10 June 2000 - 14 December 2000
Catch-22
Scott Lindenberger
10:39 am friday june 10, 2000
I believe I have a good understanding of the definitions of "accredited" and "non-accredited" investors as described by federal securities laws, specifically under Reg D. My quesion (the Catch-22) relates to an inherrent problem for independent film producers in raising money for their films.
There is a two-horned problem at work here:
Firstly, the requirements of an offering memorandum for non- accredited investors are much more strict (audited financial statements, greater disclosure) than those necessary for accredited investors. Preparing an offering book for investors who do NOT qualify as "accredited" therefore costs a great deal more in legal and accounting fees than one which is directed SOLELY towards accredited investors. If, in order to raise (for example) $500K I must direct my offering to non-accredited investors, it will likely cost me upwards of $25K to $30K to prepard a sufficient offering memorandum (utilizing available exemptions from registration under Reg D., for example.)
Now, perhaps I can "convince" people who are close to me to give me the necessary funds to cover an appropriate non-accredited offering book. However, if I can't yet perform an outright offering (because I don't yet have the cash to pay for the appropriate offering documents), in what manner may I raise capital (equity, not loans or other debt)?
Secondly, any potential "investors" to whom I have access would most likely be defined as "non-accredited" because those who would fit the definition of "accredited" (worth more than a $1, or annual income of more than $200K) usually don't invest in low- budget independent films. Does this dilemma sound familiar?
To the point: my question is what strategies might I explore to circumvent the Catch-22, yet still comply with all applicable securities laws, and successfully raise equity capital?
Your insights are much appreciated.
Scott Lindenberger
re: Catch-22
John Cones
10:59 am friday june 10, 2000
Scott:
No, this catch-22 is not familiar to me because it is based on two erroneous bits of information. You are not required per Reg. D to provide different information to accredited vs non- accredited investors. The information provided in the disclosure document should be the same for both. Further, my independent producer clients regularly and routinely get on the street with their private placement offerings and successfully raise up to $2.5 million with offering costs including attorney fees, notice filing fees, copying, binding and marketing costs in the neighborhood of $5,000 to $7,000. Somebody is quoting you some awfully high prices for their work. Maybe you ought to talk to more securities attorneys who are experienced in specifically doing a lot of feature film private placement offerings.
John Cones
Finances for International co-production
Mythili Ganeshan Sar
2:51 pm tuesday july 4, 2000
We're looking for a US financer/co-producer for a feature/TV fil project with Indian and Iranian partners. International cast. Who may we contact?
Best regards
re: Finances for International co-production
John Cones
8:38 am wednesday july 5, 2000
Mythili:
Your question is beyond my area of expertise. This site is for questions relating to investor financing of entertainment projects where some or all of the money is going to be raised from U.S. investors. Evenso, I cannot tell you who those prospective investors are, but can only advise how to properly conduct such offerings.
John Cones
how to attract investers
Sarah Tucker
4:43 am monday july 10, 2000
I'm producing my first feature and I was wondering if there is any advice you can give me. On how to attract investers. I'm currently producing a 2 min. trailer to show the high lights of this film. This prodject is an action / thriller it fresh and new. There is no photo copy of any other film this is a original. So there is no other film to compare it to.
Thank you
Sarah Tucker
re: how to attract investers
John Cones
8:31 am monday july 10, 2000
Sarah:
You're on your way to attracting investors with a 2 minute trailer and a "fresh and new" concept. However, if you are raising money from passive investors in a private placement offering you will need a professionally prepared offering memorandum containing a synopsis of the script, estimated use of proceeds, discussion of risk factors, plan of business, narrative bios of key people involved, possibly a tax discussion (depending on how much money is being raised), terms of the offering, a discussion of how you plan to distribute the units, possibly some box office comparables and financial projections, and so forth, in the proper format as prescribed by the SEC. Investors do not tend to invest until they see that you have done your homework and are offering them a professionally prepared disclosure document (when offering securities like passive-investor LLC units, or LP units). In finding these prospective investors, again assuming you are conducting a feature film private placement offering, you may need to bring in several executive producers relying on the issuer sales rules (i.e., these individuals are upper level management of the issuer organization, have other duties besides raising money, are not compensated on a trasaction-related basis and haven't been involved in the selling of securities in the past 12 months). With such persons, you can rely on their pre-existing relationships with the prospective investors for purposes of meeting the private placement rules and thereby significantly expand your pool of prospective investors.
John
points distribution structures
John Clayton
9:13 am monday july 10, 2000
I am wondering if anybody knows or can point me to a place wher I might find out how profits are generally, or usually, distributed amongst investors, producers, directors, writers, and talent. I understand that distributors and producers generally split about down the middle, and then the rest of the profits are split out of the producers end, is this right? I am sure this is a complex topic dependent on the type of financial agreement entered into, but any help would be appreciated. Thanks, John clayton.
