IndieVest Attracts Indie-Film Investors With Reduced-Risk Model

Investing in independent cinema is usually just for those with money to burn. IndieVest promises both Hollywood-worthy perks and a relatively safe haven.

Martin Shreibak and Nic Rad aren't the type of investors who usually meet their partners in moonlit junkyards. Yet here they are, late on a Friday night, in a grotesque menagerie of twisted automotive scrap on the southern margins of Albuquerque, New Mexico. Both men have been drawn here from their homes, which are thousands of miles away, by a shared passion: movies.

"I used to save up for the three-a-days as a kid," admits Shreibak, who owns health clubs in Indiana and still goes to the movies weekly with his 15-year-old son. "I'd sit in the theater all day, watching films like Spartacus."

"Tarantino, Scorsese, the Coen brothers," adds Rad, a 26-year-old artist, ticking off his favorites. "And any Buscemi project." Steve Buscemi, 20 yards away, pacing amid stripped-down wrecks, doesn't catch the praise. Shoulders hunched, grimacing, the actor is rehearsing his next scene.

Shreibak and Rad have made their way to this rough tract of alkaline desert to see their asset up close. They are two of about 100 investors in the first film from an upstart production company called IndieVest. Saint John of Las Vegas is a buddy comedy about a pair of insurance-fraud investigators, starring Buscemi, Romany Malco, and Sarah Silverman. Being part of IndieVest buys each investor behind-the-scenes perks, such as set visits and an invite to the Sundance Film Festival in January, where SJLV, as it's known, will be screened. More important, though, IndieVest offers its backers an array of financial guarantees and protections not found elsewhere in the Hollywood money game.

Independent film could certainly benefit from a better business model. Time Warner shuttered semi-independents Warner Independent and Picturehouse in 2008. ThinkFilm, Sidney Kimmel Entertainment, and at least half a dozen other specialty houses are struggling. According to Mark Gill, the former Miramax Films president who currently runs a production company called the Film Department, only 603 of the 5,000 indie movies made last year reached theaters. Gill estimates that just 50 of those — 8.3% — made a profit. "Most of these pictures are preordained flops from independent distributors who forgot that their odds would have been better if they'd converted their money into quarters and taken the all-night party bus to Vegas," Gill declared last summer at the L.A. Film Festival's film-financing conference.

"Rain test! Let's make it rain!"

An engine rumbles and a pair of hoses jumps and snaps as pressurized water rips up the lines, unleashing twin geysers into the air over the scrap yard. Wade Bradley, IndieVest's founder, steps back to keep a safe distance from the deluge. The former venture capitalist is convinced that he can prevent independent-film investors from taking the kind of bath Gill describes. "The independent model is ad hoc at best," says Bradley, 47. "No wonder investors look at films as a throw-away investment. I wondered: What if we could mitigate the risk?"

A lifelong movie buff who cites Peter Weir's The Plumber as his all-time favorite, Bradley spent years thinking about the idea of IndieVest before launching in 2007. His eureka moment: Start with a subscriber model, where investors pay an annual fee for access to film deals. "A Hollywood insider could never have done this," says Mike Marcus, a former MGM president. "The concept is good, but it's complex and takes a lot of energy."

IndieVest's plan has three tiers, beginning with a $20 "guest membership" that lets potential investors review only the current project. The premier portfolio membership — $2,950 up front and $1,950 annually — lets investors consider the company's future films, and includes invites to special film screenings. The all-access studio plan — $4,950 up front and $2,950 annually — adds opportunities to attend exclusive film festivals and the Independent Spirit Awards.

Members can enjoy these goodies even without investing in individual films, although most choose to buy shares (starting at $50,000) in at least one of the dozen projects Bradley and his production chief Mark Burton have lined up. To help investors decide whether to help fund a movie, they get a "prospectus": It contains a plot synopsis; info on the writer, director, and any attached actors; and an eight-page script sample.

The key difference in IndieVest's model is its managed-risk approach, which resembles a mutual fund's. "Many of our clients have always been interested in entertainment investments but didn't like the lack of clarity," Bradley says. "We've won them over by offering transparency in accounting and reporting."

From the moment investors sign on to a film, their cash is placed into an escrow account. If a film is never made, 100% of the money is returned. The Financial Industry Regulatory Authority provides oversight, ensuring that IndieVest's financial statements are properly audited and commissions don't exceed 10% of members' money. IndieVest's plan is to give investors 115% of their money back and then 50% of any project's remaining net profits: Almost 40% will be allotted for the actors and filmmakers in order to attract top talent.

IndieVest guarantees that its flicks will be shown in theaters by earmarking enough money in the budget to pay for it. "Traditionally, distribution is someone else's problem," Burton says. "Not with us. As much as two-thirds of each project's budget is devoted to marketing and distribution." This is in contrast to many production companies, which will spend the entire budget prettying up the film for sale and forcing the buyer to take on distribution costs. IndieVest also hired distribution execs Larry Gleason, a veteran of Paramount, MGM, and United Artists, and Andy Gruenberg, a Miramax alum, to leverage their relationships. "These films have guarantees," says Bill Riley, CEO of Riley Hutto Wealth Management, a private-equity firm in Fort Worth, Texas. "It makes investors feel a lot more comfortable."

In SJLV's case, the company has set aside $5.2 million for distributing and marketing the film, currently scheduled for a March or April 2009 release. The company plans to spend at least $1.2 million on the U.S. release, beginning with four to six theaters in New York and Los Angeles, and ramping up to 30 screens across the top 10 markets. If SJLV isn't getting traction by the end of the third week, IndieVest will rein in its promotion, returning the remaining $4 million to investors. Box-office grosses would pay for international distribution and marketing the DVD. Bradley claims IndieVest will never spend 100% of the budget "unless the film is growing significantly in theaters and providing strong return on investment."

Bradley is counting on the marketing campaign to spark more deals. "A seven-figure launch opens up all the ancillary markets," he says. "Blockbuster, Wal-Mart, foreign markets — they want films that got a real release." Even if the film flops then, its backers are unlikely to walk away empty-handed. By pooling unused marketing dollars with revenues from ancillary markets and several hundred thousand dollars in state tax rebates, Bradley says he expects to be able to return at least 70% of investors' money. "And that's a conservative estimate."

The souring economy has actually sparked increased interest in IndieVest from investors seeking to diversify. (As one Variety headline characterized the downturn, "Hollywood gets bump from slump.") Bradley reports that calls from curious advisers and independent investors are up fivefold in recent months. "People understand that entertainment is going to outcapitalize the rest of the market during a recession," he says. "They're looking at us as a safe haven."

Bradley doesn't speak for all his investors of course. Shreibak and Rad acknowledge that investing in indie cinema would be more difficult today than it was months ago — though neither has any regrets. "The opportunity to go to private screenings; talk to producers, actors, and directors; see your name on screen — that's priceless," Shreibak says. "But, right — hopefully we'll be getting checks all the way to the DVDs."

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