An article over the weekend from WSJ talks about investing in independent films. Interesting to look at this through the prism of someone with decent wealth who is looking for some high risk investments to diversify their portfolio. Here’s how they paint the ideal investor:
Ms. Andrews keeps the investment in its own “sandbox,” outside of Dr. Mattar’s portfolio. “The odds of making money on his brother’s independent film are better than the lottery, but worse than blackjack,” she says. “His financial security cannot rest on investments like this.”
Such investments are best suited for people who already have put aside between $3 million and $5 million to retire and have between $5 million and $10 million in net worth, says Christopher Jones, a fee-only financial adviser in Las Vegas.
The few examples they cite are the outliers of indie films that had small budgets with huge returns, like Paranormal Activity or Supersize Me. Their definition of indie feels more like Hollywood Indie vs true indie. Crowd-funding doesn’t even get a mention, though as of now there’s no platform that’s setup to offer percentages to investors.
As my friend likes to say, it’s basically for people that have Fuck You Money. It’s more interactive than the art you can put on your wall!
Putting your money in a film can pay out in other ways, says Mr. Schwarzman. Unlike art, which arrives already completed, film production is a collaborative, dynamic process investors can witness up close.
It also offers other perks, such as set visits, dinners with actors and directors, tickets to film festivals and on-screen credit.
People in groups tend to sit back and let others do the work; they instinctively mimic others’ opinions and lose sight of their own; and, often succumb to peer pressure. The Emory University neuroscientist Gregory Berns found that when we take a stance different from the group’s, we activate the amygdala, a small organ in the brain associated with the fear of rejection. Professor Berns calls this “the pain of independence.
Really interesting article on Co.Design that basically says the IDEO / BBDO way of unfiltered group brainstorming is ineffective. The three points: we’re more creative working alone, criticism improves the brainstorming process, and creativity is about happenstance, not planning.
I wholeheartedly agree with points 1 and 3, but have reservations about 2, criticism. The argument is that ideas usually come from the need to find a solution to a problem. Criticizing refines and redefines those problems, which gives the mind more to work with.
I’d agree with that, as long as there’s a constant flow of news ideas running. Some criticism isn’t bad. What is bad is when one person shuts down everyone else’s idea because they’re trying to cram their own idea down everyone’s throat. Or worse, they don’t have any of their own ideas.
This post is a dissection of my Kickstarter project for my documentary Bots High to both figure out a) how much I needed to raise to successfully finish filming my project and b) have enough money to fulfill all the rewards.
Before posting, I did a lot of research into successfully funded projects. This post will get a bit mathematically nerdy, but hang in there because I think it’s quiet useful. (Check out my last post, Behavior Patterns of Kickstarter Funders, because the data in that post is what I use to figure out the cost)
I’m not a mathematician. The purpose of this post is to give you something to think about and make sure you’re aware of everything that goes into successfully pulling off a Kickstarter project. If you see more accurate or easier ways to figure out the total, please let me know.
Here’s the breakdown of the steps needed to figure out the true cost of your Kickstarter project:
Focus of Project
Cost to Complete Project
Create Backer Levels
Project Number of Backers
Cost of Fulfillment
True Project Budget
Focus of Project
The first big question is do I go for all the money I actually need (to film, edit, and send to festivals) or focus the project on one specific event, and take it one step at a time, with future projects for different stages of the production if need be. I decided to go the latter route, and focus the Kickstarter project on getting the money needed to film the final championship of my film and wrap up all production.
Cost to Complete Project
This is pretty straightforward budgeting – what’s the bare minimum you need to complete the project you’re proposing? Be honest, and think of everything. I budgeted that to rent additional cameras, hire and feed a crew, get rental insurance, and travel to San Francisco to film the second championship and do interviews would be around $7000.
Total cost to complete filming Bots High: $7000
Kickstarter takes 5% of whatever you raise to cover their costs. Fair enough, we all need to stay in business. Now you might think, “Oh, I’ll just take that out of what I raise, I don’t want to pass that cost onto the funders.”
Well, if you were 100% honest and your project budget is the bare minimum you need to complete it, then where is that couple of hundred dollars supposed to come from?
