By Colin Brown | Indiewire April 15, 2013 at 12:56PM
It should also be noted that getting angel investors is, in fact, Slated's bread-and-butter, so they have more than just a horse in this race. Let us know what you think about Brown's call for a "standardized, simplified, friction-free and open-book method for seeking out and seeding great new stories."
The film world may not be fully acquainted yet with angel investors but the theatre world certainly is. Broadway, after all, is where that “angel” concept originated as far back as the early 1900s. Today, nearly a century since those proto-crowdfunders first started shaking the money tree, the angels’ halo effect has grown to extend way beyond The Great White Way. The very future of American business now depends on those small dollar increments from private backers.
The evidence comes in the 50,000 companies in the U.S. that were started by seed capital last year, compared to just 600 financed through venture capital firms. This shifting dynamic is significant enough for a ForbesMagazine columnist to declare recently that: “angel investing is becoming the new venture capital.”
How exactly this new seed money operates - and whether it translates well to independent film financing – has become an ardent topic of conversation particularly among those in Hollywood busy ingratiating themselves with Silicon Valley’s entrepreneurial culture further up the Californian coast.
Film has every reason to eye this new mother lode. Angel money represents one of the last frontiers of untapped smart money. A recent survey cited by that same Forbes article counts 756,000 people in the U.S. as having made an angel investment or participated in a friends-and-family round of financing. That number could swell almost tenfold, to encompass the estimated 7.2 million people in the U.S. currently accepted as “accredited investors”, once the SEC details the rules of engagement for newly signed JOBS Act that is designed to unleash a torrent of micro-finance.
In anticipation of that impending explosion, some 9,000 web domains have been registered with the word “crowdfunding” in their name, according to analysis by the North American Securities Administrators Association. There were just 900 at the beginning of 2012.
How much of this potential capital will be channeled into film may well depend on the degree to which movie industry adapts to the San Francisco Bay Area’s own behavioural patterns and expectations. While angel investing is rooted in New York’s Broadway, a creative hotbed that would seem to share many of cinema’s risk characteristics, it has become heavily tilted towards technology and software. Which also means that today’s angel investor demands far greater clarity and ease of transaction than has been the norm for film finance.
“Film investing is certainly not as simple as tech investing, but it should be, and can be achieved,” evangelizes Slated co-founder Stephan Paternot, a serial entrepreneur who invests in feature films both personally and through another company he helped create, PalmStar. He points to AngelList, the website that matches early stage startups with investors, as an inspiring reference point. “The reason AngelList has become such a success is that it offers standardization and ease of transacting, transparency, a trusted network of entrepreneurs who bring quality deal flow, and accredited investors who understand how to invest online.” Slated was designed to induce much the same transformational effect on film investing.
Certainly, there are enough shared similarities between Hollywood and Silicon Valley to warrant a concerted attempt to bridge those two peculiar worlds. Both ecosystems, to paraphrase AngelList’s co-founder Naval Ravikant, are two-sided marketplaces that are extremely reputation-, trust- and networking-based. Indeed, the way Ravikant describes how tech information is exchanged in a recent video interview with TechCrunch, could just as easily apply to the whispering corridors and eateries of Los Angeles.
“There is a gossip network that underlies Silicon Valley. At every dinner you go to or event there is some VC or entrepreneur who says ‘Hey, did you know so-and-so just left that gig and is now available?’ Or “Did you see what these guys are doing - it is really cool’. Or ‘This VC just raised a big new fund and is looking for investments in this area.’ That is really how information travels and it should: these are trust-based gossip networks so you know you can trust whatever node you are talking to. But at the same time there are some things that you want to broadcast or don’t mind broadcasting. And so with AngelList we are taking the transparent side of that and putting it online. For the rest of the gossip network, people trade deal flow, they trade hires, they trade acquisition information, they trade where you can find a customer or a good partnership. That’s the secret currency. At AngelList what we are doing is printing that currency and giving it away.”
Ravikant is the first to point out that while AngelList might be able to move the needle, it cannot take over the entire tech marketplace. For one thing, a lot of the value attached to this info-currency comes in who said it, when they said it, and to whom. But for those cut off from that daily exchange - let’s say, an Atlanta-based startup that is taking off and enjoying non-linear growth - AngelList is a much more immediate megaphone for grabbing the attention of potential investors than the time-consuming ritual of hobnobbing all the way from dinner events in Georgia to networking hangouts along Sand Hill Road. The rising presence of internationally-sourced productions on Slated, including SEOUL SEARCHING, starring Gangnam Style’s very own Psy, and SUNRISE, now weeks away from shooting in Mumbai, suggests the same is also true for indie film too.
Where the film/tech investing analogy really starts to breaks down, however, is in the mechanisms for accessing the best investment propositions – the much vaunted ‘deal flow’. When it comes to startups, angel investors are accustomed to spreading their investments across a multitude of picks at once. Knowing how hard it is to compete with Silicon Valley’s star investors for the hottest proposals, angel individuals started affiliating themselves 15 years ago into angel groups. A breed of prolific “super angels” emerged that borrowed from the VC rule-book and formed funds that invested other angels’ money into tech startups as well as their own. The tech caste system between to blur: angels assumed an ever bigger chunk of seed capital, while the VCS started investing smaller dollar amounts in promising startups.
The film world, on the other hand, has no comparable system for investing small amounts of money across a wide portfolio of independent film projects. No angel groups, no venture capital firms. The inability to create collective investment groups – of which there are at more than 300 in Silicon Valley – inhibits access to the best projects and also the ability offload the thorny tasks of vetting and due diligence. Slated goes some way to emulating the tools that tech investors use for evaluating “social proof” in any given project (see “7 Silicon Valley Secrets for Slated Success”). But this is just the beginning. The next step, surely, is to change the way that film deals are structured so that early capital has a standardized, simplified, friction-free and open-book method for seeking out and seeding great new stories. Until then, angel investing in film will remain devilishly difficult.