Beginner's Guide to Independent Film FinancingThe strategies you need to successfully fund your film.
“Your voice – your view of the world, is a kind of brand.”
In our recent exploration of the meaning of “independent film”, we discovered that most indie projects are made for $20 million or less – a drop in the ocean for a Hollywood blockbuster, perhaps, but an intimidating chunk of change for those of us working outside of The Studio System and its subsidiaries!
“The Bronze Age” Of Independent Film Financing
Let’s paint a more nuanced picture of independent film budgets today.
Producer Tom Malloy, author of Bankroll: A New Approach to Financing Feature Films, recalls “talking to a friend at the AFM… and… [joking] that there are two profitable types of movies: ones with budgets of over $100 million, and ones with budgets under $1 million. The days of the mid-range $5-6 million films are gone.”
At SXSW 2012, Trouble Maker Studio’s Aaron Kaufman expressed a similar sentiment, concluding that mid-range movies are simply “too small to play wide”, but too big to profit from limited release. In fact, in its Film Business Plan and Investment Guide, Filmproposals.com cites a study that shows that “it takes over 20 pictures, randomly selected, to produce a profit… [from] movies costing over $4 million.” In other words, your $5 million feature has a one in twenty chance of making money.
[Update 09.2015: check out our yearly assessment of film distribution developments for a suggestion of exciting new possibilities in the mid-range!]
Indeed, “[j]ittery times in the indie film world have been going on for several years now,” consultant Morrie Warshawski observes in Shaking the Money Tree. “Studios are shuttering their specialty divisions; Sundance is no longer the site of midnight bidding wars; [and] foreign pre-sales are down”.
Why the cinching of belts when we live in such an exciting time for independent film? Digital technologies have put powerful cameras in the hands of the people, democratized post-production, and paved the path for a plethora of alternative distribution strategies. We can rival Hollywood from the comfort of our home computers and vie for audience attention with a few clicks of a mouse. So what gives?
Malloy contends that the primary reason for the risk averse environment (in the US) is the banking crisis of 2008, the echoes of which reverberate today.
Moreover, the opportunities presented by digital technologies have introduced a new set of challenges. A lower bar to entry means more players; more players means a crowded field; a crowded field means more competition, and, frankly, more crap.
It can be hard to get noticed, and harder still to convince people that independent films, many of which are poorly made, can be an exciting – let alone conceivably sound – investment.
So, money is scarce and the market is flooded. How can we possibly find funding for our independent films?
Well, we may not be in the lavish Golden Age of Hollywood – nor are we in what writer and filmmaker John Trigonis calls the pre-2008 “Silver Age” of Indie Film Financing, with its traditional distribution deals, private sector investors, nonprofit donations and grants, and out-of-pocket spending and loan taking – but we are in, drum roll please, THE BRONZE AGE of the same.
…I know what you’re thinking. The Bronze Age? As in third place? As in a euphemism for “Loser”; as in, “Sorry, old chap, you should quit while you’re ahead”?
I’m referencing The Bronze Age that brought metal to human society some 5300 years ago. That saw the development of the Stone Age’s unorganized settlements into highly evolved civilizations; the invention of the wheel and writing systems and the growth of vast trade networks. A sometimes painful but no less productive leap for mankind that set his trajectory to… us, today.
Simply put, The Bronze Age of Indie Film Financing is a period of change driven by economics and digital technologies. The latter is to the film industry what metal was to civilization five millennia ago: the key to the future.
Technology has armed us with fundraising tools and techniques that capitalize on internet data and communication; think social networks like Facebook and Twitter and crowdfunding platforms like Kickstarter and Indiegogo.
But I’m getting ahead of myself. Before we discuss the frontier, we must discuss the established arenas of film financing, and the role they play in our prospecting today.
In order to identify and compete in the arenas of film financing, we first must complete our training. “Know Thyself,” Socrates exhorts us, invoking an inscription at the Oracle of Delphi in Ancient Greece. For it is from self-knowledge that all else flows.
What do you believe about life? Why are you a filmmaker? What are your career aspirations, and what concrete steps are you taking to get there? More generally, what do you want your work to accomplish?
