INDIEVEST

4/16/10 - In February I reported that independent film investors might consider using IndieVest as an investment vehicle for their projects. I have subsequently learned that they promote only their films and act more like a stock broker than a film company.

The company produces quarterly financial reports (similar to a public company). The minimum investment is $50,000, and you must be an accredited investor, meaning have a net worth of at least $1 million to participate.

IndieVest's first movie, St. John of Las Vegas, cost $3.8 million to make and has grossed only $100,000 from the box office so far.

Note from Jeffrey : Based on numbers reported at IMDB, the movie was released on a limited theater basis. From my experience, limited releases are somewhat successful for art house pictures like Blair Witch and Juno. When they become popular they then move to larger theaters which have wider distribution. I can only guess that the public did not like the picture. This does not mean than the investor will lose everything. Indievest will probably look to the DVD, airlines and streaming markets for additional revenue.

Movie Mania - February 2010 issue

By Eric Rasmussen

Edited by Jeffrey Taylor for Clarity and Content

When most people think of alternative investments they think of gold, oil or gas. They don’t often think of independently produced movies like Sex, Lies and Videotape, Reservoir Dogs or Sideways.

Indeed, it’s rare that people think of independent movies as investments at all—because it’s rare that they make any money. The vast majority of filmmakers outside the Hollywood orbit never find distribution for their work, and all that risk of hiring actors, scouting locations, doing the makeup and paying for the catering usually goes down the drain when the theatrical distributors say no to the finished work, which they do 95% of the time. Only a handful of indie movies make their investors whole. What most people don’t realize is that the cost to shove a movie down the public’s throats often costs more than the movies themselves.

Add to that the current problem of the last couple of years—a huge glut of indie films coming to market with not enough places or public interest to show them—and the outlook for these investments gets even worse.

Of course, some films such as My Big Fat Greek Wedding stroll out of left field and make all sorts of money. But that’s the kind of gamble some liken to the slot machines, not the methodical, disciplined investment strategy of a conservative investor.

Yet into this giddy firmament, Wayne Bradley, a veteran investment banker, has launched his own company, IndieVest, a business that he says offers a better way for investors to get seed money to movie makers without necessarily taking a bath.

The strategy he has come up with involves bringing the distribution in house so he can guarantee it. He also offers total transparency to investors, he says, something notoriously lacking in the murky mechanics of Hollywood accounting. The films are usually low budget, $10 million or less to produce, but bring into the fold top talent that the company thinks can get a return.

IndieVest’s first feature, Saint John of Las Vegas, hit theaters in January 2010, first in the cinema hotbeds of New York and Los Angeles, then later in wider release. This buddy comedy stars independent film stalwart Steve Buscemi and follows insurance fraud investigators in Sin City. Indie-Vest currently has five projects and hopes to work on eight to ten pictures per year.

IndieVest works on a private placement model. First, it sells memberships with different tiers. A premiere portfolio membership costs $2,950 up front and $1,950 per year and allows the investors a look at its entire slate of film projects, as well as giving them visits to screenings. For $4,950 up front and $2,950 per year, the member gets other perks, including invites to film festivals such as Sundance.

Each film project is an LLC, and puts investor money in escrow at Deutsche Bank. The company dosen’t begin spending any of the money on the film until 100% of the funds are already in place for pre-production, shooting and post-production. If the money is not used, it goes back to investors. That’s one way to mitigate risk. The company then encourages investors to diversify by betting on more than one film.

In the case of Saint John of Las Vegas, 38 cents on the dollar went toward production, says Bradley, while 52 cents went toward the distribution. This makes the investors de facto distributors, he says, which means there is no one ahead of them in line to get paid, and they can receive first dollar gross on all revenues until they are paid back in full, plus a 15% preference fee. That means a 115% return before IndieVest makes money from distribution. After that, the investors keep 50% of net profits while the filmmakers share 40%, and IndieVest keeps 10%. IndieVest also owns the negative.

He says that the company sends out annual audits and quarterly financials so that investors will see where every dollar is spent. Beyond the 10% the company makes off the net profit of each film, IndieVest makes 10% off the syndication of the private placement through IndieVest securities. (The company, as a securities firm, is regulated by FINRA.)

The company targets an ambitious 17%-21.5% annualized net return over three years on the films. In the case of Saint John, 52%, or $5.2 million, of the total investment has been earmarked for theatrical distribution, but of the distribution money it is only spending 1.2 million in the first few weeks. If the film is not gaining traction with audiences after a few weeks, Bradley says, the rest of the money gets returned to investors. The goal is to return 50% to 70% of the investment if the film does not succeed.

The elephant in the room for investors, of course, is the audience. What if they don’t want to see the movies? Guaranteed distribution might get the filmmakers over the hump, but it won’t matter if viewers and exhibitors don’t like what they see. At the end of the day, this is still a risky, illiquid investment and while the distribution may be guaranteed, the investment cannot be.