Also, Amazon takes its own fee per transaction. This isn’t as simple as a flat 5% (it’s a combination of a flat fee and variable percentage which hovers around 2.9%). For the sake of simplification, I used 3.2%. If you have a more accurate estimate, please let me know (As Andrew did below).
Kickstarter Fee: 5% of $7000 = $350
Amazon Fees: 3.2% of $7000 = $224
New Project Budget = $7574
Create Backer Levels
Create a variety of backer levels with different rewards. I’ll post a brainstorm I did of possible things to offer next week. In the Behavior Patterns post, the numbers used in the graph are the most popular levels, so if you want to stick with what people have come to expect, use a variety of those levels. Make sure you have something on the very low end ($1-$5) and on the high end ($2500 – $5000). Yes, most projects don’t get any high end backers, but some do, so it’s worth having it.
Project Number of Backers for Each Level
Ok, now it’s math time. In order to do the next step, which is to figure out approximately how many DVDs and t-shirts and posters you’ll need to fulfill your backer levels, you need to have a rough idea of how many backers to expect for each level. Using the pie chart in the Behavior Patterns post, you can guesstimate how many backers you’ll get/need for each level.
So right now the budget is $7500, and from the pie chart I can predict 15% of the backers will give $50. Here’s the formula:
(Total Budget $ / Reward Level $ * Percentage in Decimal Form = # of Backers Needed)
($7500 / $50 * .15 = 22 Backers)
So I’ll hopefully have 22 backers at the $50 level, and need to plan to supply 22 people with everything I offered at that level.
Repeat with each level
(Note: The math works up until the very high levels, around $1000 and higher. One large donation will pleasantly throw this all out of whack.)
Cost of Fulfillment
Whether or not this is an extra expense for your Kickstarter project (or if you could call it an expense at all) is debatable and varies from project to project. I’ll explain in a second.
But first, you need to figure out how much it’ll cost to fulfill all the rewards you’ve now promised your backers. That means DVD, t-shirts, posters, stickers, props, dinners, etc.
Not only do you need to know how much each item will cost to make, but how much it’ll be for packaging and shipping. Yeah, lots of details.
Now I say debatable if it’s all an expense related to the Kickstarter project because a lot of these items are things you’d need to buy anyways for marketing and distribution (t-shirts, posters, DVDs for screeners and festivals). And of course the more you buy quantity wise, the lower the individual cost of each item is. And depending on what stage you Kickstarter project focuses on, this might be stuff you already have. Either way you should just be fully aware of everything that you’ll need to satisfy your backers, and not just your project’s needs.
So for each level you need to figure out how much of the actual funding you’ll be getting, minus expenses.
For my $25 level, which is a DVD and updates and input on the film, it’ll cost me about $6 to fulfill the DVD, so I’m getting $19 towards the project.
Assuming I don’t get any large donations, I know I’ll need 150 people to buy a DVD (which would bring in $3750), but it’ll cost $900 to fulfill.
So you need to figure out all the fulfillment expenses for each level, add them up, and budget them in the project total. If you already have some of these rewards already made, then budget the packaging and shipping costs.
Total Cost of Fulfillment: $1538
True Project Budget
Kickstarter Goal: $9000
That’s what I put on my project. Higher than I initially thought when I first had the idea to do a Kickstarter project, but I think it would be worse if I set a lower project goal, got all the money, and then realize I need another $1500 to print and ship all the rewards I promised.
Update: These numbers are slightly more variable than presented, because the fees are coming off the total budget and I figured them out earlier. Read Andrew’s comment below for a better formula and keep in mind a little contingency padding might be in order.
I hope you found this useful, or at least it gave you something to think about. If you did, then why not support that project that prompted this study?
This is a precursor to a post I’m writing on how to figure out the true cost of a Kickstarter Project (using my recently posted project as an experiment).
I was curious to see what funding levels got the most response, so I’d know which area to put the most attention on and make it attractive to funders.
So I looked at about 30 successfully funded film projects on Kickstarter and noted how many backers they got for each level they offered ((This isn’t 100% accurate because if you multiply the number of backers for each level and add them up, lots of times the numbers wouldn’t work. I’m assuming this is because people donated a different amount, maybe a little more than a certain level, so they would still qualify for those rewards but not show up as a backer for that level. Or they donated and chose not to receive a reward.)).
