You may be familiar with the term crowdsourcing, which refers to an organization or individual reaching out to a community through social media tools for help in solving a problem collaboratively. Now, there is crowdfunding, a practice that works in a similar way to connect donors and investors with a cause or project. Thanks to the rise of online investment marketplaces, it’s never been easier for great ideas to meet capital.
Companies such as AngelList have enabled angel investors or seed capital funds worldwide to find and invest in the newest and hottest Internet startups, an asset class traditionally reserved for well-connected institutions and venture capital firms.
Equally transformative are companies such as IndieGoGo and Kickstarter that have made it easier than ever for family, friends and fans to donate to any project. Today, countless asset classes are tradable online, allowing big and small players to invest and trade seamlessly and efficiently.
A new model for film finance
One particularly large asset class on the brink of an investment model upgrade is film.
The film industry is alive and well. In 2009, according to Screen Digest, more than $22 billion was invested in film production financing for 5,360 films worldwide, with a near- record box office total of $29.4 billion. As India and China build thousands of multiplexes and add hundreds of millions of users to online video streaming, there’s no slowdown in sight for filmed content consumption and for the additional billions in production capital necessary to create and distribute it.
Unfortunately, Hollywood remains inefficient, insular and opaque, always acting as an agent between investors and the projects that need their capital and collecting its “fees” on the backs of investors. Combine this gatekeeper mentality with the closed communication silos of the agencies and studios, and the results are massive inefficiencies across all levels of the industry, especially in the movement of capital.
Crowdfunding may be the 21st century method for film investment and will become the business model for new companies such as Slated, an online funding platform that connects a global network of investors with filmmakers offering investment opportunities.
Investing in individual films
Initially, Slated will serve as a film tracking and introduction network between investors and filmmakers. Much like technology investing through AngelList, investors using Slated will be able to invest directly in individual films in the form of debt or equity, and can expect the same type of returns, ranging from 1.1 to 1.25 times for debt, and the potential of 10 times returns for the luckier equity investors who find hit films.
These types of “open” marketplaces will also provide a greater degree of financial transparency, making it easier for investors to compare deals and value their return potential appropriately. Another benefit of connecting investors to each other through a marketplace will be their ability to trade out of a position through a secondary market.
Stephan Paternot is a Founding Partner and Chairman of Slated (www.slated.com) and co-founder and Chairman of PalmStar Entertainment, a film production company specializing in literary adaptations and true stories.
(Barry E. Silbert, the CEO of the parent company of SecondMarket Ecosystem LLC, Alchemy’s publisher, is an investor in Slated Inc.)
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