angel investing: top 5 reasons why indie films are like startups

When I tell people that I’ve been an angel investor for five years, they naturally assume I mean investing in tech startups. I do live in Silicon Valley after all, and it is true that since 2007, I have invested in a number of successful (and some not-very-successful) startups. 

But that same year, I also did my very first investment in an independent film, and I’ve learned a lot about that industry in the past five years. I think it’s a good time to reflect back.

Incredibly, the number one question I get asked by people who have no problem with the idea of investing in the latest unproven iPhone app or social gaming company is:  Aren’t independent films really, really risky??

You bet they are. But then again, so are tech startups.  

It’s rumored that 90% of startups and 90% of indie films don’t make any money for their investors.   I don’t know for certain, but my guess is that the failure rate of startups may actually be higher than independent films. 

The main difference is that when a startup fails (and they do, often, trust me – in the press we usually only hear about the successful ones), as an investor you usually end up with nothing less than the clichéd worthless stock certificates that you can use as wallpaper in your bathroom!

At least with a film, even if it’s not a financial success, you have a finished product that you can watch and recommend and enjoy.  And when a film is both an artistic and financial success, it can be rewarding in ways that most tech startups never approach.

In fact, I got involved in film investing for the same reason that I got involved in startup investing – as a way to help entrepreneurs who had an idea that they wanted to bring to the world.  Since then I’ve invested in and become an executive producer of quite a few indie films (see my imdb page for some of them) – starting with smaller budget films like Turqouise Rose and Raspberry Magic, and more recently higher visibility projects like the visually stunning and insightful documentary Thrive: What on Earth Will It Take? and the upcoming horror/fantasy flick Knights of Badassdom.

Unlike startups though, there isn’t really a good eco-system for angel investing in films, and young film-makers usually struggle to get their first film made. Similarly most angel investors are at a loss when navigating the treacherous waters of Hollywood.

That’s how I got involved in my first film, shot on the Navajo reservation in the Four Corners region of Arizona.  Travis Hamilton, a young film-maker fresh out of film school, had a vision for a film about a Navajo girl.  Not only did he not have a track record, but he was in a very un-commercial genre, and most seasoned investors weren’t going to give money to him, (you can read a little bit about this investment in an article in the wall street journal blog which mentioned my first investment, and a group called Film Angels that I’m a part of in Silicon Valley,  here ).

But like startups, when they go right, indie films can be quite lucrative (think My Big Fat Greek Wedding).   So in support of independent film-makers everywhere, and to encourage my fellow Silicon Valley angel investors (of which there are lots) to support film entrepreneurs (of which there are also lots), here are my top 5 reasons why investing in independent films is like investing in tech startups:

1.  It all begins with an entrepreneur and an idea, usually one that nobody will fund because “it’s too risky”.  OK, so not exactly.  In film it usually starts with a script or a book.  In many smaller budget indie films, the scriptwriter is often the director and main producer, meaning that they’re basically a one-man show.  Usually filmmakers who think of themselves as entrepreneurs and not “creative types” are more likely to get their project off the ground.
   
   
2.      You have to pitch to “the big boys”, but usually it’s usually small money that gets a project off the ground. Just like entrepreneurs here in Silicon Valley, who pitch too early and too often to “the big boys”, the venture capital firms on Sand Hill Road, so filmmakers end up pitching to studios.  Like studios, VC firms will turn down most of the pitches they hear and invest in only a few per year.  Like entrepreneurs, filmmakers who have been turned down have to find angels to invest in their projects.  Many big budget films start off as options on literary properties.   A few years ago I met one of the guys who bought the movie rights to Batman in 1980, and it took almost a whole decade before it became a big budget production.   Of course, like entrepreneurs who take too much VC money and lose control of their company, this can happen if you go the standard Hollywood route.   In this case, the original Batman rights holders lost control of the project creatively and financially.   The alternative to studio money is to go the independent route, where filmmakers can keep more creative control and influence their productions.
   
