Financing / Crowdfunding

Great and inspiring post!

"Short films are great for new filmmakers wanting to get their work out there, but they're also a fantastic way to try out new things, work with unfettered freedom, play, and yes, thirty years on... LEARN!" You're right, Michael Fitzer, MFA. It's the same thing with short scripts I write. And I use them as writing samples.

Congratulations on shooting three shorts and getting your foot in the door with the financier! I'm looking forward to seeing your movies!

Congratulations on Buffalo 8 requesting your script, JPatrick Baker!

They don't have to defer payments, they have to invest in you and your project. It's their good right to ask for payments, but it makes you an investor or money hustler and not the screenwriter or creative you probably want to be.

Willem Elzenga 2 you're not wrong but I also don't understand the point of your response

This is also an educational platform as of what I understand of it. I am just here today to help out the peeps with my 30 years of professional experience.

They want money like all the rest. If they LOVED your work that much they should not ask you for funds.

@RyanElliott Your plan sounds very sharp. I like the mitigated risk to principal focus. Perhaps one suggestion, don't invest all the profits, if that is the intent. Also, out of such a holdback maintain a development pool to identify value properties which require a lift to close name talent. Love to discuss further and happy to assist. Bravo! More about me at www.FilmBudget.com Worldwide - 30 year Major Hollywood Studio and indie film and tv producer, executive producer, line producer, DGA UPM, financier, investor, film budget expert, film finance plans, producer consulting for fellow filmmakers and a working producer as well.

Ryan Elliott After reviewing it, I see a number of red flags that could expose you to legal and financial risks. There are significant concerns with the way you’re presenting the fund’s structure, its risk profile, and the way you’re communicating your potential returns and principal protection.

1. Unrealistic Return Projections (20-30% Annual Returns)

The goal of generating 20-30% annual returns through swing trading options and leveraging market momentum is highly ambitious and could be misleading for potential investors. Investors tend to be highly litigious when investments sour as they seek a way to claw back whatever they can get. While swing trading can be profitable in the right market conditions, consistently achieving returns in this range is incredibly difficult and unrealistic, especially in volatile or sideways markets.

The stock market averages around 10-12% annual returns over the long term, and many professional traders, even those with highly sophisticated strategies, don’t consistently achieve 20-30% annually.

You mentioned using options and leverage when the conditions are right, which inherently increases both the potential returns and potential losses. This kind of strategy can be extremely volatile and could lead to significant losses, especially if the market behaves unexpectedly.

Investors need to be fully aware that there are no guarantees when it comes to achieving consistent profits—and any claim that the fund will consistently generate 20-30% annually is misleading and could expose you to legal action for misrepresentation.

2. Risk of Principal Loss

While you state that you are focused on "protecting your principal", this is a contradiction in the context of the strategy you’ve outlined. You mention using leverage and options, which are high-risk strategies. The reality is that there is no such thing as guaranteeing principal protection in a fund that employs options trading, particularly when using leverage.

Options trading is a high-risk strategy, and positions can be wiped out in a matter of days or even hours, depending on market conditions. In the event of a market downturn or significant volatility, it’s entirely possible that the fund could lose substantial portions of its capital.

Principal protection in this context is not realistic. If the fund uses options, leverage, or other high-risk strategies, it’s critical that you disclose the risk that investors could lose their principal. Failing to do so, or implying that principal protection is a guaranteed outcome, could expose you to lawsuits for fraud or misleading statements.

3. Lack of Transparency Around Film Investment Strategy

The fund’s strategy is focused on swing trading options in the stock market, but it’s unclear how this ties into the film investments. You mentioned using the profits from the hedge fund to fund films, but it’s unclear:

How you plan to balance the two strategies. The high-risk nature of swing trading options seems inconsistent with the relatively illiquid and long-term nature of film investments.

If you’re raising capital for a hedge fund and using those profits for film investments, you need to clearly outline how these two strategies will interact and how investors will be exposed to both. Film investments are highly speculative, and you can’t simply use hedge fund profits to fund films without properly explaining how both sides of the fund are managed, and how that might increase the overall risk for investors.

It seems like there’s a conflict between the hedge fund strategy (focused on high-risk, high-reward short-term trading) and the film strategy (focused on long-term, illiquid investments with very low success rates). Without a clear strategy for how these two sides will function together, investors may be misled about what they are actually investing in.