re: points distribution structures
John Cones
9:12 am tuesday july 11, 2000
John:
Since you indicate that investors are involved, I will assume you are talking about the division of so-called "profits" in an investor financed independent film. Generally, those take the form of limited liability company or limited partnership offerings. You can assume that the distributor will first deduct its distribution fees from its gross receipts and those might average 33% across the board. Then the distributor will typically deduct its distribution expenses and there is no way to predict that in advance, so you simply have to make a reasonable assumption. Presumably, you the producer will have negotiated some level of participation in the film's net profits (proceeds) at this stage and I've seen no reliable information suggesting what is typical, so if you want to assume a 50/50 split of net profits, that wouldn't be unreasonable. Typically, the financing entity (LLC or LP) will be authorized to deduct some expenses like ongoing maintenance costs, additional financing from loans, etc. and there is no way of knowing in advance what that is likely to be, so again its an arbitrary assumption. In any case, you will arrive at something like LLC/LP net revenues or what is often referred to as "Distributable Cash". Generally, we see a formula like 100% or 95% or 90% of Distributable Cash paid to the investors until they recoup 100% or 120% or 150% of their originally invested capital, then the revenue sharing ratio as between the investor group and the producer group switches to 50/50 for the life of the entity, which for a film doesn't usually need to be more than ten years. Deferments for creative personnel are typically paid after investor recoupment and before arriving at the 50/50 split. Percentage participations for creative personnel are generally paid out of the producer's share of Distributable Cash. Note that the creative side percentage participations are not referred to as "points" or as a percentage of "net profits" because for investor financed deals, that's the same as gross revenues to the investing entity, which means you are paying creative personnel their percentage participations before the investors. That makes it difficult to raise money from investors. In addition, your investment vehicle may not, and most likely will not be receiving 100% of net profits in these investor financed deals, so you don't even have control over that stage of the revenue stream. Thus, percentage participations expressed as net profits or points should be avoided in investor financed transactions.
John
Regulation D
Celeste
5:00 pm saturday july 15, 2000
Dear John:
Thank you, first of all, for your generosity in being available for questions.
I was four years in development on my project until the rest of my life came crashing down due to my lack of capital during the development process.
I have now taken a couple of years to recover and am back at it again.
My questions are:
1. I notice that there is a group called Regulation D Resources
who is offering to put together the Offering materials. Have
you heard of them and are they reputable?
2. When I was at this before, my attorney prepared some securities documents but that information is obsolete since the Executive Producers who were on board and the contract with the Canadian co-producer has expired. I signed a contract with this attorney but all the rest of the package has fell through. And the budget that I had is so much higher than it is now. The attorney fees would now take up 80% of my current budget. Am I still oblilgated to go forward with the previous attorney?
Signed
Help! I've come from the bottom and need air!
Thanks again, John.
re: Regulation D
John Cones
7:44 pm saturday july 15, 2000
Celeste:
I am not familiar with "Regulation D Resources", so I can't tell you whether they are reputable. You do want to be careful that you are not dealing with someone who just got a copy of someone else's private placement offering memorandum, and set up a business to try and help other's prepare such disclosure documents. There are literally hundreds of questions, the answers to which may differ from offering to offering, and if an experienced securities attorney is not involved, you may be unwittingly failing to comply with the SEC and state regulations that apply. For example, has this group advised you as to whether a tax discussion and/or tax opinion is required for your offering? If so, who is going to prepare such a tax opinion, a non-attorney? What are they telling you about the required notice filings to be filed with the SEC and with the state securities regulatory authorities in each state in which you intend to sell or offer the security? How are they advising you to structure the deal as between the investor group and the producer group? How are they advising you to structure the investment vehicle, as an LLC, LP or corporation? Are they handling the creation of the investment vehicle? If an LLC or LP, are they drafting the LLC operating agreement or LP agreement? If so, are they practicing law without a license? Have they explained the need to limit your offers to persons with whom you and other upper level management of your issuer organization have a pre-existing relationship? Have they mistakenly advised you that you do not need a disclosure document at all? Have they advised you about the severe limitations imposed on the use of finders in such offerings? Have they advised you about the issuer-sales rules? Have they given you tips on how to expand your pool of prospective investors for the purposes of a private placement so that you increase your chances of succeeding? How successful have their past clients been in raising money for film projects using their services? Are they helping you write those sections of the disclosure document that principally comes from you? Are they merely offering to prepare a disclosure document or are they advising you with respect to the numerical limitations on investors, investor suitability standards, federal disclosure requirements, required state legends and purchaser representations, how to set up the bank account for investor funds, when is the best time to create the investment vehicle and so forth?
Second, I also cannot advise you as to whether you are obligated to go forward with your previous attorney, without seeing your agreement with him or her. On the other hand, if you have substantially lowered your budget and those attorney fees, are 80% of the budget, you are dealing with a practical impossibility. You'll probably never raise money from investors if your offering costs (including attorney fees)exceed 15% to 20% of the offering proceeds. In the offerings I typically structure for independent producers, who are raising money through so- called "issuer sales", we are generally able to limit the offering costs to 3% to 5%, thereby leaving a higher percentage of the offering proceeds to put on the screen.
Sorry, I cannot be of more assistance on these rather general questions. If you have more specific questions, you may want to direct them to my E-mail address a jcones@gte.net.
John Cones
New Company called Madstone Films
Emily Bobrow
1:36 pm wednesday july 19, 2000
This is regarding a news piece I am doing for the Independent Film and Video Monthly:
There is a new company called Madstone Films which awards, every six months, a two year contract for 3-5 directors--this contract includes an annual salary of $50,000, benefits, a 401(K) plan and funding for a digital feature with a $500,000 to $1.5 million budget. filmmakers will receive a profit participation in films produced during their tenure, and Madstone doesn't own the rights to anything a filmmaker does after their two-year contract ends. My question for you is why does this program seem too good to be true? What should a filmmaker look out for when applying to this program?
