in the latest unproven iPhone app or social gaming company is:  Aren’t independent films really, really risky??

You bet they are. But then again, so are tech startups.  

It’s rumored that 90% of startups and 90% of indie films don’t make any money for their investors.   I don’t know for certain, but my guess is that the failure rate of startups may actually be higher than independent films. 

The main difference is that when a startup fails (and they do, often, trust me – in the press we usually only hear about the successful ones), as an investor you usually end up with nothing less than the clichéd worthless stock certificates that you can use as wallpaper in your bathroom!

At least with a film, even if it’s not a financial success, you have a finished product that you can watch and recommend and enjoy.  And when a film is both an artistic and financial success, it can be rewarding in ways that most tech startups never approach.

In fact, I got involved in film investing for the same reason that I got involved in startup investing – as a way to help entrepreneurs who had an idea that they wanted to bring to the world.  Since then I’ve invested in and become an executive producer of quite a few indie films (see my imdb page for some of them) – starting with smaller budget films like Turqouise Rose and Raspberry Magic, and more recently higher visibility projects like the visually stunning and insightful documentary Thrive: What on Earth Will It Take? and the upcoming horror/fantasy flick Knights of Badassdom.

Unlike startups though, there isn’t really a good eco-system for angel investing in films, and young film-makers usually struggle to get their first film made. Similarly most angel investors are at a loss when navigating the treacherous waters of Hollywood.

That’s how I got involved in my first film, shot on the Navajo reservation in the Four Corners region of Arizona.  Travis Hamilton, a young film-maker fresh out of film school, had a vision for a film about a Navajo girl.  Not only did he not have a track record, but he was in a very un-commercial genre, and most seasoned investors weren’t going to give money to him, (you can read a little bit about this investment in an article in the wall street journal blog which mentioned my first investment, and a group called Film Angels that I’m a part of in Silicon Valley,  here ).

But like startups, when they go right, indie films can be quite lucrative (think My Big Fat Greek Wedding).   So in support of independent film-makers everywhere, and to encourage my fellow Silicon Valley angel investors (of which there are lots) to support film entrepreneurs (of which there are also lots), here are my top 5 reasons why investing in independent films is like investing in tech startups:
  1.  It all begins with an entrepreneur and an idea, usually one that nobody will fund because “it’s too risky”.  OK, so not exactly.  In film it usually starts with a script or a book.  In many smaller budget indie films, the scriptwriter is often the director and main producer, meaning that they’re basically a one-man show.  Usually filmmakers who think of themselves as entrepreneurs and not “creative types” are more likely to get their project off the ground.

  2.      You have to pitch to “the big boys”, but usually it’s usually small money that gets a project off the ground. Just like entrepreneurs here in Silicon Valley, who pitch too early and too often to “the big boys”, the venture capital firms on Sand Hill Road, so filmmakers end up pitching to studios.  Like studios, VC firms will turn down most of the pitches they hear and invest in only a few per year.  Like entrepreneurs, filmmakers who have been turned down have to find angels to invest in their projects.  Many big budget films start off as options on literary properties.   A few years ago I met one of the guys who bought the movie rights to Batman in 1980, and it took almost a whole decade before it became a big budget production.   Of course, like entrepreneurs who take too much VC money and lose control of their company, this can happen if you go the standard Hollywood route.   In this case, the original Batman rights holders lost control of the project creatively and financially.   The alternative to studio money is to go the independent route, where filmmakers can keep more creative control and influence their productions.

  3.      Later stage investments are less risky than earlier stage investments.  While most of us in Silicon Valley know about startup investments – seed round, series A, series B, late stage, etc., I didn’t really understand that the same is true for film.  The stages are a bit different – usually the development stage can begin even before the script has been written, then there’s pre-production, production, post-production, and then distribution – which involves p&a funds (print and advertising) for a theatrical release.  It turns out that just like investing in a late stage company is usually less risky than investing in two guys and a business plan, so the later stage investments tend to be less risk - i.e. think DST’s investment in Facebook after it was already successful.  In fact, there are entire funds dedicated to providing finishing funds for a film and p&a monies to films.
  4.      It’s all about distribution.  While a few startups succeed because they have a great product, most succeed because of their distribution channels – getting a good product to the target market.  The same is true of indie films – the films which are successful financially are usually the ones who understand the distribution side of the business and have a core audience that they are able to reach.  Not all films gets theatrical distribution – this is a fact of the film industry, but film-makers who understand this are the ones who are prepared for it.  Most profits from most films actually come from DVD releases, not the box office numbers that the press focuses on.  Of course the more anticipated a film is, the easier it is to get the right distribution channels in place.

