What To Keep and Avoid in the Investors’ Package

Jon M. Garon
Published on : 2009-08-05

This is part of a series of book excerpts from Independent Filmmaking, The Law & Business Guide for Financing, Shooting & Distributing Independent & Digital Films designed as an introduction to the many legal issues involved in the filmmaking process.

Assuming that the filmmaker is going to independently finance the project by receiving investments from relatives and qualified individuals, the filmmaker must still determine what he must and what he should tell the potential investor. The hardest, non-legal decision is how to convey the story. Few professionals, and even fewer others, can read a treatment or screenplay and capture what it will look like as a completed motion picture. The creation of a one-sheet or small poster mock-ups often have a greater visceral reaction than the written treatment or completed script. Regardless of how the story will be sold to the investors, there remains a great deal of information the investors should know.


The key to properly structuring the documentation is that all the information is true, accurate, and sufficient to give the investor a full understanding of the risks involved in the production. For the sake of both the investor and the filmmaker, the money should only come from people who can afford to make the investment or gift of the funds. The form and substance of the investment documents will depend on the legal structure selected, the amount of money sought, the state laws, and the federal exemptions used to reduce or eliminate federal registration of the securities. As a result, there can be no single document that can be used for all film financing transactions.

1. LLC or Financing Agreement

For motion picture financing, the LLC serves as an excellent vehicle, because the Operating Agreement, which dictates the rights and interests of the managers of the company, can also serve as the disclosure document in many transactions. In corporations a disclosure document, known as a subscription agreement or financing agreement, must provide the same detail. Whatever the form, the heart of the process is the need to provide full disclosure of all the material facts regarding the project. This principal should guide the information — the investors are entitled to all material information.

Among the material details, the agreement must state the total amount of money to be raised and the interest each payment receives. It must also set out the interest given to the filmmaker and what payment — (services, the screenplay, etc.) was given in exchange for those services. It must clearly state how these numbers can be modified by the filmmaker, if necessary.

The agreement will also provide information on the transferability of the interests, the payments to the managers — typically the filmmaker — the other income or deferred compensation paid to the managers and to other participants, and any other financial arrangements already made. If any pre-sale arrangements have been made, any loans obtained (even credit cards), or any other material contracts signed, those should also be disclosed.

2. Private Placement Memoranda

Depending on the amount of money involved and the nature of the participants, the filmmaker may elect to use a private placement memorandum to describe the investment opportunity. These should be used exclusively for sophisticated or accredited investors who have the financial resources to risk a total loss of their investment in the film.

The private placement should include information regarding the business entity, the risks involved in the production, the film, the filmmaker and production team, the offering — including the financial opportunity and structure, use of the investment proceeds, the allocations and distribution of revenue, fees, and expenses. It should also provide information regarding the independent film market in general and those films that are most comparable to the filmmaker’s project in particular. Finally, tax issues, termination or dissolution of the company, conflicts of interest for the filmmakers or other principals, and the effect of taking on additional financing should all be mentioned. Such a document is quite detailed and must be completed by an experienced attorney with the help of the filmmaker.

The private placement memoranda has only disclosure information, the investor receiving it has no obligation to invest. Instead, in a traditional corporate stock transaction, the actual sales document is typically a subscription agreement. The subscription agreement provides contractual language for the obligations described in the private placement memoranda similar in detail to that of the Operating Agreement. Such terms may include limitations on the transferability of the stock, identification of the obligations of the investors, the rights and returns expected, and any other contractual protections offered by the film company or waived by the investors.

Private placement memoranda and subscription agreements provide much greater detail of the business and the transaction than may be necessary for a small film budget. Ultimately the choice will depend on the amount of disclosure necessary to explain the transaction adequately, the expectations of the investors, and the sophistication with which the investors spend their money. The key must come not from the financial return – which is extremely speculative – but from the commitment to tell the filmmaker’s story or otherwise support the filmmaker in his career.

3. Other Documents

In addition to the legal structure selected, the finalized budget must be provided. For this purpose, the budget selected must accurately reflect the actual production. A statement should be included that the budget reflects the good faith plans of the filmmaker, but that it is subject to change throughout the project.

Similarly, a production schedule should be provided to give the investors an idea of the time involved in the pre-production, principal photography, and postproduction. The planned distribution strategy should also be mentioned. Again, these documents must clearly explain that they are good faith planning devices, and that the filmmaker expects them to change as circumstances dictate.

Optional Information

In addition to the requirements listed above, the film package can be augmented with additional information generally designed to encourage the investors. Like the earlier information, this documentation must be both accurate and helpful or it should not be included. There is no standard or set package. If a movie is to be based on a play, then reviews of the play might be helpful. If the movie will be a documentary, then newspaper stories about the topic might provide the potential investors insight into the project. The more creatively tailored to the filmmaker’s vision, the more likely the package will be to elicit positive responses.

1. Director & Cast Information

Investors react like any other audience. The cast information and photographs are often a movie’s strongest selling point. Even if the cast is relatively unknown, strong backgrounds may instill confidence. Nonetheless, remind the cast that embellishments can be costly, and the information should not be overstated. The same holds true for the director and other key production personnel. If the person has professional expertise that enhances the film, then it should be used as part of the package.

2. Distribution Information

Any distribution guarantees must be disclosed, particularly if they effect the possible returns the film company will see. If there are no distribution agreements in place, then the film company may be wise to simply explain that it will seek distribution of the finished film in all media. Describing the best-case scenario would be misleading, and describing the range of possibilities will ultimately prove fruitless and depressing. Assuming that the risk has already been explained elsewhere, there should not be any need to identify the particular odds of selling the film or receiving an award from a film festival.

3. Comparisons with Other Films

Like the discussion of distribution possibilities, the comparison with other films is a dangerous exercise in disclosure drafting. Offering documents that list the top five independent films and their return on investment are wholly inadequate unless they provide information such as the average return or the number of films that do not receive any distribution at all (a number that has probably reached into the thousands annually). Like describing a lottery jackpot without disclosing the odds of winning, comparing the current project to the most successful independent films is misleading at best. For any sophisticated investor, it demonstrates a lack of professionalism on the part of the film company.

In contrast, comparisons with other films for the purpose of communicating the story, the genre, or the visual style has far fewer drawbacks. Describing a spoof comedy as in the tradition of “Airplane” and “Scary Movie” does not suggest that it will have the same box office success, but it does convey the nature of the content well.

The filmmaker should identify the film package information based on what he would be informed by and would respect. Independent filmmaking is an incredibly high-risk financial proposition. Stress the passion and commitment rather than trying to sell the wild but quite rare successes.


* Jon Garon is admitted in New Hampshire, California and Minnesota.