“Your voice – your view of the world, is a kind of brand,” Emily Best, Founder & CEO of crowdfunding platform Seed & Spark, advises. Your intrinsic values and vision for your future guide your professional decisions, dictating the projects you pick and the people with whom you work – not to mention the funding sources you might approach.
If you care about, say, reformation of America’s prison system, then you might undertake a film that assumes this as its topic, which will open doors and close others. Along the way, you’ll find allies and enemies who will help or hinder your journey.
Know Thy Strategy
When you ride into a friendly camp, you best have a battle plan; allies are not made lightly. Would you team with someone who requests support sans presenting a strategy?
As a filmmaker in search of project funding, it is imperative that you be prepared. Don’t blow an opportunity by taking to the streets before you’re ready.
Specifically, in addition to having your script (for a narrative) or your proposal (for a documentary), a filmmaker must “fully address basic questions of need, audience, distribution, marketing, crew and staff, and budget,” Warshawski cautions. “Until these are all as well articulated as possible, it is a mistake to start looking for financial support… [Ask yourself,] Do I know everything I must know about this project before I approach a funder? Can I answer any potential questions… that anyone might ask?”
To Know Thy Strategy, First Know They Budget
Before brainstorming funders, you must determine how much money you need to raise. So fire up that spreadsheet software and start tallying current and future expenses! Be specific. Where possible, bear in mind the magic $1 million cutoff.
Regardless, be sure to create two budgets: an ideal budget, and a “worst case scenario” budget that identifies the minimum amount you need to produce your film.
Noncommercial, Commercial, or Neither?
Next, determine your film’s purpose. This will point you to your starting line. Are you producing a noncommercial film that may find its way into a commercial life, or are you intending to turn a profit?
Perhaps you maintain that your film is neither noncommercial nor commercial. You’re making art; you’re telling a story for your audience to see and enjoy freely, and you don’t care what comes of the film financially.
I get that. I’ve been there, and it’s totally okay… You can do whatever you want, so long as it’s your money and/or money with no strings attached – ie., gifts from friends and family, for instance – that’s feeding the film.
But the moment you cross the line into fundraising is the moment you’re responsible to parties beyond yourself. Unless you’re fantastically wealthy and/or have fantastically wealthy friends and family, you’ll be crossing this line in order to produce a film requiring more than your day job’s lunch money.
To return to the original distinction, if your film’s primary purpose is to educate, raise awareness, etc., then you likely will be competing in the noncommercial arena of donations and grants. If your film’s primary purpose is to recoup investment and turn a profit, then you likely will be a challenger in the commercial arena of investments. And because we’re in The Bronze Age, both arenas intersect with the crowdfunding arena.
Differentiating the 3 Arenas of Indie Film Financing
It is important to understand the differences between these funding sources.
In Shaking the Money Tree, Warshawski clearly distinguishes between the two established arenas of indie film financing – hallmarks of The Silver Age – ie., noncommercial donations and grants and commercial investments:
A donor is someone (or some agency) that is willing to donate money, goods, or services to a project without expecting any money back in return. An investor is someone who, when placing money, goods, or services into a project, expects a financial return on that “investment” under certain conditions. The investor wants a piece of the action. The donor wants only a receipt for a tax-deductible charitable donation plus the knowledge that something important will be created to help make the world a better place.
When it comes to crowdfunding, a project contributor expects to receive the rewards promised at his or her rewards level – more on crowdfunding in a different post.
Combining Arenas: Both And; Either Or
In days gone by, narratives competed primarily in the commercial arena for investments, while documentaries competed primarily in the noncommercial arena for donations and grants.
Today, the style divide is more fluid. Socially conscious features may appeal to individuals, corporations, and organizations for tax-deductible support, while documentaries, increasingly popular and thus increasingly profitable, may seek out private investments. The point is that it is possible to combine commercial and noncommercial funding sources in the same project.
To hone in on “how”, we must further break down our film financing arenas.
Hard & Soft, Loans, and Film Subsidies
I spent a few years studying goju-ryu karate, Japanese for “hard-soft style”. Its “hard” techniques rely on force for successful execution, while its “soft” techniques go with the flow, emphasizing redirection of an opponent’s momentum. Goju-ryu teaches that both hard and soft are needed for success not only in martial arts but also in managing the fluctuations of life.
It’s about balance.