4. Backtesting Methodology and Performance

While you’ve backtested your strategy over the last 15 years and claim positive results, there are several concerns:

Backtesting results are not indicative of future performance. While it’s useful to backtest strategies, past performance doesn’t guarantee future results, especially when using highly volatile instruments like options.

You mention that the system is designed to respond to what the market is actually doing, but market conditions can change, and past results may not replicate in the future, especially with changes in market volatility, interest rates, or geopolitical events.

Consistency in the strategy is key. If there are periods of underperformance (which is inevitable in any strategy), you’ll need to disclose how those drawdowns will be handled and how investors will be protected from catastrophic losses.

5. Legal Risks and Investor Misunderstanding

You are making several claims that could easily be misinterpreted as guaranteeing profits or principal protection, which could expose you to legal action. If investors lose money, especially after being led to believe that the fund is low-risk or guaranteed to produce positive returns, they could take legal action for misrepresentation, failure to disclose risks, or fraud.

Specific Legal Concerns:

Principal protection cannot be guaranteed, particularly when using options and leverage, both of which involve substantial risk of losing principal. The SEC and other regulators could view these statements as false or misleading.

Unrealistic return projections of 20-30% per year are problematic. These figures could be seen as bait-and-switch, as historical returns in this type of strategy are far from consistent.

The lack of clarity about how the hedge fund’s profits will fund film investments without putting investors’ principal at risk creates further confusion. If the hedge fund takes losses in its trading positions and then uses those same funds to invest in films, that could create conflicts of interest and expose you to potential claims of mismanagement or failure to disclose material risks.

Kenneth, thank you so much for all the time and thought you put into this response! You are 100% valid and accurate in your points. I'll try to address them if I can, and some I may just need to go back work out on my end.

1. You're right, the market averages 10-12%, but that's when you buy and hold. On average, since 2000, if you add the market move on the up days, and add the market move on the down days, you get the total range the market moved for the year. It might it might return 10% year over year, but it actually moved on average 46.5% (according to Grok). Using technical analysis If you could capture half of that move, we're at ~23% (no leverage, no options), which is in the target. If you use 2x leverage, you could be twice that, and instead if you keep the majority in money market funds and use options on the up moves, you can realize gains in that range. I'm also capping the fund at $100M, with the idea of expanding to 3 total funds, so $300M total. When a $10B hedge fund wants to hedge their long position, they may buy $50M worth of puts, just in case the market goes down. I'm looking at buying a $5-15M (5%) position, in the direction I expect the market to move.

Also, when it comes to professionals not getting superior returns. I'm not sure why they don't. I've heard it could have to do with the size of the fund, and if you're making frequent trades, you can actually move the market. Another reason might be (and I'm still learning some of this - full transparency), you could get stuck with a liquidity issue. You need someone to take the other side of your trade, and if you have $1T, there aren't too many people who can take the other side of the trade, buying or selling.

2. When I say, "protecting the principal," I should specify. When someone has $5M to put into a movie, their principal is spent. There's nothing left, and often the producers took out loans against credits and rebates, and the movie has to make significantly more than it cost for you to start getting your principal back. With the fund, your principal is never at risk from the movie's performance, because your principal is never invested in any movie (fund profits are, so you're basically playing with the house's money).

Your principal is in the fund...so your principal IS 100% at market and fund performance risk. I do maintain a giant cash position (money market funds, about 4% return currently) with whatever isn't in an option position, starting with one option position (5% of the portfolio), so about 95% is in cash. If another buying opportunity comes up, cash drops to 90% cash, and so on. As we close out an option position, any profit tops off the fund at $100M (if there were previous loses) and excess goes into a sub account for each film project.

You're also 100% correct - options can be wildly profitable, or fall to $0. The loss is limited to -100%, but there are positions that have made 40-300% returns. That's why we use 5% positions, so if there are multiple losing trades in a row, you still have dry powder to take advantage when the market rebounds.

3. I'm all about transparency, almost to a fault. I was in banking for several years, and I talk countless people out of getting credit cards by explaining how they actually work. I have a page on my website that shows the money flow from the fund and from the movies. Also, money never goes back into the fund. Any fund returns over 30% (net of fees - see website), go right back to investors. Any film revenue goes right back to film investors 120% of the budget, then 50% in perpetuity.

The goal for both the fund and the films is to have limited downside (small positions, small budgets) and unlimited upside.