Thank you for your time.
(I am under deadline for this one, by the way)
re: New Company called Madstone Films
John Cones
3:01 pm wednesday july 19, 2000
Emily:
Sorry, but I know nothing about Madstone Films or their director program. Your question has nothing to do with investor financing of independent film which is what this site is for.
John Cones
Film Industry Contracts
Domenic j. Ruccio, J
6:05 am thursday july 20, 2000
Dear Mr. Cones,
If it is as well done as your book, "The Feature Film Distribution Deal," I'm certain that "Film Industry Contacts" is also very valuable to aspiring producers. However, is it possible to get a look at the table of contents of "Contracts" before purchasing the book? I would like to learn which contracts the book contains examples of. Also, does the book contain examples of documents not strictly contractual in nature, such as investment memoranda?
Thank you.
re: Film Industry Contracts
John Cones
8:19 am thursday july 20, 2000
Dominic:
I've sent you by separate E-mail the complete listing of all 100 sample contracts appearing in the Film Industry Contracts book. And, yes, it does contain a sample of a private placement feature film limited partnership offering memorandum, as well as an investor financing agreement, joint venture agreement and other investor financing agreements. I sent it as an attachment to an E-mail message. Anyone wanting a copy of the list of contracts can E-mail me at jcones@gte.net and I can send the table of contents along as an attachment.
John Cones
finding the right investors
12:24 pm thursday july 20, 2000
John,
I am part of a team that is in the filming process of a production. We need to attract more investors for our "gap" financing and post production financing. How do we go about finding the right kind of investor that deals with this industry? If you could give a few names of publications or websites that I could explore to aid us in our search? So far the online sites I've looked at have not been helpful in giving contact information. A penny for your thoughts...
K
re: finding the right investors
John Cones
2:41 pm thursday july 20, 2000
K--
I really can't help in that regard either, but I can report to you that most of my clients who have been successful in raising money for independent feature films in the 15 years I've been handling their securities compliance work, have generally brought in so-called "Executive Producers" and sold LLC Units or LP units in compliance with the SECs issuer sales rules. That helps to significantly enlarge the pool of prospective investors for a private placement offering because, if done right, the use of such persons will allow you to rely on their pre-existing relationships for private placement purposes.
John
500K and counting
SB Sayre-Snyder
2:18 pm friday july 21, 2000
We've got the script, got the Director, got a production facility for post, shooting digital, attached a non-major TV star female but know would like to attach one of three people to make everyone happy who have the dough. David Caruso, Peter Coyote, Willem Dafoe. Any thoughts how to reach them other than an agent, who will ask "What financing do you have in place?"
re: 500K and counting
John Cones
9:00 am saturday july 22, 2000
Talk to casting directors or casting agents. Those are the people who work on a daily basis on reaching actors and actresses. This is an industry of specialists. Identify the specialists in each particular category where you need help and make whatever arrangements are necessary to obtain their valuable services.
John Cones
Script documentation
Brett Richards
5:42 pm saturday july 22, 2000
Dear John,
I am about to meet with a producer a give them a copy of a script that I own, to read and hopefully agree to attach themselves to it in what ever way we agree on i.e. option agreement etc. However, do you recommend some documentation be exchanged at this preliminary meeting, for the producer to formally acknowledge they have accepted this script to read, to protect myself in the future should the producer pass, but then develop their own project based on the ideas they read in my script? This will be the first person with any industry "clout" I would have shown the script to. Should I set up a register of copies made of the script and each person I give one to, should sign it? The script is registered with the writer's guild - is this alone enough protection?
Thanks,
Brett
re: Script documentation
John Cones
8:14 am monday july 24, 2000
Brett:
I do have opinions on each of the questions you ask (Yes, Yes and No), but this is not the right site to ask purely entertainment law type questions. Our focus here is on investor financing of entertainment projects. You ought to talk to an entertainment attorney (as opposed to someone like me, a securities attorney working almost exclusively in the entertainment field)about these issues. Also, there was an excellent article in the Beverly Hills Bar Journal a few years back about the body of law relating to idea submission (not exactly your situation since you have a script), but something all writers and producers should be aware of.
John Cones
finding a distributor, etc
talia
2:36 pm monday july 24, 2000
Do you think some distribution compaines wouldn't want to distribute a movie because of concern over reputation - either in relation to production company, actors, director, producer?
Also would producers have a harder time getting a distributor for their movie if the production company or everyone involved in the production is rumored and described as being a sham production company, or a religious cult which dealt in drugs, and possibly even production of murderous gases, would people like this have a harder time getting a distributor?
re: finding a distributor, etc
John Cones
7:51 am tuesday july 25, 2000
Talia:
As you may have noticed coming to this Q&A site, I have made myself available to answer questions relating to investor financing of independent film or other entertainment projects, not with respect to issues relating to getting a distributor.
Best wishes,
John Cones
Questions regarding research.
David L
4:43 pm wednesday july 26, 2000
Let me start off by saying how wonderfully helpful all the information on this site has been. To even have a forum like this one available is a gift.
I'm an independent producer, and I've been working on a business plan for our company. The plan is for a group of potential investors, and I would like it to be perfect. I have read many books and reviewed many examples of a strong business plan. At this point, the plan we have is very strong and almost ready to go out. My question is, where can I find financial information on the industry as a whole? I am not sure where I can find detailed research information on markets, demographic, the studios, and the individual films themselves. It is my intention to create a history and comparison of the industry citing specific examples from independent film. Where could I find detailed information about these markets, demographics, and the such. This information would help me create a detailed analysis for our potential investors.