Balance of “hard” and “soft” is central to indie film financing, as well. Hard money describes the commercial arena of investments. Basically, if you have to return a sum, that money is categorized as “hard”.
Most loans are hard; you must repay them with interest.
Banks are especially inclined to lend if/when your film has secured pre-sales, ie., distribution in different territories before the film is complete – something that’s difficult to do in the economy of the Bronze Age. Finishing funds and gap, or “mezzanine”, financing are loans issued by a bank or other entity “that cover the missing money needed to finish a film,” Malloy describes in Bankroll. “These loans… usually come with high interest rates”, but they’re low risk for the investing entity because most of the film’s budget already is covered.
Conversely, soft money describes the noncommercial arena of donations and grants, in which there is no expectation of repayment. Soft loans fall into this category, as do all forms of film subsidies.
Film subsidies are Movie Production Incentives (MPIs) that “refund or rebate a qualified portion of the money spent in the state back to the production,” producer Mary Jane Skalski explains in an interview with Cinema Blend. She continues:
So, say a production has $1,000,000 in qualified spending. If they shoot in a state with a 25% incentive they will get $250K back from the state. In some cases, that money will come as a check. Every state is different, but when a production is finished spending money in the locale and/or when the entire production is done, an accounting is provided to the state. Then that is vetted internally before any check or voucher is released. In other cases the production will receive it as a tax credit that they will then have to go out and sell to a company that can use that credit.
Consult this resource for summaries of states’ and countries’ incentive programs.
In any case, do not dismiss film subsidies. They are a powerful tool. In December 2013, The LA Times referenced research revealing that “[a]bout $1.5 billion in film-related tax breaks, rebates and grants were paid out or approved by nearly 40 states last year… up from $2 million a decade ago”.
If you find a company to cash-flow your tax credit (for a fee), it is possible to realize a tax credit payout before production. For example, if your film costs $2 million and is shooting in a state with a 25% incentive, you can realize some $400,000 upfront – roughly 20% of your total budget.
The order in which you secure your funding sources, subsidies and otherwise, varies from project to project and is something we’ll discuss in a later post. For now, understand that you can finance your film with a balance of hard and soft money. Of course, resolve to maximize the potential of the soft – this is money you don’t have to pay back! – and then dial in the rest of your funding sources as appropriate.
Do this, and you’ll be well on your way to winning your indie film financing black belt.
Legalese: LLCs, 501(c)(3)s, & Offering Memorandums
To manage your funds, address administrative tasks, and protect yourself, you should consider establishing a Limited Liability Company (LLC) for your film.
If you’re chasing donations and grants, you’ll need to secure fiscal sponsorship from any nonprofit organization, known to the IRS as a 501(c)(3). A fiscal sponsor can support your project in a variety of ways, but at the simplest level, it accepts checks for your project and returns most or all of each check’s money to your LLC, depending on its administration fee. It is possible to have more than one fiscal sponsor for your project. Fractured Atlas, America’s largest arts fiscal sponsor, is a good point of reference.
Note that you could opt to establish your own 501(c)(3) instead of work with a fiscal sponsor, but doing so would limit your ability to attract commercial investments.
If you’re on the hunt for investments, then you’ll need to have a lawyer-drafted or lawyer-approved LLC Operating Agreement, which describes the rules and operating procedures of your LLC, as well as a lawyer-drafted or lawyer-approved Offering Memorandum/Private Placement Memorandum, which details your investment offer for your investor to sign.
Note that you can pitch your project to investors using a Confidential Information Overview (CIO), essentially a business plan that provides information about the investment. A CIO does not replace an Offering Memorandum.
Crowdfunding is the new kid on the block, made possible by the digital technologies of The Bronze Age.
In his book Crowdfunding for Filmmakers, Trigonis describes crowdfunding as an alternative to the established arenas of indie film financing, “in which a person sets up a project page, uploads a pitch video, offers some rewards, and reaches out directly to the audience through email and the social networks, as well as the more traditional modes of fundraising like word of mouth.” It’s facilitated by web platforms like Kickstarter and Indiegogo, which serve as intermediaries between the filmmakers and their contributors for a fee of the funds raised.
Indie films have raised thousands of dollars through crowdfunding. For example, Rob Thomas’ Veronica Mars raised almost $6 million on Kickstarter! It’s an outlier, but it proves what’s possible in this arena. The icing on the cake is that crowdfunding builds your funds and your audience, which goes a long way when you transition into the distribution phase.