We're keeping film budgets at $5M (it's the original Blumhouse model), so as the $100M fund makes 5%, we move $5M to an LLC with every fund investor as a prorated percent partner according to their participation in the fund. They're on the escrow account where all the money comes in from the film, so everyone gets their percentage. I'm hoping there's very little overhead, but the money in the account gets distributed to the investors according to their percentage. If you have a 10% ownership stake, and $1M comes in, you get a check for $100k. I really want it to be that easy. We're just getting started, so I think it'll work like this, I want it to, at least that's the plan.

4. You're right. In all of finance, there are absolutely NO guarantees. Even bonds, backed by the full faith and credit of the US gov't, you can't ever say they're "guaranteed." Backtesting or any prior performance does not indicate or guarantee future performance. However, it's the best indicator we have. The market averages 10-12% when you buy and hold, but that doesn't mean it'll keep doing it. But it probably will. If you're engaged to someone who cheated on her last 4 husbands, you might want to get a really solid prenup.

There are definitely trades that lose -100% and go to $0. That definitely happens. The objective is to have enough trades, based on entry signals, that the profitable trades outweigh and outnumber the losing trades.

I try to be as open and honest as possible. As far as bait-and-switch, maybe I need to lower expectations. Do you have any suggestions for what would be appropriate?

Thank you again for your thoughtful response!

Ryan Elliott Actually, if talking about a specific index like the S&P, between 1926 and 2023, the market's typical yearly performance is about 12.70% (average) and 15.43% (median). That is data spanning almost a century, or 100 years. Obviously, in any particular year, the market could be up or down 30% to 40% or more, which is where active vs. passive investing or investment management comes into play. The bottom line is that there is always risk the market could swing in any direction and at any time, but investors in the stock market typically have the appetite for the investment swings that come with that asset class. The mere fact that in finance, the rewards tend to increase based on the level of risk implies that if someone is targeting a 20-30% return, that essentially does imply taking on more than usual risk.

It's one thing, in hindsight, to point to specific market movements and performance, but in the moment, when facing the pressure and paranoia of daily price fluctuations, uncomfortable or model-defying trends, market buzz, and the overall panic exhibited by other market participants, it’s natural for paranoia to spread quite rapidly, and models can get tossed out or sidelined because you don’t have hindsight in the moment.

The market is very efficient, and arbitrage opportunities do not exist for very long. If you walk down a street and see a $100 bill by the roadside, you can trust it won't be there for very long. There are some similarities between this and professional money management. Even for the most skilled money managers, when you have the responsibility of generating income and profits that millions expect in the form of pensions or other types of obligation, making an explicit promise in terms of expected return is rare and uncommon and so is generating 30% per year returns every single year.

The investors that focus on film financing tend to have a focus or expertise in film financing, and most have the appetite and sophistication to deal with the risk—or should.

Also, films with a budget in the $5-$10 million range are technically indie films and are incredibly risky. As much as 90% of films made in this range fail. When you mix that in with a purely speculative investment strategy, the risk further increases, not decreases. There is a reason why banks can't touch film financing as an asset class, and those that do only loan against tax credits unless of course you provide a $5-$10 million collateral..

When managing any sort of investment fund, you typically can't make any explicit guarantee that you'll attain a return of such-and-such or that principal is "protected," "guaranteed," or anything remotely close to such language, because there are attorneys who make a living suing people to recover funds invested in any venture because of loose language that could lead an investor to infer that is what you meant.

Wow! Great idea! Asked for an add!

Hey Maurice, thanks for sharing bro. I know that not all execs are the same, but your post gives me an idea of what to prepare for when preparing for my pitch!

Am not being able to find Joe. So, Joe, if you see this, please connect with me. :)

Hi Joe! I’m almost finished with my script, and the visual style and vibe are a huge part of the project, which can be hard to convey through the script alone. I noticed there was only one slide for “artwork” in the pitch deck. Would including more concept art / artwork, and visual direction be helpful for attracting talent and securing a director/actors, and so on?

Thank you everyone for spending time with us on the live webinar - and for your positive comments about it in the chat. Joe did, indeed offer us a masterclass in financing structure & instilled a sense of confidence to reach out to those involved in the process and get the ball rolling on your project.

And here is Joe's profile on Stage32 for those who would like to connect:

https://www.stage32.com/profile/1143896/about

Thank you Joe!

Hi Everyone,

Thank you all so much for attending today! I was blown away by your feedback :)

Joe, thank you for sharing your robust knowledge, and Sebastian, thank you for being an amazing host!

