Money for Entrepreneurs

In an article  in the S. Florida Business Journal, by Bruce Rector, he states:

“I often speak with shareholders of growth companies who view the infusion of external capital as a panacea for all that ails them today, such as constraints on expansion and lack of funding for more R&D. If only they had capital, they reason, the business would be propelled to glory.

There are many good reasons why a capital infusion might make sense for a company. But, before a company goes charging down the capital-raising path, it is crucial for shareholders and management to ask themselves a number of hard questions:

Am I ready for appropriate corporate governance procedures to be implemented?

Your company will not be allowed to run as a mom-and-pop business, even though that may be how it has functioned historically. You can count on a board of directors being implemented at closing of the investment process, and outside investors will typically participate on the board. There will be binding delegations of authority emanating from this board, giving different officers in the company the authority to perform their functions.

As part of this process, the owners may find that they no longer have the legal authority to bind the company in certain ways, or perform such functions as banking and contract negotiation, which they have historically done.

Am I ready be held accountable to rigorous operating and financial goals?

It’s great to be involved in a company that has what it takes to attract outside investors.

However, investment professionals are also accountable to the individuals investing in their fund. Therefore, they make very thoroughly considered investment decisions. And, on an ongoing basis, they will expect management to deliver the results that were portrayed during the due diligence and budgeting process.

Management absolutely will be held accountable to the shareholders. Management that fails to deliver promised goals should expect to be replaced. Excuses will not suffice.

Am I ready to no longer hold absolute authority at this company?

Many controlling shareholders derive a great deal of personal fulfillment from being the person who runs the company. With the appearance of institutional capital, this relationship to the company often can change.

New professional management might be brought in, and there often is a change in reporting relationships as part of that process.

When the dust settles, you might find yourself with less direct control and influence over the operations and strategy of the company.

If you can honestly answer “yes” to these questions, then you might be ready for prime time when venture capitalists and private equity groups again begin actively seeking compelling investment opportunities.

If you can’t answer “yes,” then management and shareholders need to rethink whether they truly wish to initiate the process of raising external capital.”

In cases where you can’t answer yes, then considering debt financing  and keeping ownership of your company is an alternative way to go.

I was reading these tips from Eric Stevens on getting your Film Financed and found them very useful.

He has been in film finance  for over 10 years and   has come to learn methods that help aspiring films makers and independent  producers get financed and hopefully help  avoid the pitfalls he sees so often in this realm. He is pitched probably 3-5 films per week and he finds that  all have common mistakes.

E. Stevens states “Every film with only one exception is financed based on or along these lines. The exception is where the content has an emotional connection with the investor and they really don’t care about the rest.

1. Content: Obviously the story sells, and the genre has to be a money maker.

2. Attached talent: Many producers always tell me that such and such actor is attached but can’t get any paperwork. I understand the chicken or the egg situation here well. I know you can’t get a play or pay agreement without money. You CAN get a LOI or letter of interest from managers, or agents. This basically states if all the stars align and money is there the client may do the film. It doesn’t seem like much but you know by the amount of work you have to do get it, it means a lot.

3. Budget: Below and above the line. If you don’t have one get one. Submit a top sheet with you business plan. If you have one scrutinize it, have a line producer look it over. TRIM THE FAT!! With the technology advancements CGI and animation does wonders.

4. Distribution: This is always an obstacle for ANY producer. Some of my clients see this as their biggest obstacle. Why? The risk involved..preselling territories costs a lot in the way of equity as their is no finished product to view. However, a lot of times you need it to get the investors. DO a mix, get a commitment on some territories while leaving others open.

5. Financial structure: Most of you already know this but I will say it anyway. Each film must be setup as its own corporate entity. LLC, C Corp, Partnership, that’s for your attorneys to decide.

The way I have always suggested moving forward is doing a debt/equity mix or debt with an equity kicker. NEVER let your debt be over 30% of your budget. This will turn off any potential investor. While you are telling them they are in first position they know debt always takes first.

Usually what this means is that you can finance part of your film or slate, but the debt money isn’t kicked in until proof of funds on the equity portion is provided.

Take advantage of incentives in place! In the U.S. and some parts of Asia there are a lot of incentives for producing your film in that territory. For the EU I would venture to guess there are some, but I honestly just don’t know about them.

Look for states offering incentives for filming there. BUT BEWARE.. there are caps, and you must use their state citizens or you get no credit for those dollars expended. This has a lot to do with your above the lines costs which account for a good portion of any budget.

There are federal tax incentives to up to 15-20 million. Check them out.

Finally IRR. I see coupons issued for 115%, I see shares issued giving away the farm to investors.

How do you value your film. BE HONEST! first of all. IMDB is a valuable tool. Run your talent and see how much the films they are in pull in. Do genre comparisons. Look carefully at your distribution. Can the content be easily translated for other markets? Are the stars well received overseas?

Finally if you can offer a slate. Investors like to spread their odds. especially where you can use the same assets to produce additional platforms like games, and sequels.

There is no better time for film investments than now. It is the safest out there when the studios are begging for financing and short for content. This creates a void you can fill.

If anything movies will increase this year and next. People simply can’t afford to do other things and need the escape a good story gives them.”

Coming to you from the voice of a financeer.

http://www.techcrunch.com/2008/09/08/tc50-angel-investors-say-now-is-their-time/

USA Today reports that a growing number of private-equity firms invest in what bankers call the US emerging domestic market, or ethnic and urban businesses. More than 55 such firms manage $10 billion in capital, according to the National Association of Investment Companies. “We’re bringing Wall Street to the barrio,” says Marcos Rodriguez , founder of Palladium Equity Partners, a fast-growing investment firm in New York with $1 billion invested in Latino-related small and midsize companies.
Read the complete story here >> Small Business