WREX.com – Rockford’s News LeaderHow to turn family and friends into investment capital

How to turn family and friends into investment capital

By Kristen Sullivan
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Jeffrey Goodman always wanted to make movies. Once he graduated from school he moved to Los Angeles to try to make his dream happen. It wasn’t easy. After a few years there he had secured rights to a script he loved but he still wasn’t a film producer. Jobs in a furniture store and at a home security company were paying the bills.

His mom encouraged him to return home to Shreveport, Louisiana, and take advantage of his network of local contacts and the tax credits available to the film industry there. Jeffrey was skeptical. But when he was home for the holidays in December 2004, she introduced him to two filmmakers who were raising money in Shreveport. They shared their business plan. It made a lot of sense.

“I said to myself: I can stop waiting, stop being dependent on the system that doesn’t seem to work for me or anyone else I know in Hollywood and instead try my hand at something that I might have a little more control over.” Jeffrey decided to listen to his mother. A few months later he moved home to Shreveport to make The Last Lullaby, a film about a former hit-man struggling with the challenges of retirement.

First, he called a friend who was an investment banker in New York. Together they drew up the initial business plan. Next he got in touch with a lawyer and a local accountant to make sure his plan capitalized on the tax advantages offered by the state to encourage local film making.

In 2002, the state of Louisiana approved tax incentives that rewarded people who invested in the film industry. “By 2005 the state had a $300 million plus movie industry going in New Orleans and Baton Rouge. But I saw there was a real hunger in North Louisiana,” says Jeffrey.

Once the pieces were in place, he started calling potential investors in Shreveport. Though he started with family acquaintances and friends, his list of contacts quickly grew exponentially. When all was said and done, Jeffrey had raised $2 million dollars from 49 investors.

He raised enough to hire talent like Tom Sizemore (of Saving Private Ryan and Black Hawk Down) and Sasha Alexander (whose recent credits include He’s Just Not That Into You and Yes Man) for the leading roles. To date, The Last Lullaby has been featured in more than 10 film festivals and captured four major awards.

Despite the film’s artistic success, Jeffrey has yet to return all of his investors’ money. “I feel very responsible that at this point my investors still haven’t gotten all their money back. I’m trying to do everything I can to take care of their money. But part of me has to be comfortable putting myself in a risky situation. I presented them an opportunity that may or may work out.”

Jeffery now spends the majority of his time marketing The Last Lullaby. A special release of the DVD is scheduled for October and revenue from foreign sales is expected to start flowing in early 2010. He is still negotiating the television rights and wholesale rights at places like Wal-Mart, Amazon and Netflix.

“I will do everything I can so [my investors] will continue this relationship. Film making is my passion, the only thing professionally that I really love. I’ll continue fighting and struggling to do what it is I like to do.”

He is confident that his business process for his next film will improve thanks to the lessons he has learned from creating The Last Lullaby. Here, he and another successful entrepreneur share lessons they’ve learned about tapping personal contacts for investment funds:

1. Let your inner circle lead you to money rather than just give you money.

“When it comes to raising money, don’t just rely on the Three Fs: family, friends and fools,” cautions Fred Seddiqui, CEO of Axis Surgical Technologies and a Silicon Valley entrepreneur who has started a handful of successful biotechnology companies. “Money that’s easy to get isn’t always the easiest to use.” And when friends and family invest in your business the wall between work and home often crumbles.

Jeffrey used his family contacts in Shreveport to develop an understanding of the investing climate in the town. The majority of the people he called didn’t know him personally though they were familiar with his family name.

“I took a lot of meetings with people, not just to ask for money but to get a lay of the land. I’d say, I’m putting a movie deal together, love to pick your brain, bounce ideas off of you.” Jeffrey gained a better sense of the business community, tightened his plan, and identified people who could afford a $50,000 commitment. His personal relationships helped open the right doors for him.

2. Develop a long roster.

Before saying good-bye, ask potential investors if they know others who might be interested in the opportunity.

Jeffrey calculated that if he needed 40 people to commit, he’d need a list of at least 400 names. “I tried to dig deep and find people off the radar that a lot of people aren’t approaching. There wasn’t too much pressure when calling because I had another nine people on the list I could call if they said no.”

3. Set clear expectations.

You’ll need to define the role of your investors, particularly if you have a personal relationship with them.

“I made it clear that investors weren’t going to have creative say. They couldn’t stick a son or daughter in the film. Verbage in the contract stated that [I had] 100% control over creative and running of the business,” says Jeffrey. He did invite his investors to the set for one day and showed their names in the credits.

4. Stay in touch.

Figure out a system for updating your investors and stick to it.

“When you form an initial business relationship, parties must realize they are taking on a journey as partners for a long time to come,” says Fred Seddiqui. “Without frequent communication and clear-eyed honesty, there’s little chance for the goals to remain the same and for the relationship to last long enough to pull the venture through.”

“A couple of investors told me early on ‘when you have good news for your investor, report it quickly. When you have bad news, report it faster,’” says Jeffrey. “In the last four years I’ve probably sent out upwards of 60 or 70 updates. There are 49 investors in the film and I’ve never had someone write and ask me ‘what are you doing?’”

Communication hasn’t always been easy. In June of 2007 the leading actor was arrested for drunk driving and sentenced to jail for six months. Jeffrey wrote the investors right away and said he didn’t know how it was going to impact the film but that he would find out and keep them updated.

Jeffrey believes commitment to being straight forward with his investors has paid off. “A few of my investors have already told me that they don’t care what happens with Lullaby, they want to be involved in my next project,” says Jeffrey. “Though of course you never know.”

Kristen Sullivan, is a contributing editor at FiLife, runs the Love and Loot series, and works with smaill businesses and local entrepreneurs in New Orleans.

Read the original family finance article on FiLife: http://www.filife.com/stories/love-loot-how-to-turn-family-and-friends-into-investment-capital

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