Your sample finance deck handout has been added to your Stage 32 My Library portal, and the recording will be available soon.

If you have any questions, don’t hesitate to reach out at edu@stage32.com

.

Thanks again for joining us, I hope you found it valuable and inspiring! have a great rest of your week!

Warmly,

Sydney

Thank you Sydney S ! :)

I'd say most certainly major news rumors or not! Industrial eyebrows are now in retrospective! Public relations factors will have to be paid close attention to, as this will alert investors etc.

Generally draws all attention to scenarios before not considered.

The comments and post of course reflects international educated levels here at Stage 32!

Interesting development as Saudi Arabia pushes hard into film and television production.

And many interests there hiring and using Stage 32 Certification, Jack Binder

Amanda Toney personally, I can’t see it getting past your government’s scrutiny of an American company being owned by a Saudi entity. Unless of course there’s a kick-back!! It doesn’t seem like a very good fit. There’s also the Saudi money being tainted by restrictive social policies towards women and the link between this money source and the funding of terrorist organisations. Or is that a rabbit hole we don’t want to go down?

dont think it will pass through as it relates to being 100% Saudi owned

whatever you come up with double it or triple it in my experience

Jon Shallit that makes a lot of sense. I’m starting to feel the same way. Even with digital platforms in the mix, it seems like it helps to build more than one path for recoupment. I guess every project needs a few different revenue angles lined up, not just one. Thanks for sharing your experience, it really helps to see how others approach it.

Serhan Yorganci Good questions. You are ideally referencing several factors rolled into one. Market valuation and production budget realities. I look at the market for a film or tv series and that informs on the budget level. The actual costs of creating the film or tv show is the critical factor as the production must be viable for the market it is aimed at.

You can position your production as digital only, or, as I do, approach the budget, finance plan and revenue model encompassing all platforms: theatrical, svod, vod, avod, etc. analyzing the valuation for the project in each market sector.

Knowing the true cost of creating a film or tv series is the most important aspect as you need to make it in the end.

I created www.FilmBudget.com Worldwide using my 30 years Major Hollywood Studio, indie film and tv knowledge as a producer, executive producer, line producer and DGA UPM (and investor and financier) to create custom, bankable, bondable film budget and schedules, film finance business plans, film tax credit analysis, and producer consulting.

You've hit on the two important factors: know your market value, know your true cost of production. Bringing those two into alignment is the key to a value proposition.

Serhan Yorganci To develop a realistic budget for a film, it's essential to capture all major cost categories, which can vary from project to project, as each film is unique. Some of the major categories to include in the budget are:

1. Development (e.g., script writing fees, rights acquisition, development personnel, pitch materials, legal fees, initial marketing & research).

2. Pre-Production (e.g., casting, location scouting, set design, permits, costume and makeup, production planning, equipment rentals).

3. Production (e.g., cast and crew salaries, filming locations, equipment rentals, set construction, catering, transportation).

4. Post-Production (e.g., editing, sound design, visual effects, music composition, color grading, ADR).

5. Marketing & Distribution (e.g., promotional materials, festival submission fees, public relations, distribution deals, TV rights, digital and international sales).

6. Legal & Accounting (e.g., legal contracts, accounting services, taxes, completion bond).

7. Contingency (e.g., unforeseen costs or overruns, typically 10-15% of the total budget).

8. Miscellaneous (e.g., any additional or unexpected costs not captured in the primary categories).

The degree of accuracy in estimating the costs for these categories is what ultimately determines the realism of the budget. While quick formulas can provide rough estimates, a well-planned film budget requires careful thought and consideration of the specific needs and goals of each project.

It's so great to find some tips on financing, especially for those with limited budgets, James Lagrimas.

As a screenwriter (in the indie world) I find "Pitching Investors" painful. I'd take a class that teaches how to answer the tough questions... a checklist to create before a pitch.

For example, yesterday I acquired a $25,000 investor for my film. Luckily he was an old friend, but he asked tough questions like:

What is your producer's success record for getting films distributed?

Who handles the budget and ROI payouts?

What are the risks for investing in your film?

It made me realize that I need more ANSWERS before I ASK (for $)

That's incredible, Debbie Seagle! Congratulations!

I think crowdfunding Education would be helpful, James Lagrimas. How to set up a crowdfunding campaign, hiring a team to help run it, etc.

The strength of British Film and Television productions continues unabated. Good to see U.S. networks stepping up their acquisitions!