Film Investment
As you may have expected, we have to run through the legal aspects and risks so we will begin with the general solicitation notice and SEC Regulation D.
Important Notice
Leidarstjarna Entertainment is using this website for general solicitation in connection with a planned offering of securities under Rule 506(c) of Regulation D under the Securities Act of 1933. Information about our film projects, including budgets and financing targets, is provided to describe that planned offering. Terms will be set out only in formal offering documents, which will be provided to prospective investors who complete our verification process. No investment will be accepted until those documents have been delivered and the investor's accredited status has been verified as required by Rule 506(c).
Securities will be offered and sold only to accredited investors as defined in Rule 501(a). They will not be registered with the SEC or any state securities regulator, and will be subject to restrictions on transfer and resale. Neither the SEC nor any state regulator has approved or disapproved of any securities or passed on the accuracy of this website.
Nothing on this website is legal, tax, or investment advice. Prospective investors should consult their own advisors. Leidarstjarna Entertainment is not a registered broker-dealer or investment adviser.
Leidarstjarna Entertainment is using this website for general solicitation in connection with a planned offering of securities under Rule 506(c) of Regulation D under the Securities Act of 1933. Information about our film projects, including budgets and financing targets, is provided to describe that planned offering. Terms will be set out only in formal offering documents, which will be provided to prospective investors who complete our verification process. No investment will be accepted until those documents have been delivered and the investor's accredited status has been verified as required by Rule 506(c).
Securities will be offered and sold only to accredited investors as defined in Rule 501(a). They will not be registered with the SEC or any state securities regulator, and will be subject to restrictions on transfer and resale. Neither the SEC nor any state regulator has approved or disapproved of any securities or passed on the accuracy of this website.
Nothing on this website is legal, tax, or investment advice. Prospective investors should consult their own advisors. Leidarstjarna Entertainment is not a registered broker-dealer or investment adviser.
The fact is that equity investment in any private company, not just films, will probably fall under SEC securities laws as the selling of unregistered securities and therefore require an understanding of whom will meet investor requirements and how to assess the qualified status of interested investors. You might find it interesting that a film project would be compared to a company, but this is also another aspect of film investing that individuals may be unaware. Often investors generally won't invest in a studio or a production company. Investors invest in the project itself, the performance of the film. When structured this way the film and intellectual property rights are 'packaged' into an organizational entity like an LLC (Limited Liability Company) that is specifically set up to produce the film, sell it, and then receive any revenues. It is akin to any other company that is set up to generate a revenue from a product only, in the case of film projects, it is often just the one film. It is for this reason these LLC's are referred to as SPV's (Special Purpose Vehicles) in the world of finance, an entity set up for a specific purpose and which will then will be dissolved at the end of its purpose.
You might wonder why you would invest in an SPV in this method. One reason, that is often overlooked, is that each film is essentially a unique business value proposition. Each film is like its own company with its own product line and market base. If you have ever run a company then you will understand that marketing can spend a considerable amount of time trying to understand your target customer base by socioeconomic traits relative to a given product line. If you consider a film, it is a product for which the exact same analysis is conducted.
Another reason is the flexibility in structuring the investment for the investors and the coincidental tracking of the investment on the books, your accounting for the investment. A single entity with a single film is much more straight forward to assess and financially model and therefore structure profit sharing, capital accounts, and and engineering of potential returns that may need to consider pro-rata recoupment of initial investment or a timing corridor of recoupment using different percentages than your long life profit sharing percentages or any design between. In any investment you are looking at IRR and if your scenario models present a potentially difficult cashflow recoupment then you may want to design any recoupment to reflect this situation. It is easier to do this on a single entity. That said, the first thing you learn in investment portfolio risk management is diversification. A single entity with a single film is not diversification and brings us to risk.
You might wonder why you would invest in an SPV in this method. One reason, that is often overlooked, is that each film is essentially a unique business value proposition. Each film is like its own company with its own product line and market base. If you have ever run a company then you will understand that marketing can spend a considerable amount of time trying to understand your target customer base by socioeconomic traits relative to a given product line. If you consider a film, it is a product for which the exact same analysis is conducted.
Another reason is the flexibility in structuring the investment for the investors and the coincidental tracking of the investment on the books, your accounting for the investment. A single entity with a single film is much more straight forward to assess and financially model and therefore structure profit sharing, capital accounts, and and engineering of potential returns that may need to consider pro-rata recoupment of initial investment or a timing corridor of recoupment using different percentages than your long life profit sharing percentages or any design between. In any investment you are looking at IRR and if your scenario models present a potentially difficult cashflow recoupment then you may want to design any recoupment to reflect this situation. It is easier to do this on a single entity. That said, the first thing you learn in investment portfolio risk management is diversification. A single entity with a single film is not diversification and brings us to risk.
Risk
Any investing is risky. Your entire investment is at risk, meaning it could be lost. This is reiterated in the disclaimer below.
Risk Disclaimer Short Version
Investing in film is speculative and involves a high degree of risk.