Note that if you have a fiscal sponsor, you can synergize the noncommercial and crowdfunding arenas by enabling potential contributors to make tax-deductible donations, a powerful incentive for many.
Also note that The JOBS Act, still a work in progress, may introduce a new age of equity crowdfunding, in which non-accredited investors – ie., people not wealthy enough to protect themselves and/or hire investment advisors, as determined by The Securities and Exchange Commission – could back indie films and other ventures. There are a lot of questions surrounding this possibility, not to mention a healthy dose of skepticism, but the future remains to be seen.
“There Is No Spoon” | Psychology of Scarcity Vs. Psychology of Abundance
If ever you’ve worked in a freelance capacity, you know the exhilaration of its freedoms… and the anxiety of its fluctuations. The uncertainty of living paycheck-to-paycheck, especially when starting out, with no guarantees. Some months bring feast while others bring famine; either way, the bills march on as stolidly as night turns to day.
Sometimes you accept undesirable gigs because you need the money. A client smells desperation like a dog smells fear and preys on it. When they look at you they see cheap labor, and when you look at them you see a dollar sign, insultingly small but necessary. You hate yourself for your whoring. You find yourself spiraling into a pit of depression and self-loathing.
You are acutely aware that the resources of the world are finite. You crave the luxuries you resent because you cannot afford them. You wake in the mornings short of breath, stressed by the minefield you’re obliged to navigate as soon as you roll out of bed. Risk taking? Impossible. You’re lucky to make rent. Dreaming? No time. You’re in the trenches with a war to fight; the moment your head floats into the clouds is the moment it’s blown off by a mortar. The life of man is solitary, poor, nasty, brutish, and short.
At least, that’s one side of the coin.
With psychologist Eldar Shafir, Harvard economist and MacArthur “genius” Sendhil Mullainathan explores “the psychology of scarcity” in his recent book, Scarcity: Why Having Too Little Means So Much. Shafir and Mullainathan contend that “people’s minds work differently when they feel they lack something.” This feeling empowers people to focus on their pressing needs and endows them with a keener sense of the value of their resources, but it also narrows their perspectives. “By making people slower witted and weaker willed,” The Economist summarizes, “scarcity creates a mindset that perpetuates scarcity, the authors argue”.
By directing your actions, your thoughts determine your reality.
They can limit you, or they can free you. Granted, circumstances sketch the beginning boundaries of your life’s sandbox, but to quote Uncharted (and so reveal my inner nerd): “We don’t get to choose how we start in this life, [but] real greatness is what you do with the hand you’re dealt.” We can take responsibility for our actions, or we can watch life pass us by and wonder from our deathbeds where it went.
The opposite of a scarcity mindset is an abundance mindset. It’s one that, in the words of Stephen Covey, “flows out of a deep inner sense of personal worth and security. It is the paradigm that there is plenty out there and enough to spare for everybody… It opens possibilities, options, alternatives, and creativity.”
In order to succeed in the world of indie film financing, you must adopt an abundance mindset.
You must believe that you can and will raise the money you need for your film. This thought will direct your actions and carry you toward your goal – “If men define situations as real, they are real in their consequences”; it is a practical manifestation of the law of attraction. The moment you believe the money cannot be found is the moment all is lost.
So soldier on, friend. You are an entrepreneur as well as a filmmaker. Be a Spartan. In the words of Steven Pressfield’s Gates of Fire, an epic tale that recounts the Battle of Thermopylae:
Habit will be your champion. When you train the mind to think one way and one way only, when you refuse to allow it to think in another, that will produce great strength in battle.
Michael Koehler, with
For more details, explore the rest of our in-depth series about how to finance your indie film:
Part I – Beginner’s Guide to Independent Film Financing
Part II – 3 First Steps to Finance Your Indie Film
Part III – How to Get Donations and Grants for Your Indie Film
Part IV – How to Find Investors for Your Indie Film
Part V – How to Use Crowdfunding to Finance Your Indie Film
If you’re looking first to learn how to make a film, we invite you to check out our affordable online filmmaking training – more curated than a blog, more interactive than a textbook, more flexible than traditional film school.
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