Working with a HNW family/family office for a number of years I’m always looking for alternative investment ideas that can minimise risk during these uncertain times.
Earlier this year, I came across Darby Angel of AngelWorld Entertainment, whose four years of experience in the independent film industry offers a cautionary tale to investors, while his solution to this broken business model is a highly attractive offer which could positively impact upon the way independent film is financed.
I wanted to know more and find out why someone would have given up an established 20-year career of working and raising funds in the IT sector in order to enter the seemingly uncertain and volatile world of independent film.
What attracted you to the independent film sector?
DA: I have to say it was less of an ‘emotional’ decision and more of a logical decision, because I was looking for an industry that was recession-proof. I found that in the film industry and my journey of transition began, but I’m not sure I would have gone down this route if I had known then what I know now.
So a classic cautionary tale?
DA: Well, coming from a structured corporate environment, I was not prepared for the total lack of process and accountability for triggering investment into film. Investors were usually sold on the famous names allegedly ‘attached’ to the movie and the potential upside, which sucked the equity investor in.
What traditionally happens to the equity investor?
DA: There’s a lot of smoke and mirrors when it comes to clearly outlining how many parties get paid before the equity investor!
This could be the banks and/or bridge funders. The equity investor’s money is unsecured because everyone else has secured their lending against the valuable assets (the IP rights of the film).
It’s important investment terms are clearly defined, together with the exit strategy, otherwise the equity investor will stay away from film.
So how, and why, are you doing business in an industry that doesn’t protect the investor?
DA: In our model we replaced all the parties that make up ‘independent film financing’ with one investor (or a syndicate of equity investors acting as one), funding 100% of the production and sitting in first position so as to recoup everything. We also incorporate a premium, providing the investor(s) with some immediate returns, while minimising the equity exposure by leveraging all the soft monies available.
How should investors examine a film investment?
DA: Investors should look at the merit of the investment based on the deal structure, the risk mitigation strategy and their recoupment position (in a transparent form), and that it just happens the asset class is a film.
Secondly, know how to tear the budget apart and question the rationale for every line. The numbers have to stack up, otherwise even the best talent in Hollywood won’t make you money.
I’m sitting on cash, I know little about film – why would I consider film investment?
DA: Let me make it clear that there is a lot of money to be made in film – a minimum return of 10% (without assuming any upside).
We generally work on the basis a film is going to break even (although there’s got to be a ‘blue sky’ – high profit potential). So in order to minimise the risk we assess the exposure to see if it will be covered even in the worst-case scenario. Also we want projects that are ready to go with zero cash burn, so we can give that promised return of 10%. Because we don’t have baggage in the industry we borrow from our previous sector experience and apply it to film in order to assess risk.
Recession-proof?
I had to look into what Darby was saying. Could this really be a recession-proof industry providing good returns? According to statistics provided by Cannes Market 2012, worldwide box office numbers increased by 5.6% between 2007 and 2011, the years of financial crisis.
So why is it that anyone who has ever invested in film is always talking about how they never saw a penny returned? At least now there appears to be recognition in the film sector the investor needs to come first – and combined with a great script, bankable stars and rigorous financial planning, film could be a safe bet.