   
3.      Later stage investments are less risky than earlier stage investments.  While most of us in Silicon Valley know about startup investments – seed round, series A, series B, late stage, etc., I didn’t really understand that the same is true for film.  The stages are a bit different – usually the development stage can begin even before the script has been written, then there’s pre-production, production, post-production, and then distribution – which involves p&a funds (print and advertising) for a theatrical release.  It turns out that just like investing in a late stage company is usually less risky than investing in two guys and a business plan, so the later stage investments tend to be less risk - i.e. think DST’s investment in Facebook after it was already successful.  In fact, there are entire funds dedicated to providing finishing funds for a film and p&a monies to films.
4.      It’s all about distribution.  While a few startups succeed because they have a great product, most succeed because of their distribution channels – getting a good product to the target market.  The same is true of indie films – the films which are successful financially are usually the ones who understand the distribution side of the business and have a core audience that they are able to reach.  Not all films gets theatrical distribution – this is a fact of the film industry, but film-makers who understand this are the ones who are prepared for it.  Most profits from most films actually come from DVD releases, not the box office numbers that the press focuses on.  Of course the more anticipated a film is, the easier it is to get the right distribution channels in place.
   
   
5.      Stars are helpful, but not necessary. In the startup world, VC’s love to invest in entrepreneurs who’ve “been there and done that”.  In films, it’s even more pronounced – even a smaller budget indie film can benefit from having a star  - think Bill Murray in Lost in Translation.  But television stars can be a great boon to an indie film too - in my upcoming film Knights of Badassdom, we are lucky enough to have Peter Dinklage, who won an emmy for Game of Thrones, along with Summer Glau, who made fan-boy fame in the Firefly and The Terminator: The Sarah Conner Chronicles and Ryan Kwanten, of True Blood fame.
   The most innovative filmmakers are able to get B or C-list stars to make brief appearances in their films, and that’s enough to get the film going.  But it’s also possible to have a breakout hit with no well known stars – think of Bend It Like Beckham, which launched the careers of Keira Kneightly and Parminder Nagra.   The same is true of startups – while it would be nice to invest in Mark Zuckerburg’s new company (if he ever leaves Facebook), it’s probably more profitable (and likely) to invest in the next Mark Zuckerburg who’s starting the next big thing.
   

Well that’s a very quick overview on what is a pretty complex topic. Of course there are also many reasons why film investing is DIFFERENT like startup investing, and maybe I’ll list those in another post.

In the meantime, if you are thinking about investing in a startup to support a tech entrepreneur, why not think about also investing in an indie film to support a film entrepreneur?

Filming, Blogging, Novel-ing, and Ranjan has Died

Many of you have written me about not keeping my blog up to date since graduation from Stanford Business School back in June.

Thanks for your gentle nudges – I’m taking your advice and resuming my blog postings, starting with a very long one about what I’ve been up to since business school, and some very sad news I received today about an old friend and one of the biggest movers and shakers in the Indian software industry, Ranjan Das.

But first, what have I been up to?Read More Here...

Turquoise Makes the Wall Street Journal

As many of you know, I have a pretty strong interest in films and film-making (the two don’t always go together).

A few years ago I was an investor and Executive Producer of my first feature film, called Turquoise Rose, shot on the Navajo reservation in Arizona. For me, as usual, I stumbled into this role by helping an aspiring young, determined and talented film-maker, Travis Hamilton, create his first feature film.

Turquoise, shot on an ultra low budget (even by startup or indie movie standards) never made it onto the national circuit, so you probably didn’t see it. But, through the determination of the film-makers it was shown in limited theatrical release across the southwest.

It was a resounding success with its intended audience, Native Americans. It may have been the first feature film whose world premiere was on the Navajo reservation. Sometimes whole families would go to see it, multiple times. Of course, Hollywood rarely sees the merits of a little film like this, so we had to distribute it ourselves.

I also inadvertently found myself as one of very few investors in independent film who made a profit on my very first film investment. I know, Films are Risky Shmisky. So are startups.

