Film Fund Private Placement Heats Up Interest From Family Offices, Placement Agents, Broker-Dealers, And Hedge Funds

Private Equity Funds, High Net Worth Investors, Broker-Dealers, Hedge Funds, And Alternative Asset Managers Are Drawn To Innovative Film Finance Deal.

Recent successful films are in a long line of private investments that are being bankrolled by high net worth alternative investors and large private equity funds. With new Federal Tax laws offering 100% writeoffs on film investments, coupled with a risk minimization for investors that includes co-financing multiple films, covering a portion of a film's budget with various distribution guarantees and benefits of tax credit financing from such states as Louisiana, Illinois, Hawaii, etc., territories such as Canada and numerous other locations, film investment in 'A' product still remains an attractive alternative investment.

"Brokeback Mountain" was partially financed by Bill Pohlad whose holdings include the Minnesota Twins. "Capote" was financed by a private equity fund. "Crash" was financed by real estate developer Bob Yari.

Apart from privately financed films outside the studio system winning Oscars, and, combined with high dollar sales of the films at the Toronto and Sundance film festivals, high net worth alternative investors are seeing far greater returns in a shorter time span with movies than they would see with a lot of other investment vehicles.

The money is smart, the product high. These are not straight to video exploitation films but "A" films with "A" talent that is made for a fraction of what a studio would make it for, yet is done to exploit the big studio product deficits.

The innovation behind independent film finance is manifesting itself with a plethora of investors and film projects that are aggressively attracting high net worth alternative investors, venture capitalists, hedge fund managers, qualified purchasers, futures traders, family offices, ex-founders and CEO's of .com and other companies, and matching those with breakout films and success stories.

"Kiev Nites," an epic crime drama in the veign of "Goodfellas," "Scarface," "Gangs Of New York," "Casino," and others is one film that is part of a package of high quality independent films where the potential returns from numerous movies would enable investors to have a broad source of revenue streams from film festival sales, domestic and foreign distribution, as well as video-on-demand broadcasts.

The script for "Kiev Nites" and some of producer Yuri Rutman’s other film projects including "Layers," both of which Rutman plans to shoot in Chicago, as well as a few horror films that Rutman plans on shooting in Brazil, Argentina, and other exotic locations, are currently making the rounds to attach a few A-list actors and territorial tax credit financing which will cover a portion of the budgets.

Rutman is in fielding offers from several boutique placement agents, private equity groups, and several high net worth investors to partner up with him on “Kiev Nites,” "Layers," as well as a slate of 10-15 film projects. "You have all these high net worth guys like Fred Smith of FEDEX and Norman Waitt of Gateway Computers who financed "My Big Fat Greek Wedding", Max Levchin and David Sacks of PAYPAL, Marc Turtletaub from The Money Store, Roger Marino from EMC Corp, former Chicago bulls co-owner Jim Stern, Jeff Skoll Of Ebay, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad, real estate developers such as Bob Yari and others all started to bankroll films, including large scale hedge funds. I am in final discussions with similar guys who recently sold their companies for a gazillion dollars, are bored, looking at the sunset in nowhere, USA, and have always wanted to be in the film business for tax, vanity, or alternative investment reasons. I am getting 20 calls a day from fund managers and family offices whose clients are all wanting to be in the film business."

The market has been very big for sophisticated independent A-level films selling at 3-10x their investment to big studio distributors.

"Alternative venture investors are seeing a window of opportunity that the big studios are hungry for product. A compelling crime drama such as "Kiev Nites," a thriller such as "Layers" which is about an S&P trader at the Chicago Mercantile Exchange who wakes up one day and realizes he is stuck between the layers of the Tree Of Life and needs to get out, and, a few high end horror films has an innovative risk minimization strategy, and built-in worldwide audience for crime films and shows like the "Sopranos" would really be a huge launchpad for us and our financial partners. Especially if we can hedge the financing across several films."

Rutman is currently reviewing partners capable of doing single picture financing at $1.5-$2 million dollars or a slate of films to hedge their revenue streams.

The large opening in financing sophisticated films comes from two sources. On smaller budgeted films, studios are paying a hefty premium for films as an alternative to their continuing track record of losses at the box office. "Its panic time at the studios". adds Rutman. "A lot of the big budget films are tanking. What’s profitable are films such as "Saw" which was made for 1.5 million and has made nearly 100 million dollars worldwide and spawned a sequel. Or a $200,000 film like “Napolean Dynamite” with similar results."

The second part of the success factor is that the total cost of larger films in the $6-10 million dollar range. An investor puts up 20-30% in equity , and in some cases, if the film has strong cast, the entire budget is financed through foreign sales and tax credit finance. Add a DVD and Cable deal to the equation and sometimes investors can see revenues on a film before its even made.

“My business model is based on two kinds of films. The 1.5-2 million 100% equity films that can be sold at a festival. Or the larger budgeted ones using the above mentioned formula where only 20%-30% equity is on the line. But do that with 5 or 10 or even 20 films and you will see a nice hedge in revenues”

Rutman is also becoming too familiar with "fishermen" who are more interested in his proprietary business model than in actually investing.

"There are so many individuals and funds out there , but I think their hearts and objectives are in the wrong place. I want to make sure I partner up with someone where we are both of the same consciousness to succeed on a win-win basis. This is my life's passion and I am not looking to do a fly-by night venture with someone who isn't on the same frequency as me. The best partner is either a solid and ethical private equity placement agent or a high net worth investor who recently sold his company for 50 or 100 million dollars, is sitting on an island without any clue what do with the next phase of their life, and has always secretly wanted to be in the movie business with someone who is ethical and whose main objectives is to focus on investor's return and long term company growth as the prime objective. Plus, I have an innovative exit scenario and long term growth strategy that is superior to any competing entity. The bottom line is its a privilege to be in the film business, not an absolute. I just happen to have an innovative business model."