Secondly, I was looking for similar info on the music industry as well. Any insight you could provide would be greatly appericiated.
thanks
David
Feature film seeks help with financing
David J Francis
7:08 pm wednesday july 26, 2000
Hello
I believe that we have had contact in the past vis a vis this project. I am producing a union feature this fall (Oct and Nov) called PRIMAL and am seeking funding, investments, product placement and am entertaining the possibility of having a co- producer sign on to fund the project and share in the profits. A distributor is also something that we are seeking. We are close to shooting and have some sports celebrities signing on next month. Bios of key personnel and a script synopsis is available on request. If you have interest in any of the above, please contact
David J Francis
300 Coxwell Ave
Suite 22518
Toronto, Ontario
M4L 3B6
Canada
(416) 466-1903
dave@primalthemovie.com
www.primalthemovie.com
Thank you for your interest
David Francis
re: Questions regarding research.
John Cones
8:14 am thursday july 27, 2000
David:
Some of the information you seek may be found online at
ACNielsen EDI
Baseline -- Kagan Database
Box Office Top 100
The Internet Movie Database
Worldwide Box Office Grosses
Also, if you can find a collection of the Paul Kagan & Associates newsletters on the movie industry, those might contain some of the analysis you seek. The Academy library in Los Angeles will also be a resource.
Remember, however, that a business plan can appropriately be used to seek financing from a few active investors, for the creation of a new corporation with a small number of founding shareholders or from venture capitlists who will take a significant ownership/management position with the company (typically if organized as a corporation), but if you are seeking to raise money from a large group of passive investors, a business plan is not adequate. For that you will need a full-fledged securities disclosure document (i.e., either the private placement offering memorandum, or the prospectus associated with public/registered offerings). There is a big difference between a business plan and a securities disclosure document.
Good luck,
John Cones
re: Feature film seeks help with financi
John Cones
8:19 am thursday july 27, 2000
David:
You should go back and read the information posted at the entrance to this Q&A site. It should be clear that this site is not an appropriate place to post solicitations for investment. It is not only in contravention of the site's rules, and therefore a nuisance, but securities regulatory authorities do monitor this site and can and often do take action against individuals inappropriately using the Internet to solicit funds from investors without properly complying with the U.S. securities laws. Once a cease and desist order has been issued, you may not be allowed to rely on the available private placement exemptions that would otherwise be available.
John Cones
Independent Record Label
Darren Kolbe
7:22 pm sunday july 30, 2000
Where can I locate Prospectus' for start-up record labels. I have projects, artists and investors ready to go.
re: Independent Record Label
John Cones
7:54 am monday july 31, 2000
Darren:
If you are actually looking for a sample copy of a prospectus, the securities disclosure document associated with a public/registered offering, you might try the online site for the Securities and Exchange Commission. Finding something as specific as a "start-up record label" may be difficult. The securities disclosure documents associated with private placement/exempt offerings are generally not posted on the Internet, but a sample feature film offering exists in my book "Film Industry Contracts", but it will have to be converted for use with a record label. I would encourage you to discuss this with an experienced securities attorney. Securities offerings are not that easy to properly conduct.
John Cones
re: how to attract investers
Sarah
5:18 am tuesday august 1, 2000
John,
Thank you for your advice it has been helpful. I do have a question I not sure if it does or doen't abtain to this sight. If it doen't I'm sorry. Is there any web sights that future investors look at if they are interested in investing in film projects. And if there are who would I need to talk to. I'm also looking for an entertaiment lawyer who would be willing to work for point, do you know of anybody you can sudjest.
Thank you
Sarah
re: how to attract investers
John Cones
8:21 am tuesday august 1, 2000
Sarah:
The only web site I'm aware of where future investors might be looking at film projects is the Surview.com site where independent producers are allowed (for a small fee) to post executive summaries of their business plans seeking one or two active investors. There are other sites where pre-screened projects and investors can be exposed to each other, but there are always fees and none of these other sites, so far as I know are specifically targeted to film projects. Most of the successful independent producers who have raised production (or development/packaging) money from investors for film projects that I am aware of, have done so by directly soliciting people they or their other upper level management have a pre-existing relationship with in the context of a private placement securities offering (i.e., without using the Internet).
Also, the entertainment attorneys I know (assuming you are talking about someone to handle your acquisition and/or production documentation, as opposed to a securities attorney who would help you with an investor offering) do not want to work on spec. It seems to me that it is a better approach for independent producers trying to finance the production costs of their film through an investor offering, to first go to their best investor and get that investor to advance the funds necessary to cover the upfront costs of such an offering (then credit them toward the purchase price of a unit in the offering). If you can't make that deal with your best investor, then you really should not be trying to raise money from investors at all. In any case, you should not try to shift that financial burden to hard-working attorneys who have trained for many years at great cost to themselves to be in a position to offer you their valuable time and expertise.