So I’m now a member of a group of angel investors, called Film Angels, which invests in independent feature films and is located in the Bay Area. The idea is to use a Silicon Valley style of investing and bootstrapping to put out quality films at low budgets.

The Wall Street Journal wrote about Film Angels recently, and it turns out that Turquoise and my own investments were mentioned very prominently. Here’s a link:
http://blogs.wsj.com/venturecapital/2009/10/12/angel-group-likes-lights-camera-and-action-of-indie-films/

The full version of the article (on WSJ.com) which has to be accessed through Google News also mentions two upcoming films I’m involved with: Raspberry Magic, a small low-budget film about an Indian-American family (www.raspberrymagic.com) [look for it in 2010] and a big budget film series based on the Gap Series, a best-selling science fiction series from author Stephen Donaldson [look for it – well, I’m not really sure when yet].

Sid Searches for Enlightenment

One reason I haven’t blogged much this summer is that most of my writing energy has been directed to finishing a novel I’ve been working on - tentatively titled: “The Enlightenment of Sid: A Modern Quest For the Cure to Sickness, Old Age, and Death”.

It’s nominally about Spiritual Seeking, Buddhism, and Sufism, the mystical branch of Islam.

It follows the adventures of the main character, whose full name is Mohammad Siddhartha O’Leary (and who likes to be called, in fact insists on being called, simply Sid), whose parents were Pakistani and Irish, and who met at a Buddhist meditation seminar. Sid is going through a bit of a mid-life crisis, and finds himself compelled to go on a Quest.

The novel is inspired a bit by the famous novel Siddhartha, by Herman Hesse, about spiritual seeking, and a bit by the novel “The Lost Horizon” by James Hilton, which is about finding a Shangri La and was inspired by the Hunza region of Kashmir in Pakistan.

Sid takes place in the modern world and asks the question, is there really a literal answer to the questions that Buddha went to seek – i.e. is there a literal answer to the problems of Sickness, Old Age, and Death? If so, how would we find it today?

It also poses an important question: Do we need to turn to teachers to find our spiritual path – or is it something we can find on our own?

In the novel, Sid, while learning about the life of the Buddha and the Prophet Mohammad during his own search for enlightenment ends up in the mountains of Kashmir with a surprising dilemma.

There aren’t many books that are about both Buddhism and Islam – for good reason: at a simple glance the religions seem very far apart. But if you look closer, particularly in Pakistan, where tombs of Sufi saints are commonplace, you start to see similarities in mystical/experiential traditions.

Sufism, though not an organized sect of Islam, refers to many sects of Islamists which emphasize personal experience over simple ritual. Sufi sects were led by iconoclasts like Jalaladin Rumi (who is well known in the west for his poetry), Ibn El Arabi (who is not so well known in the west), and Lal Shabhaz Qalander (who is virtually unknown outside of Pakistan), among others.

Anyways, that’s what the novel is about. I felt compelled to start writing it last year when I took a walking tour in Ireland (what a beautiful country) and when I visited Pakistan during December of last year, the novel took an important turn. [Yes, both countries play a big role in the novel].

Now that it’s “done”, when should you expect to be able to read it?

Well, if there’s one industry that recognizes small, quality projects even less than the traditional film industry, and is even slower, it would be the traditional publishing industry...so keep your fingers crossed - i'm sure it'll happen within this lifetime.

Ranjan Is Dead … Long Live Ranjan!

Speaking of religion and Death, I received some news that struck me very hard today. I guess Facebook is good for something other than making money for app developers, since several of my old college friends sent me messages on Facebook.

One of my closest friends from my years at MIT, Ranjan Das, passed away suddenly today in Mumbai, India. I won’t say much about his career in my blog, though he had a very successful one, as outline by this article: http://business.rediff.com/report/2009/oct/22/tech-sap-india-president-das-passes-away.htm

I don’t know the exact situation, other than it had to do with a heart attack. In fact, I haven’t seen Ranjan in quite a few years, and didn't even know that he'd moved back to India.

Nevertheless, I still found the news devastating.

Why?