You could lose some or all of your investment. Only investors who can afford a total loss and who do not need liquidity should consider participating. Past performance of any film, producer, or company is not indicative of future results, and there are no guarantees of returns, distribution, or profitability.
You could lose some or all of your investment. Only investors who can afford a total loss and who do not need liquidity should consider participating. Past performance of any film, producer, or company is not indicative of future results, and there are no guarantees of returns, distribution, or profitability.
Because all investments are risky the diversification premise is used for investment portfolios. Certainly, diversification is also used to structure an estimated return in investment portfolio theory (remember I have a MSc in finance) allowing for a range of investments from those considered nearly risk-free to those of much higher risk, but it always comes back to the basis that if any one investment was totally lost then you haven't lost everything.
Reiterating, a single entity with a single film is not a diversification. It could be a part of a larger range of investments in a portfolio. Films would fall into the most risky end of that range of investments. considered for a portfolio and hence are not often considered as an investment for most. I am not writing this to persuade anyone that films are a good investment or that they are not risky, they definitely are of the highest risk, but I also think the ever present shadiness of the film industry and the lack of transparency when constructing deals has made the industry one that most would just prefer to avoid. I would like to change this because art, and specifically films, has the power to shape generations.
I am actually a risk averse individual, but I am also passionate about the potential for art and films to inspire. I am also a very transparent person and will actually take the opposite position that most will when presenting films and data and I will lay out all the landmines first before ever trying to sell any idea. But, this isn't the 'About' section, it is the risk section and I will return to the inherent risks involved in film investing.
A look at the risks:
Reiterating, a single entity with a single film is not a diversification. It could be a part of a larger range of investments in a portfolio. Films would fall into the most risky end of that range of investments. considered for a portfolio and hence are not often considered as an investment for most. I am not writing this to persuade anyone that films are a good investment or that they are not risky, they definitely are of the highest risk, but I also think the ever present shadiness of the film industry and the lack of transparency when constructing deals has made the industry one that most would just prefer to avoid. I would like to change this because art, and specifically films, has the power to shape generations.
I am actually a risk averse individual, but I am also passionate about the potential for art and films to inspire. I am also a very transparent person and will actually take the opposite position that most will when presenting films and data and I will lay out all the landmines first before ever trying to sell any idea. But, this isn't the 'About' section, it is the risk section and I will return to the inherent risks involved in film investing.
A look at the risks:
- Risk of total loss. Most films do not recoup their full production costs, and many investors in film projects receive back less than they invested.
- No guaranteed returns. There is no possibility to guarantee returns and nothing on this site is a promise or projection of profit. Any figures shown are illustrative financial modeling only and may not be achieved.
- Illiquidity. Investments are unregistered, there is no public market, and interests may not be resold or transferred except under limited circumstances. You should expect to hold the investment for several years or longer.
- Production risk. Films can be delayed, go over budget, lose key talent, or never be completed due to financing shortfalls, disputes, labor actions, insurance limitations, or events outside our control. While this can be potentially mitigated to some degree through Completion Bonding, this is always a risk and results in total loss. If there is no product, there is no revenue.
- Distribution and market risk. A completed film may not secure distribution, may be released on terms that limit revenue, or may fail to find an audience. Audience tastes are unpredictable, and revenue depends a great deal on third parties such as distributors, sales agents, and streaming platforms.
- Payment order. Investor returns are typically paid only after distribution fees, sales agent fees, expenses, loans, and other obligations are paid. Revenue may be delayed by a year or more. In the finance package modeling every attempt is made to visually display exactly this event so that an understanding of how any revenues that are generated can be impacted by various fees and obligations before any reach the production pool.
- Limited control. Investors generally have no role in creative, business, or management decisions. Investment is generally passive.
- Dilution and additional capital. The project may require additional funding, which could reduce your share of any proceeds.
- Concentration risk. Investing in a single film or a small slate is less diversified than investing across many projects.
- Conflicts of interest. Leidarstjarna Entertainment and its principals may receive fees or other compensation regardless of whether investors earn a return. In the effort toward transparency any transactions not at 'arm's length' are highlighted and directly pointed out in management structure, right's structure, operating agreements and production processes, but this conflict of interest exists.
- Forward-looking statements. Statements about upcoming projects, casting, release plans, or anticipated results are subject to change and involve risks and uncertainties that could cause actual results to differ materially.
The point is that film investing is the riskiest of investing. This is due not simply to the need for distribution and audience selectivity being difficult to assuredly predict, but also because it is an single entity and single product that also incurs specific business risks in production operations that all other businesses face when trying to create and develop a product. For those familiar with the industry this won't be anything new, but for any unfamiliar it is best to inquire with questions to those that will not have a conflict of interest or believe in transparency such as any trusted legal representative or financial advisor familiar with the industry.
For any interested, I have written an overview of the SEC regulations in an article on Substack here, SEC Reg D, but you can also visit my LinkedIn, link at the bottom in the socials to find the same article on my profile.