John Cones
Are 2 points good when investing in a film
Suzi
9:29 pm tuesday august 1, 2000
Hi,
I will be sent a package tomorrow, with a script. I was told I can audition for a feature film . 100% of the budget is still needed, 0% raised, completion date, October 12,2000 and I can invest $2,500 I will get one point.$5000 for 2 points. The producer said this was very good. PLease let me know your thoughts on this.
re: Are 2 points good when investing in a film
John Cones
8:22 am wednesday august 2, 2000
Suzi:
As a prospective investor, you should first ask to see the private placement offering memorandum prepared by the producer and his or her counsel. If you are going to be a passive investor and the producer does not have an offering memorandum fully disclosing all material aspects of the transaction, then you should stay away from the investment since it is clear that your producer is not taking care of business. I do have a couple of problems with producers offering "points" to investors. In the film industry "points" traditionally refer to a percentage of the film's net profits. Independent producers whose films are acquired by distributors seldom are able to negotiate to receive 100% of the film's net profits. In other words, after the distributor deducts its fees, then deducts its expenses, the distributor may and usually does still want to participate at some level in the film's net profits. Thus, if a producer is promosing a percentage of the film's net profits, he or she is offering something not fully controlled. Generally, in investor financed deals, the investors are offered a percentage participation in some defined stage of the of the film's revenue stream, but it's typically something called "distritable cash" or net revenues to the investment vehicle (which may be an LLC or a limited partnership). In other words, this pool of funds is not reached until the investment vehicle has received its negotiated share of the film's net profits (which may or may not be 100% of net profits), then the investment vehicle may be authorized to deduct certain costs before arriving at the net figure, a percentage of which has been given to investors. I suspect that producers offering "points" are used to making deals or talking about deals being made within the film industry, and they do not recognize that making deals with investors from outside the film industry is significantly different.
John Cones
Articles of Incorporation
Suzi
5:48 pm wednesday august 2, 2000
Mr. Cones,
I appreciate your feedback.Now, today, I got this information. First off, Warner Brothers are interested in distribution. I will also have a speaking part in the film.And I will be flown from Pa. to CA. at not cost, with a limo waiting, whether I invest $2500 or $5000.Will I need to find a notary or an attorney(possibly you, but I'm in Pa. ) before I sign this form that states:
Today in the mail I received this:
Certificate of Amendment of Articles of Incorporation Article four: This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is allowed to issue is five hundred million.The corporation has issued no shares. The foregoing amendment of Articles of Incorporation has been duly approved by the board of directors.Sealed and signed by Bill Jones, secretary of state.
Along with the movie script, I received one other form stating that this production company agrees to give 2 points from the film for $5000. Return on investment are as follows: Five thousand dollars will be paid to me within 30 days after the receipt of film financing(so does this mean if the film isn't financed, then I lose my money)I still want to go to CA. Two percent of the net profits after release and return, will be paid within 30 days after each check is released. Accounting usually should distribute checks in two weeks after receipt, however, we calculate 30 days to allow time for unexpected delays. Call if you have questions.Producers sinate, maybe mine.. Thank you for the advice, and if I need an attorney, I will go through you if possible, if not should I have this notarized,though it is sealed from secretary of state of Ca.?
thank you for this advice, you are a tremendous help, and I don't think I'll be asking you any more questions anytime soon.
Suzi
re: Articles of Incorporation
John Cones
8:42 am thursday august 3, 2000
Suzi:
I urge you to take all that you have received from these film producers to a securities attorney and/or to the state securities regulators in Pennsylvania. If they are offering you corporate shares, they still need to send you a securities disclosure document. Also, how do they know you can handle a speaking part in their film? And, if you invest $2,500, but they, in turn, spend money flying you to LA, pay for a limo, put you up in a hotel, etc. they could be losing money. Is this one of those deals that sound too good to be true? Well, stop and think about. Please be aware that there are all kinds of creative scams being run by people out here preying on film producers desperately seeking financing and actors and actresses desperately trying to break into the business. Also, how do you know that Warner Bros. is interested in distributing? And, of what value, is anyone's statement to that effect? Not much in the real world. Again, before you send these people thousands of dollars, you need to check with the securities regulatory authorities in PA and see if they think this offer of a security to a PA resident is legitimate.
John Cones
Pre-production financing
AVTS
6:20 am monday august 7, 2000
We are producing a film that several production houses have expressed an interest in but we have so far failed to see any financing come our way. We are at a stage where we have a very famous and talented director and several prominent mainstreamactors but I cannot push the production along because we are beginning to run out of funds rapidly. What is my best answer to raise finances so that we can keep the production alive till we procure the budget for the film from the studio?
re: Pre-production financing
John Cones
8:40 am monday august 7, 2000
AVTS:
I cannot tell you what is the "best" way to raise the preliminary financing that you need, but some of my clients have been able to fund their acquisition/development/packaging costs through an LLC securities offering, whereby after the LLC is funded and created, rights to the project are transferred to the LLC (although you or your company acts as the LLC's manager and therefore continues to control the project)and with that completed script and attached elements, they are able to approach industry financing sources for the purpose of obtaining production financing. Such investor financed offerings are not necessarily any more risky than investor-financing production offerings, after all, the investors may be made whole or be in profits as soon as the production financing source acquires the rights to proceed with the project, assuming an advance sufficient to cover the investors' contributions, and then some, is offered for the project. The tricky part, at that point, is negotiating your continued participation.
John Cones
Internet movie investment offering.
Alfred D
1:07 pm tuesday august 8, 2000
Where can I find more information about SEC regulations regarding Internet offerings?
In particular, how a movie investment offering be advertised on the internet without violating SEC regulations?
re: Internet movie investment offering.
