Filmmakers Glossary of Film Investment Terminology
Last week I laid out a glossary of general-use film business terms, but the blog ended up a bit too long and dense to be a single post. So, I broke it into two. Last week was the basics of business terms, this week is the next level, and focuses entirely on investment terms. Some of these may seem tangential and unnecessary, however if your goal is to close an investor, you’ll need to thoroughly speak their language. If there’s something you don’t see here, check out last week’s blog here. I’m not a lawyer, this isn’t legal advice, and you should have a solid attorney on your team before trying to close an investment round. With that out of the way, let’s get started.
Capital
While many types exist, The term most commonly refers to money.
Liquid Capital
Money that can be spent immediately, or near immediately. Non-liquid capital would be considered something like real estate holdings which would first need to be liquidated in order to sell.
Principle
In finance: it’s general the initial capital investment or the remaining balance on a debt.
Interest
A percentage fee is added on to the principle of a loan or line of credit.
Compound interest
Interest on the principle of the loan and interest.
Simply: interest on interest.
High-Risk Investment
An investment where an investor may lose most or all of the money they put in. Independent Films are always high-risk investments
Securities and Exchanges Commission (SEC)
The main financial regulatory agency in the United States. It oversees most forms of investment.
Accredited Investor
A person of means who is generally considered to have enough business know-how to appraise an investment, pay someone to appraise it for them, or who wouldn’t be completely destitute from taking a high risk-gamble. As of the date of this publishing, according to the SEC the investor must meet either (NOT both of) the income or net worth requirement in order to be considered an accredited investor.
Income Requirements
1.If filing individually, a person must have made 200,000 USD a year for the past 2 years, and be likely to do the same this year.
2.If filing Jointly, a household must have made 300,000 USD a year for the past 2 years, and be likely to do the same this year.
Net Worth.
The investor or household must have 1 million dollars in net worth OUTSIDE of their primary residence.
High Net Worth Individual (HNWI)
Outside the obvious, this term is generally a financial industry term for accredited investor
Edgar Database
A database of high-risk investments maintained by the SEC that is only accessible to Accredited investors and licensed brokerage or investment firms.
Financing Round
A round of financing or funding that is large enough to take an organization or project to the next major milestone. For how this works in film, check out the youtube video I’ve linked below, and the blog linked below that.
Related Video: The 4 Stages of Indiefilm Financing
Related Blog: The 4 Stages of Indiefilm Financing
Business Plan
A document written by an entrepreneur or filmmaker outlining their investment. In the film industry, this document will also often educate the investor on how the industry functions as a whole. This document is also known as a prospectus, but that term is not as commonly used as it once was.
Private Placement Memorandum (PPM)
A document that’s filed with the SEC for investors to consider investing in your project. Frequently an attorney will base this document off of the filmmaker or entrepreneur’s business plan. In most cases, a PPM will be registered with the aforementioned Edgar database for a modest filing fee.
Pro-Forma Financial Statements
Financial documents consisting of an expected income breakdown, cash-flow statement, and top sheet budget to be invaded in the business plan and function as the basis for many of the financial sections of other documents
The Three points above are heavily outlined in my business planning blog series.
Related: How to write an independent Film Business Plan (1/7)
Backed Debt
A secured loan backed by something like a tax incentive or pre-sale agreement.
Unbacked Debt
An unsecured loan, or debt without backing. Generally very high interest.
Financial Gap
The space between what you are able to raise and the amount you need to finish your project.
Financial Markets
A market where stocks, bonds, derivatives, or other securities are bought and sold. Common examples in the US would be the DOW and the NASDAQ.
Film Market
A convention where films are bought and sold primarily by sales agents and distributors. For more, check out the link below.
Related: What is a film market and how does it work?
Gross Domestic Product (GDP)
The total value of all newly finished goods in a given country during a set timespan. Most commonly calculated on an annual basis.
Recession
A macroeconomic term signifying a period of a significant decline in economic activity. It’s generally only recognized after two consecutive quarters of down financial markets.
Depression
A severe recession that lasts longer than 3 years and corresponds with a drop in GDP of at least 10%
Bull Market
A market that’s strong and growing. It’s called a bull market as the upward trending graph looks like a bull nodding its head according to some people on Wall Street.
Bear Market
Yes, I spelled that right. It’s a financial market that’s going down, or staying stagnant. The name comes from a bear swiping its claws down. Probably the same wall street guy came up with it.
Thanks so much for reading! If you liked this, please make sure to check out last week’s general financing glossary, as well as my glossary of distribution terms. Also, please share. It helps A LOT.
Filmmakers Glossary of Business Terms
Additionally, make sure you grab my free Film Business Resource Package to get a print ready PDF version of all 3 glossaries.
