Hey everyone. I hope you had a great week. I just got back from taking my family to Big Bear Lake, CA, for a spur of the moment “let’s get out of town” weekend. We rented a (far too rustic) lakefront cabin, and spent our days doing things like taking a two-hour boat ride, crawling through town on a stagecoach pulled by two stout horses, and swinging our daughters on a swing set perfectly positioned 20 feet from our cabin. My favorite part of the weekend was showing my 23-month old daughters Lena and Zoe the starlit sky on Sunday night, as they sang “Twinkle, Twinkle Little Star,” it was simply awesome.
Over the last several weeks, filmmakers who have investment packages that are starting to make the rounds to potential film investors have bombarded me. I’m not sure if this is a sign of our economy recovering, or if recent changes to the IRS tax code 181 are encouraging investors to consider motion picture investments, but there has been is a flurry of activity recently, so I thought today we would discuss Five Things Filmmakers Need To Know Before Approaching Investors.
Okay, so here are a handful of things you can do to give your film its best shot to get funded.
Study Section 181 of the IRS Tax Code
This recently passed tax code is heaven sent for filmmakers, because it gives investors a real reason to consider a motion picture investment. Section 181 of the IRS Tax Code allows for a motion picture shot within the United States to become a 100% tax deduction for the investor, if the deduction is taken in the year the film investment was made. All productions with budgets under $15,000,000 USD qualify. Furthermore, productions up to $20,000,000 also qualify, as long of 75% of the budget is completed in the United States (75% of $20,000,000 is $15,000,000, so $15 million is the max).
Should be wondering what qualifies for Section 181, worry not, because it covers feature films, TV pilots, up to 44 TV episodes, music videos and even short films. The best part is that there is no minimum investment to qualify, so your investors (which can individuals or corporations) will get a nice tax benefit, whether they invest $15 or $15 million dollars.
Find Out How Much of a Tax Write-Off Your Investor Needs
Since most investors are already wealthy, and are probably not expecting a profit from their investment in your film, it’d be a good idea to find out how much of a tax write-off they need (if any), during this calendar year. Whatever number they come back at should be the amount to try to get them to invest.
For example, if an investor states that he or she “Really needs to lose about $80,000 this year to offset some taxable income”, you should respond, “Why don’t you lose your $80,000 in my film? You’ll get the tax break you need, (refer them the Section 181 of the IRS Tax Code) and in the off chance that my film goes through the roof, you’ll wind up making some money.” It’s a win-win. Remember, the key is to make your film look like an attractive investment to your potential investors, even if “looking attractive,” means offering them a tax break.
Offer Your Initial Investor First Position on Their Money
The hardest money to get is the first money in. Nobody wants to be the first to invest in your film, but almost every investor would be open to being the last. Meaning, if you have a $1,000,000 budget, and you have $0 invested, it’s incredibly difficult to get the first check. However, if you already have $900,000 of your $1,000,000 budget banked, it’s incredibly easy getting the last $100,000. Investors all feel far more comfortable when they know that other investors have planted their Benjamin Franklins in your cinematic gem.
Thus, one way to combat the reluctance of investors being first to invest is to offer them “first position” on their money. What that means is if they are the first to throw cash your way, you’ll make them the first investor to get their money back – ahead of the other investors that follow them. Should an investor be on the fence about investing, a first position guarantee may be all they need to ink the deal and wire you their investment funds.
Executive Producer Credit is an Investor’s Best Friend
Trust me on this one; it truly doesn’t matter how many “executive producers” you have on your film, so you should offer the credit freely to investors who fund your film. All investors really want to do is to tell their friends at cocktail parties that they’re executive producing a movie. Of course, they may also want to visit the set a time or two, and possibly shake hands with your star, that’s a small price to pay for getting your film financed.
Additionally, don’t offer your potential investors something ridiculous like co-producer credit, or associate producer credit. People with money don’t like having words like “co” or “associate” anywhere near they name, especially in a public setting like film credits. Just pony up and offer them the full-blown “Executive Producer” credit.
Don’t Include Your Script in Your Investment Package
Since 99% of investors a) have never read a script, b) have no interest in reading a script or c) have no idea how to read a script, it only spells doom by including your script in the package. Besides, the last thing you want to do is to confuse or frustrate your investors if they try to read a format they’ve never laid eyes on before. Remember, they won’t call you back and admit they didn’t know how to read your gem, they’ll just call back and say, “your investment is not for them.”
Okay, filmmakers. That’s what I’ve got for you today. Should you be ready to go after investors yourself, I wish you the absolute best of luck! I thank you once again for lending me your eyes, and I look forward to borrowing them again next Tuesday! Until then, have a great week! I can be followed on Twitter @Lonelyseal.