John Cones
7:20 am wednesday august 9, 2000
Alfred:
Go to the SEC site on the Web, click on "Small Business Forms and Associated Regulations" and "Small Business Forms and Regulations", then check the various public offerings forms and regulations that are available for public/registered offerings. Those, in turn, will allow you to raise money on the Internet. Those regulations include Regulation A, Regulation SB, Form SB-1 and Form SB-2. The SEC has also issued one or more releases relating to so-called Internet offerings, but the essence of those is that the above rules still apply to such offerings.
John Cones
Running Time
Steve Ashlee
1:33 pm friday august 11, 2000
Hi John,
I'm in post now on a 35MM feature that I produced and directed and I'm just about to turn it over to the music composer.
I've received conflicting info about the final running time on my picture. To maximize overseas sales, I've been told to cut it to 99 minutes by one source and 90 minutes by another (both these sources are composers who have worked on many independent features.)
I suppose the theory is that when commercials are added, the picture will fit into a 2 hour TV slot. Both composers told me that if I don't conform to the 90+ minute running time then the buyer(s) will cut it themselves, which (of course) will be out of my control. This could conceivably even change the ending. Since the picture is a dark comedy/mystery, I would hate for the "who-done-it" to turn out to be someone I didn't intended to do it!
Can you provide any clarification on this? Would I rather have a good 105 minute picture that plays domestically or a mediocre 90 minute picture thats sells overseas just to fill TV time slots?
Thank-you for any help you can give me.
Steve.
re: Running Time
John Cones
3:51 pm friday august 11, 2000
Steve:
This is not an appropriate question for this site relating to investor financing of independent film. Sorry.
John Cones
How to secure the funds from investor?
prisc
1:21 am thursday november 16, 2000
I have an investor who is interested funding, and I would like to know what is next step to do to secure the fund? Do I find an attorney like you to walk through the deal or form a LLC first? Thanks.
Prisc
re: How to secure the funds from investor?
John Cones
9:15 am thursday november 16, 2000
Prisc:
The investment vehicle you choose depends on a number of factors. If you only have one investor and that investor is going to be actively involved in the project, you may want to use an investor financing agreement (see "Film Industry Contracts"), a joint venture agreement (also in "Film Industry Contracts"), the initial incorporation (discussed in "43 Ways to Finance Your Feature Film") or an active investor (i.e., member-managed) limited liability company. If your investor wants limited liability protection and is going to be passive, you then may want to consider a limited partnership or passive-investor LLC. In the LLC offerings my producer clients conduct, we typically wait until the minimum offering proceeds are raised before creating the LLC entity.
John Cones
Venture Capital Firms
Sarah
2:18 pm saturday november 18, 2000
What do you think of venture capital firms investing in films. I've had a few venture caprital firms wanting to see my busniess plan. What do you think about them finacing a film project?
Sarah
re: Venture Capital Firms
John Cones
9:25 am sunday november 19, 2000
Sarah:
If you can get financing from a venture capital firm, that's great. It runs counter, however, to my experience of 13 years working with independent feature film producers. I've yet to see a venture capital firm take an interest in investing in a single feature film project, or even a multiple film offering. There was a time when, if a project had Internet elements, and a feature film was part of the package, some venture capital firms might have been interested. But, online entertainment has yet to find its commercial audience, so that interest is no longer there. I could never say that it is impossible to raise money from a venture capital firm for a feature film. It just appears to me to be highly unlikely, because of the inherent high risk nature of the investment. Even if a venture capital firm does invest, such firms tend to want to be more actively involved in managing the project. That arrangement also may create problems for a creative venture like film.
John
Associate Producer
Sarah
2:31 pm saturday november 18, 2000
Dear John,
What will an associate producer receive a rate or a commission? If a commissions what percentage would that be?
Thank you
Sarah
re: Associate Producer
John Cones
9:37 am sunday november 19, 2000
Sarah:
Assuming from your brief question that you are proposing using individuals not licensed as NASD/SEC broker/dealers or registered reps to help you raise money (and providing them with an "associate producer" screen credit): (1) it's ok if you are not offering or selling a security, but (2) if offering or selling a security, transaction-related remuneration (i.e., commissions based on a percentage of the money raised) is generally not permitted by the laws of each of the states. For the unlicensed "finders" in a non-securities transaction (investor financing agreement, joint venture offering, initial incorporation or active-investor LLC)keep in mind that licensed, trained and supervised NASD/SEC broker/dealers and their registered sales reps are limited to 10% on public offerings, a bit more for private placements. However, the more you pay for the offering expenses, including commissions, the less investor money you are able to put on the screen. At some point, the high cost of such money works against you in convincing investors to invest. Otherwise, I've seen sliding fee scales used by finders (again for non-securities transactions) that ranged from 2% to 6% depending on the amount of money being raised. You want to be very clear, however, about the question of whether you are offering a security (and you cannot rely on "finders" to advise you regarding that question). As a general, and oversimplfied rule, if you are seeking to raise money from any passive investors (i.e., people who are not going to be regularly invovled in helping you make important decisions), then you are probably offering a security, and thus must comply with the federal and state securities laws. Also, if you are going to raise money from more than 2 to 3 investors, it is highly likely that some of those investors will be considered passive in the view of securities regulators.
