How do Investors in Film Get Their Return? How are Movies Funded??

With the Austin Film Festival upon us, it dawned on me that we’re frequently consulted with on questions of funding pertaining to new ventures, startups, and constantly asked about getting a film, game, or book funded for production, but rarely is it clear to anyone how funding a startup isn’t remotely like funding a production.  And that’s what a movie is, a production, akin to funding a specific thing a business does.

How are Films Funded?

First, let me share my  perspective, working with startups… when we talk about “funding,” we’re typically, in entrepreneurship, referring to  investors in a business.  Those might be angel investors or Venture Capitalists; they invest in a company by taking a share of the ownership in exchange for their capital investment in the company.   The startup thrives and when it “exits” (gets acquires or if so luck, goes public), the investors get their money back, plus some.

We use that word *funding* in a very specific way so as to be clear that we’re referring to investors in the company.  Other terms, such as “financing” refer to the loans that are available to businesses.

Does it work the same way in film??  Well yes, and no.

In film, we’re not funding, nor financing, the business that produces the film; we’re funding the film.   The idea, the distinction, is rather like a startup trying to get investors in just one of the things they’re building.

Film industry investors are investing in the movie production; so, somewhat similarly, they receive their return when movie is sold for distribution.  Like the startup exiting when it gets acquired.

The most important difference is that when we’re talking about movie investors, it’s more accurate to call them creditors. Like a loan, their money is against the finished product , the film, and the value of that is factored into the return of their capital.  Technically, it’s financing, not funding, a film.

A few of the common ways a movie is financed

Grants

The Producer pitches a local entity, usually a city, state, or region, where Arts, Economic Development, and even Tourism funds can be found – often there is a Film Commission involved and available.   Such funds are allocated to support programs that put local talent to work, show off the city, or celebrate the community.   These are usually grants in every sense of the word – come make your movie in Texas!  Here’s money for that.  (Er… well…)

Gap/Supergap

This one I’m still doing homework on myself.   A Gap.  Essentially, the Producer takes a loan against the value of all unsold rights.    Basically, the film is pre-sold to the tune of, say, $700,000 but it takes $1,000,000 to produce.  The Gap is the $300k.   To do this, you’re pre-selling the film and likely have to have a reputation and some bankable names involved so that the financier can be confident that you’ll make up the difference.

A Negative Pickup

Strike a deal with a film studio that commits that they will buy the film for an agreed upon amount of money. They establish certain requirements of the finished product and you can seek the financing or funding to ensure those things are delivered so that the film meets studio expectations and gets purchased.

Private funding

Someone gives you the money.  More or less.  Granted, they’re doing so for participation in profits or as a loan with fixed interest  —  You pay them back.   Often part of the arrangement here will involve some credits on the film… this is why you see things like “Executive Producer” as the credits roll (that’s not too dissimilar to an investor in a business expecting a seat on the Board of Directors of the company).

Ask your fans: Crowdfunding

Shares the idea publicly and offer what you can to your fans: advance ticket purchase, red carpet treatment, pre-screening, merchandise, private party with the cast, etc. In crowdfunding it’s important to appreciate that your audience really isn’t getting their money back; their supporting you because they want to and they want to participate in the experience.

That Austin Film Festival is coming up, it’s in October in Texas, and besides the great films, there is a conference worth your time where you can connect and learn far more than I can share of what I’ve picked up along the way.  I’ll personally stick with startups and venture funding, but if we can help, I’d be honored to point you in the direction of those looking at how money moves in film.