When it comes time to get the money from the investor, and to sign some paperwork, there’s a lot of different ways you can go.
Sometimes a simple contract will suffice, spelling out the terms of the deal, and sometimes a more detailed, specific financial document may be required. For filmmakers on our level, the simple document works the best. Just use the following questions as a guide to write your investment contract.
How much is the investor is investing? How much percentage of the profit will the investor receive in exchange for that amount?
When will the investor will be paid her initial investment, and when will she be paid her share of the profits?
Does she get paid back her initial investment in one lump sum? Or is she paid back in equal parts with other investors as the money comes in?
What rights does the investor have? Can they look at your books every now and then to make sure you’re not cheating them? Do they have any creative say? Can they come to the premiere? Do they get a copy of the movie? Do they get a credit as co-producer, executive producer, or otherwise?
Be fair, and be detailed, and don’t worry too much about any arcane financial huggermugger. Just draw up a deal that’s clear to both you and your investor and get going. As long as something’s in writing, you both know where you stand.
But however you draw up your contract between you and your private investor, make sure you’re not giving them a ridiculously huge slice of the pie. But conversely, make sure you’re not taking too big of a slice yourself. The deal has to be fair for you and your investor.
Here’s a super-simplified, common way you can divvy up the profits, which is fair to you and fair to your investors. There are a bunch of ways to do it, and producers who are far more skilled than I when it comes to setting all this up, but this is how it best served the scale of films I’ve worked on.
Let’s just say that you’re going to sell shares of your movie. Your budget is $100,000. So to make it totally fair to the investor, if Investor Mike puts in $5,000, that means that Investor Mike put in 5% of the movie’s budget. Therefore, Investor Mike should get 5% of the profit.
Right?
Well, let’s take a closer look at that.
Let’s say we have just given 5% to Investor Mike, based on his $5,000 investment. And now, along comes Investor Bob, who invests $95,000. So, based on the same math you used to figure out Investor Mike’s profit, you now have to give Investor Bob 95% of the profit.
And that means, between Investor Mike and Investor Bob, 100% of your movie’s profits are now going to those two investors, leaving none for you, your team, or anyone else.
The way we fix that, is we split the profit participation “pie” into two halves:
One half of the pie is called the Producer Pie.
The other half of the pie is called the Investor Pie.
Each of those two halves contains 50% profit of the movie. So 50% is in the Producer Pie, and 50% is in the Investor Pie. Clear so far? Good. Stay frosty.
Your team, the producers, director, writer, your company – everyone except the investors – are in the Producer Pie.
All the investors, including any vendors or other folks who give you free services or products in exchange for a chunk of the profit, are in the Investor Pie. Caveat: It’s okay to assign producer credits (i.e. credits in the movie like “Associate Producer” etc.) to investors as part of their deal, but for our purposes here, they are not considered part of the Producer Pie.
The Producers (a generic term for your whole team or company) are taking 50% of the movie without having to put in any money, because it’s the Producers who are putting in all the work to make the movie happen, but none of the money. The Investors, however, are putting in all the money, but are not doing any of the work. So that’s the balance.
So now let’s go back to Investor Mike and Investor Bob’s same exact investment. Investor Mike put in $5,000 and Investor Bob put in $95,000, remember?
Now they’re divvying up 50% of the total overall profit, instead of 100% of the total overall profit, because we put them in the Investor Pie, which only has 50% of the total overall profit in it, (because the Producer Pie has the other 50%).
To make things super-simple, we’ll say that the total budget is $100,000, and of that, 100% of that is being raised from investors, so you’re raising $100,000.
And now here where it might get a bit tricky, but stay close:
100% of the Producer Pie contains 50% of the total overall profit, and 100% of the Investor Pie contains 50% of the total overall profit.
In other words, we split the Producer Pie into 100 slices. And we split the Investor Pie into 100 slices as well.
Got it? So picture one big pie, which is the total overall profit.
Now split that pie into two halves. One half is the Producer Pie and the other half is the Investor Pie.
Now split the Producer Pie into 100 slices, and then split the Investor Pie into 100 slices. Comprende?
That means Investor Mike, who put in $5,000, gets 5% (aka 5 investor points) from the Investor Pie, and Investor Bob, who put in $95,000, gets 95% (aka 95 investor points) from the Investor Pie. Meaning that 100% of the Investor Pie has now been sold, and there can be no more investors. (Unless they just want to give you money and not ever take any profit percentage).
So let’s do an example of how a $10,000 profit check would be split amongst the Producer Pie and the Investor Pie. First, let’s set up who owns what slices of what pie:
Director 10% of the Producer Pie
Producer 80% of the Producer Pie
Director of Photography 5% of the Producer Pie
Lead Actor 5% of the Producer Pie
Investor Mike 5% of the Investor Pie
Investor Bob 95% of the Investor Pie
Okay, we get a check in the mail for $10,000 and, finally, after a year of paying off all the expenses, and the investors have been paid their total investment back. That means Investor Mike and Investor Bob have been paid back their original $5,000 and $95,000, respectively, plus any interest you agreed to, and now everybody’s just splitting up the profits at long last.
The check that comes in from Acme Distributors is for $10,000.
Split that check in half. $5000 goes to the people in the Producer Pie, and $5000 goes to the investors in the Investor Pie.
The Director is paid $500 (10% of $5,000 = $500)
The Producer is paid $4,000 (80% of $5,000 = $4,000)
The Director of Photography is paid $250 (5% of $5,000 = $250)
The Lead Actor is paid $250 (5% of $5,000 = $250)
TOTAL TO PAID TO PARTICIPANTS IN PRODUCER PIE: $5,000
Investor Mike is paid $250 (5% of $5,000 = $250)
Investor Bob is paid $4,750 (95% of $5000 = $4,750)
TOTAL PAID TO PARTICIPANTS IN INVESTOR PIE: $5,000
Your point assignments can be totally arbitrary. It’s your ballgame. Assign them however you like. But if you want investors to bite, you have to be fair.