John
Film Finance
Brandon
6:09 pm sunday november 19, 2000
Hello
I am writing a term paper on film financing but I don't know anything about this topic. I have went to the my school and city libraries as well as the film commission in this city to no avail. If you could point me in the right direction to get the necessary info., it would be greatly appreciated. Thank you in advance.
Brandon
Film Finance
John Cones
9:18 am monday november 20, 2000
Brandon:
Go online and conduct a search for "film finance". There are a number of sites that will come up. Some have useful information. Also, conduct a search for "John Cones". I have several articles online re the subject. Ask specific questions at my Q&A site. Check out the only overview of film finance available, my own book "43 Ways to Finance Your Feature Film". Good luck.
John
video sales
matt
8:04 pm sunday november 26, 2000
You mention in your article "maximizing producer profits in film distribution" that a typical video deal would be 20% of wholesale price. How can I find out what the going "wholesale price" is for current video sales and is there any information available as to the number of units a particular movie sold in video. Also, do you have any references for entertainment attorneys who do what you do in the Washington D.C. area?
re: video sales
John Cones
9:04 am monday november 27, 2000
Matt:
There are magazines, traditional and online that focus editorially on the video business. Those should be able to provide you with the information you seek regarding video wholesale prices and sales. I do not currently know of a securities/entertainment attorney in the D.C. area to whom I could refer you. Check with the local bar association referral services and local film industry groups. If you are seeking an attorney who "does what (I) do" you are actually looking for a securities attorney who has experience working with independent producers seeking to finance one stage or another of their entertainment projects through investor financing. If that effort involves raising money from a group of passive investors, you will be offering and selling a security, therefore the federal and state securities laws apply. Unfortunately, many securities attorneys are somewhat hesitant to take on a feature film securities offering because of the fact that such offerings are highly risky (i.e., the investors are not likely to get their money back) and that, in the minds of many securities attorneys (a rather conservative lot) increases the risks that the attorneys themselves will ultimately be dragged into litigation by disgruntled investors. On the other hand, in the thirteen years I've been working in this specialized area, no such litigation has materialized (with my client producers), and I think that's because we properly disclose all of the risks involved, thus, the investors are fully informed of the risks and cannot subsequently complain. In addition, however, most experienced securities attorneys charge rather large fees for their services, which as a practical matter makes it extremely difficult for low budget feature film producers to hire them. That's why many attorneys refer their producer clients to me for this specialized work because I'm comfortable with the real or perceived risks involved and have created a quite reasonable fee schedule specifically designed to allow low budget independent producers to access such legal services.
John Cones
legal work
Matt
11:03 am monday november 27, 2000
John,
Thanks for the reply. can you work for a filmmaker not living in California or texas. I'll be puting an investment package together...hopefully for only one (passive) investor. the location of the production company can be in either Virginia, Maryland or DC. Most likely Virginia because of right to work status. Is such a long distance arrangement possible.
Matt
who owns the story?
Stephen Abronson
12:08 pm monday november 27, 2000
I have two friends who have independently written a story based on another person's one sentence pitch. The pitch was more a situation and not the story itself. My friends, on their own, came up with the characters, situations, and plot points. The person who pitched it in the first place procrastinates meeting with them to discuss the project, though he has read it. I would like to pitch their script around town and attach myself as a producer. Can we do that, even though the genesis for the idea came from this 3rd party person, who now seems uninterested in the project?
thank you very much.
re: legal work
John Cones
10:09 am tuesday november 28, 2000
Matt:
Yes, such a long distance arrangement is possible. You have a couple of options. Presuming this offering is structured as a passive-investor LLC, you can either serve as the manager of a California LLC, or if you want your LLC to be created in one of your local jurisdictions, I can handle the preparation of the offering disclosure document and all consultation relating to the proper conduct of the offering (involving mostly federal law)and prepare a draft of the LLC operating agreement to accompany the disclosure document as Exhibit "A", but then you will need to get local counsel to review the operating agreement to be sure it is consistent with provisions of the local jurisdiction's LLC statute, since creation and operation of an LLC is based on state law. I've worked with producers using either option.
John Cones
re: who owns the story?
John Cones
10:13 am tuesday november 28, 2000
Stephen:
Your question is purely within the realm of entertainment law. As you apparently did not notice coming into this site, I am only available here to answer questions regarding investor financing of entertainment projects. You need to direct your question to entertainment attorneys as opposed to someone like me who is a securities attorney working primarily in the entertainment field. If you need the names and numbers of several entertainment attorneys call me at 310/477-6842 (or E-mail at jcones@gte.net) and I'll provide you with several.
John Cones
Starting out!
Rodney Smith
10:23 am tuesday december 5, 2000
I would like to know how I can find a Producer and Director for my screenplay. I think that with the right people this screenplay can become a huge success. The screenplay is an original idea that I have come up with. It is possibily a medium budget of at or above 50 million. If you can give me a slight clue as to who I can turn to please help me out. As for me I want to become an actor rather then a Producer, maybe Director...your help will be greatly appericiated.
re: Starting out!
John Cones
12:46 pm tuesday december 5, 2000
Rodney:
Since this site is here for the purpose of answering questions about investor financing of entertainment projects, your question is not appropriately posted here. You may want to contact the Directors Guild of America regarding your search for a director and the Producer's Guild (which really should be a professional association since producers are by law considered management not labor) in your search for a producer. You might also want to contact the Samuel French Bookshop in Hollywood and see what industry directories they have that might list directors and production companies. If you decide at some point that you may want to produce or co-produce this project your self, and for example, you need investor financing to fund your packaging costs, then you may want to ask questions about how to proceed with that endeavor, since it does fall within the scope of investor financing of entertainment projects, and thus would be appropriate for this site. Good luck.
