Angel Group Likes Lights, Camera And Action Of Indie Films

From the Wall St. Journal, 10/12/2009

As an experienced tech entrepreneur and angel investor, Rizwan Virk was happy to see a solid return on one of his recent investments after just one year.


But the exit didn’t come from a software start-up or social media company finding a corporate acquirer. Instead, Virk’s quick payoff came from an independent film.

Virk is a member of FilmAngels, a Silicon Valley group whose members back film productions – mostly small, independent projects. Founded in 2005, Film Angels is made up mostly of tech executives and investors who apply their business and venture capital experience to the filmmaking world.

FilmAngels meets regularly, seeing about five pitches per month. Members are free to invest in whichever projects they choose. The group pre-screens the films, but does not endorse any particular films. About 12 films have been funded through the group, which invites hundreds of accredited investors to its events and has a smaller number of paid members, said Thomas Trenker, managing director at FilmAngels.

For many members of Film Angels, the about-face from their usual areas of investing is what makes the space appealing.

“A lot of investors I see FilmAngels resonate for are already successful investors and very heavily weighted in other asset classes such as technology or software,” said Saad Khan, a FilmAngels member and partner at CMEA Capital. “This is a way to diversify their whole asset class in new areas.”

Investing in technology is Virk’s specialty, having invested in Offerpal Media Inc., a large player in online gaming monetization, and Tapjoy, a mobile game developer. He also was previously chief executive of CambridgeDocs, which was acquired by EMC Document Sciences in 2007.

One film he invested in, “Turquoise Rose” - a coming-of-age story about a Navajo girl from suburban Phoenix who is forced to spend a summer on a Native American reservation - made its money back in under a year, despite the film not having big Hollywood distribution. The filmmakers and Virk self-distributed the film, focusing on the West and Southwest regions, where there are larger Native American populations and strong interest in the film’s topics.

Virk said he made 20% in profit after one year investing in the film, though he declined to say how much he invested. Many of the angels in the group invest in the “low six figures” per film, Trenker said. While such returns are not comparable to VC blockbuster deals, they have the virtue of a much quicker turnaround than the standard VC investment.

The VC model does play a role in the film financing. There are a range of ways that films are financed and structured, particularly for independent films. But many of these films don’t usually include VC-style concepts like classes of stock, valuation or liquidation preferences, Khan said, which give investors different rights based on when and how they invest.

FilmAngels investors seek to include more standardized concepts so that, for example, investors receive protections or preferences for investing at an earlier stage.

“Deals I’ve been in, you get 115% or 120% back, then profits are spread based on some ratio between producers and investors,” Virk said. “It’s similar to a 1.2x liquidation preference.”

At a recent FilmAngels event in San Francisco, director Dan Frisch screened his film, “The Rainbow Tribe,” which has yet to be released. Frisch’s case - he is seeking funding for a follow-up to “The Rainbow Tribe” - is somewhat rare for FilmAngels because, unlike most of those who pitch the group, he is not a neophyte filmmaker, having directed films such as “The League of Extraordinary Gentlemen” and films in the “Hostel” franchise.

But even though Frisch is an established filmmaker, he said he came to FilmAngels because there are surprisingly few groups in the industry where savvy investors are interested in being intimately involved in film projects. “I don’t want an arms’ length investor,” Frisch said.

Virk said a healthy rapport between filmmaker and investor is essential for the model to work. “I look for people who are entrepreneurial,” he said of the investments he considers. “They understand that this is a business and they need to make money back for investors.”