InvestorsRaising money for independent films can be a painful process. Most people tend to turn to friends and relatives first as investors in the film because it’s often the easiest avenue; they may already know the ins and outs of the project, and may be willing to support you. However, at some point, you’ll likely need additional investors.

Planning for Development Costs

Most resources that offer advice on raising money neglect to mention development costs. This crucial stage in the process can be defined by asking a simple question of your project…what expenses will you incur before asking investors to part with their money? First, you’ll need to know the type of business you, and therefore your investors, will dealing with, whether it’s a corporation, limited partnership, limited liability companies or joint ventures. They will also want to know what type of contract they will sign at the point of investing, which can only be obtained through the services of a specialist entertainment lawyer. These lawyers do not come cheap, but entertainment law is very different in many ways to any other type of law, so a specialist is great to have if you can afford it.

Planning for Legal Fees

On one of my first films, I hired a family friend who was a lawyer in a field other than specialist entertainment, and ended up losing a lot of money because of little clauses that he missed, but would have been easy catches for a specialist entertainment lawyer. For example, there was a clause stating that they would pay all expenses if they requested a meeting at their main offices 2,000 miles away. However, because this was not in the contract, I ended up having to pay for all expenses for the trips. With the appropriate lawyer, this would have been anticipated and put in the contract. So, if possible, avoid trying to take any shortcuts for legal reasons and get yourself a good entertainment lawyer.

If there is little money for this in your budget, there is an organization called Volunteer Lawyers for the Arts that will recommend lawyers who will work for less that the full rate, or will work for a percentage of the revenue. Just be conscious of the fact that nothing is free, so when problems arise, the lawyer may try to re-negotiate your original deal. At the very least, try to get an entertainment lawyer to review your plans for your project.

Choosing Corporations

Your lawyer will also deal with different corporations you’ll work with, but you will have to keep your budget in mind. For a lawyer to set up an LLC could cost over $10,000 inclusive of all fees, but to set up a joint venture could end up costing less than $10,000. Decide which of these corporations is best for you by asking potential investors at what level they can, and will, invest.

There are three types of legal companies for three different types of movies, so think of your targets and what type of investors you want to be involved with throughout your project.

Ninety-five percent of films are made with a limited company because investors are limited in their investments both in terms of any legal issues and their vulnerability. Even more importantly, they are limited with any legal damage they can impose on the filmmakers should any problems arise. Budgets are fluid and may not resemble the original plan, which could cause a problem with a joint venture. For example, if five investors are dissatisfied that you are not performing and there are only four in your corporation, the investors have the majority share and can take over the production. I spent a lot of time writing letters and heading meetings to ensure this did not happen for the film Street Trash. With a limited partnership, you can spend time more effectively on the issues that need the most attention in the year or so it takes to get the film to the market.

Personal Examples

The film Street Trash, a black comedy about the down and outs of life, was expected to get, at best, an X rating, so there was little chance of getting the investment needed from the less than 35 people signed on to the project. So, I decided to sell 200 shares at $2,500 each and to target middle-income investors who would be willing to take the risk for the film.

Burt’s Bikers is an upbeat comedy that documents a large bike race for the mentally handicapped children in the Greenwich school system. For this film, I partnered with the Greenwich Association for Retarded Citizens (GARC), a parent-based non-profit organization that acted as our sponsor and executive producer, as I had no experience in the field of special education. Because of the social significance of the film, the GARC was able to attract tax-free donations from large corporations such as IBM and PepsiCo. Once the partnership with GARC was established, we were able to raise the funds in a few months, and because these were donations and not investments, they did not have to be repaid. The relaxed environment of the partnership was one of the best experiences I have had in the film industry. Burt’s Bikers screened on NBC and gave the investors exposure that justified their donations.

Additional Development Expenses

If you or your partners did not write your screenplay, you may have to pay the writer part of their fee up-front to write it for you. If it comes from a book, even if the author gives you the rights, there will be a legal fee just for drawing up the contract.

The Private Placement Memorandum is a formal document that includes all information on the corporation, a definition of gross and net profits, and the ways that your investors will recoup their investment and share of the profits.

Another optional document, a business plan, can be used as a marketing tool. This should include an overview of the script, a budget sheet, and a breakdown of the production schedule and release. The business plan should be designed by the Art Director, if possible, and include graphics of the logo for the film.

Both documents need to be shown to potential investors, and a good presentation goes a long way to get investors interested in your film. Get an Art Director on board as early as possible; you will need mailings, business cards, and stationary to show investors that you are running a professional company.

If you are on a tight budget, don’t spend too many resources on development; your budget is much more useful for other priorities.

Funding Talent

So are we done? Not by a long shot.

You can try to get a letter of intent from a notable actor or actress to use as a selling point in your memorandum. I was fortunate to have worked with Glenda Jackson on the film Burt’s Bikers, and approached her to get involved in two films in the process of being made: The Substitute and The Johnson Blues. Glenda agreed to give us a letter of commitment free of charge, one thing led to another, and she suggested her friend Oliver Reed to be cast as the head of the mountain clan.

It is important to understand that you have to spend money on development before raising money for the film. In addition, there are matters of copyright protection, Writers Guild of America registration for the screenplay, and title protection from the Motion Pictures Association of America, not to mention many other mini expenses that a diligent producer will take care of along the way. The most important thing you can do is know exactly where your project is every step of the way.