This is the data graphed out. It’s kind of what I expected, but I think there’s a few little surprises.
Clearly $25 is the most popular level. This is usually the “Get a DVD” level. But it’s nice to see that the graph curves, and it doesn’t just start high and go straight down.
However, after $25 it doesn’t just go down. More people give $100 than they do $50.
While most of the projects with a high level didn’t get any backers, as you can see it never goes to zero (Long Tail at work), even at $10,000.
The numbers displayed above are the most commonly used amounts for levels.
This is by no means all encompassing, but I think it’s a pretty clearly defined pattern that you’ll find in most Kickstarter film projects.
Here’s the same data shown as a pie chart:
You can use this data to figure out how many backers you’ll need at each level to fund your project.
If your budget is $7500, and 13% of your backers will give you $50, then you’ll need 22 backers to give $50. Of course if you get 1 large donor, then that shifts everything. (Budget $ / Reward Level $ * Percentage in Decimal Form = # of Backers Needed)
Clarification: A lot of this ties into the next post on true costs, because an estimated number of backers you’ll get for each level is handy to know to plan for how many rewards you’ll need to supply.
Stay tuned on how this comes in handy for figuring out the true cost of a Kickstarter project.
Imagine this – you stop by a big studio, maybe to try to get a few minutes with an exec to pitch your next idea. As you get back on the elevator to leave (with the no scheduled meeting), the door opens to reveal the Head of the Studio already riding down. “Great Zeus, this is it, this is where my career starts.”
So you get on, and before the doors can even close you go into your well rehearsed 30-second elevator pitch.
The Studio Head grins and nods to be polite, tells you to talk to his secretary (whom you just did), and leaves. No six figure deal, no let’s have lunch. Why? Because you were the same as every other schmuck that pitches to him 20 times a day.
We’re required to have an elevator pitch at Director’s Prep. We’re also supposed to have a 5-minute pitch, which I think is absolutely ridiculous. 5 minutes for a 7 minute film? You can see the teachers glaze over as they sit through it.
The elevator pitch is a little more reasonable, but I’m glad to finally see someone take a stand against it, namely Stephanie Palmer, a former Studio Exec and author of Good in a Room. Here’s an excerpt from an interview with her on tompeters.com:
Tom Peters has espoused the elevator pitch as one of the supporting columns of Wow Projects. The goal of the elevator pitch being, if you get into an elevator on the first floor with your boss and you’re trying to sell an idea, you want to sell it by the time you get to the 35th floor. You say the elevator pitch is a myth. Why is that?
SP: I think the term “elevator pitch” incorrectly implies that it’s appropriate to pitch in an elevator. Communicating quickly and concisely is important, but you should never pitch when you don’t have time to continue the conversation. A moment’s access with someone who doesn’t know you is not an opportunity. Your first interaction with someone sets the stage for the relationship to come. You shouldn’t start pitching your idea to someone before they know who you are enough to care about what you’re saying in the first place.
High-level buyers are pitched all the time. They know when they are hearing something that’s been repeated to dozens of other people. If you haven’t taken the time to build rapport and customize your pitch to that person’s specific needs, it’s a sign that you’re an amateur. Every buyer is unique, and your pitch should reflect that.
Use your first interaction to get to know the person. Find out who they are, what they like. The goal is to get to know them as a person, and find similarities between their likes and your project.
Customize the pitch. If they like cars, heighten the race car subplot of your film. People buy what they like, so customize it and adapt it for their likes. You’ll also come off as more natural and less of an automaton.
Thursday we had to read off outlines based on our pitches. The outlines are a bulleted list of important plot points you need your script to have. Most were within scope, at least time wise. It seems there will be a lot of guns and violence in the screenings next spring. But others still seemed to miss the mark.
One outline had a one page back story describing the world the movie takes place in. A little much for an outline of a seven minute film. Others are just trying to cram too much in a little space, and the film will probably suffer if they go through with their outline. This is why outlining is important, so you can identify problems before you have too much time invested in something that can’t go anywhere. You just have to be able to look at your story objectively and ask the tough questions.
Coming up Tuesday – treatments and character bios due.