One Simple Tool to Reopen Talks with Investors
Man in suit in front of a chalkboard with angel wings drawn on it holding fanned out 100 dollar bills in front of his face.
Taking a little bit of a break from the visions of the film industry and the direction that it should go in, this week I'll be offering a piece of useful advice for all the producers out there. I should start this by saying that I am NOT a financial planner. I am IN NO WAY qualified to evaluate security. I am also not qualified to give professional advice as to what stocks to buy, how to manage a portfolio, or anything even remotely related to that information.
In my time at the Institute for International Film Finance and Global Film Ventures, I’ve heard many people speak on various tricks to get Films Financed. One of the single most valuable tools in my arsenal is one that I will share with you now. I will say this was not developed by me, but rather by a speaker for one of my events a while back. I will start by saying that in order to be a producer, you need to understand your competition. Not just in terms of other movies and entertainment that are up against yours in the marketplace, but also how your investment stacks up against other potential investments that High Net Worth Individuals may be considering. This requires that a savvy producer understand the stock market, as it is the most common place where investors keep their money.
It’s important to understand that just because someone is worth 7 or 8 figures doesn’t mean they have millions of dollars to throw around. Most of their money is “Tied Up.” Pretty much any qualified Investor you’ll talk to will have a rather large stock portfolio. A lot of their stocks they’ll have been holding for quite a long time, and they’ll have grown quite a lot in value in the time they will have held them. Given the amount of Capitol Gains Tax they’d have to pay on selling those stocks, getting them the liquidity needed to invest in your film can be a difficult sell.
If you’re talking to a wealthy friend or relative, and they’re interested in your project, the little voice in their head is likely saying things along the lines of, “Hmm… I like it, it’s got potential, but I’d have to sell this, this and this, and my capital gains tax would be this…” That alone is often enough for them to not invest, sometimes simply out of the hassle and paperwork involved in the transaction, not to mention the loss of money. That, my dear readers, is where portfolio loans come in. A Portfolio Loan is essentially a mortgage on a stock portfolio. It allows the investor to keep the stocks in their portfolio, but also free up some money to invest in other projects, such as yours.
It’s extremely low interest, often below 4%. The interest varies week to week, so for precise rates have your Investor contact their broker and/or financial planner. It’s lower interest than borrowing on margin, and while there are many risks involved, the repayment terms are very flexible, and the interest can often be offset by stocks that pay dividends. Also, if you’re borrowing on Margin, you are technically only allowed to invest in other stocks, at least according to the SEC. Although that is admittedly not all that well enforced. This tool can be a great excuse to call up some of your potential investors who have all but turned you down, and can help to reopen conversations with them. It has done just that for me, as well as several of my clients.
In no waay should this be considered financial advice, but in my personal experience this tool is best used in times when the market is expected to go up over the period between when your investor funds your project and when you start to pay them back out. That makes it an excellent tool for when we’re heading towards the bottom of a bear market or towards the beginning of a bull market that is expected to continue. In times when the market is pretty much at its peak, it would probably make more sense to just liquidate part of their portfolio in favor of a higher-risk speculative investment such as an independent film.
Again, I’m not a financial planner, advisor, or a lawyer. Contact one of those people if you really want to know more about this, but just knowing what to ask about can be a huge leg up. As always, be well and thanks for reading, and please share this with your friends!
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