John Cones
Major Movie Project
Rodney Wright
5:48 pm sunday december 10, 2000
Hello. My name is Rodney Wright. I've been involved in the
entertainment industry for about 10 years now, but mainly
dealing with music production/writing with several major artists
who have charted on the Billboard charts. Currnetly my brother,
Paul Wright, and I are working with Judy Ann Mason. She's a well
known movie producer/writer from Louisiana. Some of her work
includes Sister Act 2(Whoopi Goldberg), Sandford and Son,
Goodtimes, A Different World, New York UnderCover and a list of
other maojor movies and television shows. Right now we are
preparing to start shooting the first scenes of a new movie that
she has written. The movie will feature major actors and
actresses such as Morgan Freeman, Harry Bellefonte', Siscly
Tyson, Loretta Divine and a few other well known
actors/actresses. Immediatley after the production of this film,
my brother and I will be going directly into another film
project which has already been written, but we're seeking
funding for the project. Judy Ann Mason is not the writer in
this particular film, but she has agreed to do some co-writing
for certain scenes in the film. Is there any way we can use the
movie we're currently involved in WITH Judy Ann Mason in order
to secure financing for the next film. Which direction should we
take this search? Please help.
Thank you Much,
Rodney Wright
re: Major Movie Project
John Cones
8:43 am monday december 11, 2000
Rodney:
As you may know, this site is dedicated to answering questions regarding investor financing of entertainment projects. If you decide to seek investor financing for your next project, you will, of course, have the opportunity to discuss in your biography and the biographies of others attached to the project, all of the past films you have worked on and be able to name those recognizable names associated with such projects. Such information is certainly helpful to investors in their assessments relating to whether your background and the backgrounds of others associated with the project demonstrate a capability of creating a worthwhile film, but such information cannot provide any assurances that your new project will be as successful as any of the other films cited, and investors know that. Such information is probably less helpful in seeking various forms of industry financing. The emphasis there tends to be focused more on the script itself and the attached elements.
John Cones
re:re:Major Movie Project
Rodney Wright
10:20 am monday december 11, 2000
John, Thank you for your reply, I truly appreciate it. I have one other question, however. What type of investors should we steer towards with this type of project. Seeing that the second project will be more indepedant than the one we're currently working on with Judy, where should we begin our search. Should it be with Private Investors, Venture capitalists, Loan Companies, etc? The budget that we're looking at for the second project is the area of $7,000,000.00, and I know the amount makes a difference. Do you know of any investors or investment companies that would be interested in working with us with the history we have thus far?
Thank you,
Rodney Wright
re:re:Major Movie Project
John Cones
9:27 am tuesday december 12, 2000
Rodney:
With an anticipated budget of $7,000,000, I would have to suggest that you pursue some form of lender financing for the production budget. In my 13 years experience working with independent feature film producers, it has been extremely difficult for any of them to raise more than $2.5 million, in fact, that's the ceiling I've seen thus far. Thus, you would be better served, unless you already have a group of well-heeled investors lined up, to fully develop your script (including a polish by a professional script doctor) then set about the task of attaching recognizable names. You will need those to attract the interest of a credit-worthy distributor whose distribution agreement(s) and guarantee(s) will be relied upon by an entertainment lender. In order to attach those recognizable names, you may need to raise a development/packaging budget from investors from outside the industry. For that purpose, you may want to conduct a private placement securities offering to people with whom you and the upper level management of your issuer organization have a pre- existing relationship, or possibly a Regulation A offering which imposes no limit on the number of investors or their relationship to you.
John Cones
Finance aids
Natacha--&--Vany
10:42 am wednesday december 13, 2000
Well,we going to be free to say our problems...
We living in Havana,Cuba,and we get a proyect to make a short
film about "Rumba".It has relationship with the live of two
children, here in Havana.Beside, we are trying to represent part
of our culture, music, theater, picture and the principal social
and economic factor that maked influences in the live of them.We
need a financial aids to make the film.Please if you have some
question to do write us directly to:
nataliaazze@hotmail.com
yovani002@mixmail.com
or get the email address that we wrote in the head of the
messages...
Have a good time...
Regards
Natacha&Vany
financing
Kenyon
12:52 pm wednesday december 13, 2000
Can you recommend a couple banks who specialize in financing films.
re: Finance aids
John Cones
9:31 am thursday december 14, 2000
Natasha & Vany:
Sorry guys, I just work with U.S. law as it applies to investor financing of independent film and other entertainment projects. I really do not have any expertise or knowledge that might prove helpful to someone in your unique situation. Maybe there are some foundations with an online presence that might be able to award you with a grant to help you produce your movie. Continue to look for those online. Good luck.
John Cones
re: financing
John Cones
9:34 am thursday december 14, 2000
Kenyon:
There are lots of banks in Los Angeles and some in New York that have entertainment lending divisions. You can check with City Bank, Chemical Bank, Imperial Bank, The Louis Horowitz Organization and others. I suggest you contact the Academy Library in LA and/or the IFP/West office and see if they can point you to the annual issue of The Hollywood Reporter or Variety that lists the active entertainment lenders, so you'll have a more comprehensive list.
John Cones
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