Business Plans for Filmmakers

Conclusion

165 Conclusion The most accurate statement to make about using a business plan to seek film financing is to say that it may be used with an appropriate active-investor investment vehicle to raise money from active investors. However, the federal courts interpreting SEC regulations have narrowed the definition of active investors to those with “knowledge and experience” in the relevant industry (in this case, the film industry).1 Thus, independent producers seeking to raise money from people outside the film industry who have little to no knowledge of the film industry and no experience working in the film industry simply do not qualify as active investors. For that reason, a business plan cannot legally be used as the sole document to provide information to such prospective investors. Business plans are not adequate to provide information to passive investors (that requires a properly drafted securities disclosure document because a security is being offered). A business plan is not needed to seek investment from one, two or three active investors from within the film industry (i.e., people with knowledge and experience in the subject industry who are still working in the industry) because they generally do not need to see a business plan—a producer’s package is enough. An independent producer would likely appear to be somewhat amateurish to offer a business plan to a prospective active investor who has knowledge of and experience in the film industry and still works in the industry. Further, people or companies in the film industry do not typically want to be investors. They are more inclined to want to own or control the project. Also, the business plan is not very useful in obtaining production-money loans for a film. Most production loans in the film industry are backed by distribution agreements and guarantees provided by credit-worthy distributors, and a business plan is not needed to approach such distributors. Again, the producer’s package is Conclusion 166 adequate. A business plan may be helpful in approaching a bank seeking a loan backed by other collateral (e.g., the independent producer’s house), but that has never really been a good idea for risky film deals, unless the filmmaker is willing to lose the house. Thus, in all fairness and in direct contravention to what many business-plan consultants have been telling independent filmmakers for years, a business plan is far less useful in the film business than most people think. An independent producer may feel that creating such a business plan is useful as a planning tool or may be willing to accept significant involvement of a few active investors. Maybe this book will come to the attention of business-plan consultants around the country, and they can bring their advice about the usefulness of business plans into compliance with the law. It clearly appears that many businessplan consultants are not aware of the limitations on active investors imposed by the law and are overselling the usefulness of the business plan to unsuspecting filmmakers who are trying to deal with prospective investors. If a consultant does not agree with the law, then he or she should seek to change such laws in a legitimate manner rather than ignoring the law and risking the finances and futures of their clients and themselves. The good news, again, is that a business plan is the appropriate informational document with which to approach one or a few active investors who have knowledge and experience in the film industry, so long as it is or can be accompanied by an appropriate active-investor investment vehicle, and the agreement between the investors and the filmmaker clearly sets out the authority of the active investor or investors to participate in the decision-making process. In addition, a properly drafted generic business plan may also be used to conduct a general solicitation seeking active investors, and if that effort fails, selected contents of the business plan may be converted into a securities disclosure document that may be used to seek passive investors for a private placement. If done properly, the conduct of the general solicitation using the business plan effectively served as an opportunity to expand the pool of prospective investors for the subsequent private placement, since it may have increased the number of prospective investors with whom the film producer now has the required preexisting relationship. Of course, some may also still promote the business plan for mere planning purposes, for aiding an inexperienced securities attorney in drafting...