Not only because Ranjan was such a talented, smart, witty guy ( think about this: in 1992, only two students from the entire country of India, which had a population of some 800 million at the time, were admitted to MIT, and Ranjan was one of them).

Not only because he was a great friend during my college years. During those years, Ranjan was the informal anchor for a rag-tag social group of misfits that included, at different times during our four years at MIT, a Sri Lankan, a White Guy from Jersey, One or more Bangladeshis, Indians, Pakistanis, a Nigerian, a German, a Nepali, and even one ABCD (that would be me as the resident American Born Confused Desi of the group, even though technically I wasn’t born in America and never considered myself confused!).

And it hit me hard not only because I felt guilty that I hadn’t seen my old friend in years. When I moved to the Bay Are a few years ago, I had always planned to get in touch with Ranjan and spend some social time together – rather than only talking about work and software and startups. There were still so many things to discuss and laugh about.

How many other close friends from those years haven’t I seen in ages? How easy it is as we get caught up in our own lives, our careers, that we don’t make time for those who have added something to our lives.

Not only because he was in the same age and to use a cliché (something Ranjan, a creative writer in those days, would never want me to do), it makes us face our own mortality. All of us, my old classmates and I, are approaching that mid-life age of forty. Hearing about Ranjan has really made me pause and think about things.

If death can strike like a lightening bolt so quickly, so unexpectedly, then shouldn’t we make sure we’re spending our lives doing the things we really enjoy, the things we would regret doing if it were to happen to us?

Mainly, though, I was devastated because, though I hadn’t seen him in years, I can still see him so clearly in my mind’s eye that it doesn't seem real. Even though he was nearly forty when he died, I can still still see him so clearly as he was 20 years ago, when we were twenty.

Whether we were having late night conversations about Xeno’s paradox (umm, it’s a physics thing), working on problem sets late at night for differential equations (Ranjan made up his nickname for me when he discovered that while I was pretty good at taking tests, I was never very good at completing problem sets on time. “Hey scholar!” he called me for the rest of our years at MIT, “you can copy my answers for the problem set,” while we called 783-BIRD or Domino’s to order late night food), or taking the bus to Wellesley to try to meet some girls (umm, don’t think we ever really did meet many girls from Wellesley though) or when we were carrying our little brown suitcases filled with home-made computers for our Computer Engineering Class at MIT (6.004) to computer lab in the middle of a snow-filled night in Boston.

The suitcases housed makeshift computers that we built up during the semester – they were called “Maybe” machines. To this day, I can still hear Ranjan singing his rendition of some old song, as we trudged through the snow, hoping our “Maybe” computers would work when we got the lab, “Come on Baby…. Don’t say Maybe…”

At that time, I didn’t realize that Ranjan was a trailblazer who was inspiring me in way inspiring me in many ways.

Amidst a sea of engineers, he was the rare creative, wrote short stories in both his native tongue and in English. When I visited him in the Bay Area a few years after college, he told me about a writing group he was in. A few years later, when I was writing more seriously, Ranjan inspired me to start my own writing group.

Among a wave of scientists who didn’t believe much in religion, he investigated them using logic and clarity of mind, and even got me interested in Buddhism well before I did any exploration of it on my own and (even though he wasn’t a Buddhist).

In a time when I was appreciating only Hollywood blockbusters, Ranjan taught me to appreciate off-beat indie films and quality filmmakers (Barton Fink and Fellini, anyone?).

Of course most of these memories are from long ago and they go on and on. This makes me realize the biggest shame of all, is that though I knew Ranjan quite well as a young man, I didn’t know him in his thirties, a successful business executive.

Even so, I can see him more clearly than ever, in whatever dimension of reality he’s moved on to, amused that all of his old friends have suddenly come out of the woodwork to appreciate him on the news of his death. He would be standing there, making up nicknames for all of us and for all of his recent colleagues, as he sings some rendition of some old song, changing he words to amuse himself, and to comfort his wife and family to not be sad, that he’s OK…he’s just moved on to the next thing…

Ranjan has died, but Ranjan lives on!