  5.      Stars are helpful, but not necessary. In the startup world, VC’s love to invest in entrepreneurs who’ve “been there and done that”.  In films, it’s even more pronounced – even a smaller budget indie film can benefit from having a star  - think Bill Murray in Lost in Translation.  But television stars can be a great boon to an indie film too - in my upcoming film Knights of Badassdom, we are lucky enough to have Peter Dinklage, who won an emmy for Game of Thrones, along with Summer Glau, who made fan-boy fame in the Firefly and The Terminator: The Sarah Conner Chronicles and Ryan Kwanten, of True Blood fame.
    The most innovative filmmakers are able to get B or C-list stars to make brief appearances in their films, and that’s enough to get the film going.  But it’s also possible to have a breakout hit with no well known stars – think of Bend It Like Beckham, which launched the careers of Keira Kneightly and Parminder Nagra.   The same is true of startups – while it would be nice to invest in Mark Zuckerburg’s new company (if he ever leaves Facebook), it’s probably more profitable (and likely) to invest in the next Mark Zuckerburg who’s starting the next big thing.

Well that’s a very quick overview on what is a pretty complex topic. Of course there are also many reasons why film investing is DIFFERENT like startup investing, and maybe I’ll list those in another post.

In the meantime, if you are thinking about investing in a startup to support a tech entrepreneur, why not think about also investing in an indie film to support a film entrepreneur?

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Blogger FarmGirl said...

I just saw Thrive the other day before I read your post. Thank you for backing such an important project and helping to get the word out.

5:53 PM  
Blogger conchan said...

very interesting article. THanks for writing it.

The Knights of Badassdom film looks to have major potential as a summer movie. Hope it gets made and has decent distribution.

11:27 AM  
Blogger Robert Heske said...

Thank you for this post! I am making an indie film and funding a fair portion myself. Yes, funding a film is risky business -- just as funding a startup is. Beyond the 5 reasons you mentioned, here are 5 things to consider as well:

1) Read the script. Now ask yourself, "Would I go see or rent this movie?"

2) Is the budget appropriate for this film? Many films that did well in film festivals or got distribution were made for under $200K. Films like Absentia, Midnight Son, Sensored and the recent horror found footage flick Knock-Knock 2 found an audience on a very low budget.

3) What is the camera the film was shot on? Aside from the script and the actors, the camera is one of the most important elements of a high quality film. If the micro budget film is being shot on a Red camera package, that's a good sign! And make sure the DP on the project is skilled to light and shoot with the camera.

4) Does the cast have professional actors -- both established and up-and-comers? Your micro budget film may not be able to afford a big name, but it can't afford to have people who can't act. That brings the film quality down and keeps the audience at home.

5) What are the credentials of the director, DP, producer and crew? If they've worked on big budget films before, chances are they have the passion and skill to make this low budget film look like it was made with a bigger budget.

Bob Heske
Writer / Producer of BLESSID

10:51 PM  
Blogger Markino said...

Thank you for writing this article. It supports what I discovered the hard way, by working in about a dozen failed startups as an engineer. I watched hundreds of thousands of dollars a month dribble away on technologies and business models that failed. I've been writing and pitching screenplays for 15 years and it makes me nuts when people talk about how risky making a movie is. At least if a movie is produced, you have something that can be sold anytime thereafter. With a tech startup, if you miss your window, you're done.

4:44 PM  
Blogger Empty Attic Studios said...

Thank you. We work SO hard. My film is currently in preproduction and we're crowdfunding. Our business plan after crowdfunding involves finding angels or silent partners to fund match. I'm in marketing, and though I'm writing AND acting (and possibly directing and scoring) in this project, I think as a marketer first. So I'm looking past production and post and into the distribution and festival stage of things. Eye on the prize.

We'd love for you to take a peek at our page and tell us what you think. Perhaps you would even be interested in talking with us about ways to help get our ambitious little ensemble off the ground.

2:04 PM  
Blogger John Hong said...

As an independent film maker with a film 90% in the can. This was by far the most helpful thing i have read.
I really feel this will help with how we approach investor in the near future

Thank you for taking the time.

1:21 PM  
Blogger John Hong said...

This is the most helpful article i have read on our search for investors for our feature CONCRETE: GANGS OF UNOIN CITY.

Do you have any advice for if your film is 90% complete?

1:58 PM  
Blogger Oliver Thompson said...

Great article! Thanks for posting it.

Ollie Thompson
(Director Star Wars Smuggler's Run)

9:02 PM  

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