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Film Club | Turning the lens on investments with movie star qualities

Turning the lens on investments with movie star qualities

Fund: Various
Manager: SyndicateRoom


Tell us about the fund SyndicateRoom is a UK equity investment platform aiming to connect ambitious investors with the country’s most trailblazing companies. Started in 2013, it has rapidly grown to more than 100 high-growth businesses in its portfolio, from life science start-ups to the next blockbuster film. SyndicateRoom works with companies from all sectors, choosing opportunities to list based on their quality, not their industry, and allowing its broad investor base of sophisticated investors to decide whether or not to invest.

What films are in production?

In March 2015, Salty by director/producer Simon West successfully raised £1.8 million with the help of SyndicateRoom investors, becoming the first ever equity crowdfunded Hollywood movie. The film was subsequently rebranded Gun Shy and released in January 2018.

The Gun Shy campaign demonstrated that equity investing can work well for independent films. Since its raise, two further film rounds have closed on the platform: Itchy Fish Film, whose classic British coming-of-age comedy The Bromley Boys is due to be released in 2018; and Boudica Indigo, with upcoming feature Kat and the Band, which is also heading up the first European initiative to redress historical gender disparities on and off screen.

What film characteristics should investors look out for?

Structure: before investing in a film, you need to make sure you understand the waterfall structure determining how you will exit the business.

For example, a waterfall structure could prioritise use of revenue as follows: 1) repayment of loans with fixed percentage of interest; 2) investors reimbursed 100% of their initial investment; 3) 33% of profits to talent, 33% to production company and 33% to investors.

Such a structure would be relatively attractive as part of a proposition since investors sit very near the top and are reimbursed their investment prior to any profit share with the production company or the talent.

Completion bonds: these are a written guarantee, usually from financiers, that a motion picture will be delivered on schedule and within budget. In the event that the film goes over budget or, for some reason, threatens to remain incomplete, the guarantor will step in to deliver the product. Most will also guarantee that if the film is abandoned, the guarantor will repay fully all sums invested.

Distribution: most distributors will wait until a film is complete before they offer their services, taking on the role of sales for a percentage of profits. However, a producer with a good reputation and a strong project can sometimes ‘pre-sell’ the distribution rights before production commences, paying a small percentage towards the rights once the pre-sale is agreed, with the rest payable upon delivery.

For investors, a film with pre-sales could give off a good signal. Most films seeking to sell internationally will have to commit to a sales agent/distributor at some point in production; early support from a prestigious distributor could be a good endorsement and conducive from a cash-flow perspective.

Team: like with any investment opportunity, people are key. Look at the production company’s portfolio of films. By the time of funding, most film opportunities will have a production team and a director in place, maybe even a cast; look them up and research their work.

Tax relief: EIS and SEIS form the cornerstone of early-stage investing, and films can benefit from these incentives the same as any other early-stage opportunity. Films can also benefit from tax credits – a rebate of up to 25% on UK-qualifying expenditure. How the company uses this money will vary; most will put it into the project, others will use it to start investor remuneration.

What is the minimum investment?

The minimum investment for private opportunities listing on SyndicateRoom is £1,000.

How much has been raised?

Gun Shy raised £1.8 million with the help of SyndicateRoom’s platform investors. Since then, film production companies Itchy Fish Film and Boudica Indigo have raised £492,500 and £400,000, respectively.

SyndicateRoom has helped raise more than £114 million across its private investment opportunities to date.

What return can investors expect?

Due to the risky nature of early-stage equities, certain tax incentives are available for investors. EIS and SEIS help smaller, higher-risk unquoted companies raise finance by offering a series of tax reliefs to investors who purchase new shares in these companies, thereby helping lessen the amount of investor capital at risk.

Gun Shy and Itchy Fish Film both raised EIS rounds, while Boudica Indigo was an SEIS opportunity.

EIS investments offer the following reliefs on up to £1 million of investment made into eligible companies per year:

  • Income tax relief of 30% of your investment, used in the year of investment or carried back one year
  • Capital gains exemption on profits earned on shares held for a minimum of three years
  • Loss relief, should the company you’ve invested in fail, equivalent to your tax bracket multiplied by your ‘at-risk capital’ (the total loss on the shares once income tax relief has been accounted for)
  • Capital gains deferral on gains realised on the disposal of any asset which is reinvested in an EISeligible company
  • Inheritance tax exemption on shares held for a minimum of two years.

Here’s a breakdown of how an EIS investment might pan out.

You receive £3,000 in income tax reliefYou receive £3,000 in income tax reliefYou receive £3,000 in income tax relief

COMPANY FAILS

COMPANY BREAKS EVEN

COMPANY DOUBLES IN VALUE

You invest £10,000 You invest £10,000 You invest £10,000
The company goes bust and your shares are worth £0 If after 3+ years you sell your shares for £10,000 you will owe no capital gains tax on profit If after 3+ years you sell your shares for £20,000 you will owe no capital gains tax on profit
You receive loss relief equal to your remaining at-risk capital multiplied by your income rate.* Your total gain is £3,000

(£0 profit from the sale ples £3,000 income tax relief)

Your total gain is £13,000

(£10,000 profit from the sale plus £3,000
income tax relief)

*At a tax bracket of 45%, the loss relief would be £7,000 x 45% = £3,150. Therefore, for £10,000 invested, your real loss is £7,000 – £3,150 = £3,850

Why is the UK film industry important?

Investing in film is given short shrift in most investment circles, where conversation tends to float around select buzzwords: ‘scalable tech’, ‘the next Uber/Tinder/Deliveroo’ and, of course, ‘blockchain’. It doesn’t help that the film industry has only recently recovered from a hangover following several tax avoidance scandals going back to the noughties, frightening many investors into staying away. But perhaps now is the time for a resurgence for the industry.

In 2015 UK box office revenues exceeded £1.2 billion – its highest figures on record and up 17% on the previous year. The UK is actually responsible for 7% of the world’s productions, its filmed entertainment market ranking third largest in the world (with first and second places going to, unsurprisingly, the USA and China). Between 2010 and 2015, the number of film production companies in the UK increased by 41.9% to 6,805.

The UK’s top 10 independent films grossed $679 million globally in 2015 and had access to some of the world’s largest distributors, including StudioCanal, Sony and 20th Century Fox. Six of the top 20 UK independent films made it into the list of 2015 top 20 UK-qualifying films (a list topped by Star Wars), which accounted for 41% of the UK box office total and 22% of the global box office.

Clearly, such dominion may well herald a big opportunity for film producers and investors alike.

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