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Equity Stake | Early Money

Equity is the bread and butter of most independent productions. Offering an ownership stake in exchange for profits is more like a traditional investment model, and can attract more traditional investors. More often than not, producers will have to tap into multiple sources to secure enough money this way. And as a lot of media investments don’t work out, this can translate to a lot of first-time financiers. It helps to have a producer who’s a natural salesman with the heart of a con artist. There are equity models that have done really well, such as the "Paranormal Activity" series and "Swingers" – which is how your producer should pitch to potential investors who are getting in on the ground floor of the next big project.

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Private Equity

Private equity is the standard for investors with no outside relationship to the project. Usually, these deals ask for a 120% return on investment, so have your budget person translate this amount for you if you’re not mathematically inclined. However, savvy investors understand the risks involved, and that this 20% profit margin is often less than the normal return on investment due to the amount of time involved. For example, if a project takes two years from start to finish, this means a 20% return over those two years, which is really 10% per year. Granted, this isn’t chump change, but it’s not like asking Warren Buffett to manage your funds. Either your equity investors need to believe in the long-term viability of your project (think the “Paranormal Activity” sequels), have some other interest that makes them ignore the obvious downsides or simply not know better.

Further Reading:

  • An Oral History of “Swingers” – So Money

Angels

What would you call friends and family members who are willing to take a huge financial risk on your dream? Yep, angels sound about right. Of course, if you’re asking people you care about for money, they need to understand what they’re getting into here. Don’t promise them a huge windfall when your project becomes the next big franchise or gets picked up by a major distributor for millions of dollars. So if your parents are taking out a second mortgage on their home to fund your project, you might want to think realistically about your prospects. At most, angel investors should expect some kind of a special thanks or a pre-determined credit on the project.

Further Reading:

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