How to Fail at Raising Money Amidst a Bubble

As I’ve mentioned before, I’ve been trying to start a new type of feature film development company with Stephan Vladimir Bugaj. Raising money to make movies has turned out to be the hardest thing we’ve ever done, and despite a year of effort, we’ve raised a whopping $0. Zip. Nada. We’ve failed. In the middle of a bubble. That. Takes. Skill.

Throughout my life, I’ve been generally successful. Both on the product and engineering side, I’ve worked on multiple “impossible” projects and made them successful. I’ve failed at some things, but I’ve been pretty successful at everything I’ve truly focused on. I’ve never shied away from hard tasks. The same is true for Stephan. Visioneer has been our life and identity for the past year, and despite feeling like we were going to make something awesome, we’ve had failure after failure raising money to make it soar. Watching lead after lead fall through and just having more and more bad luck is depressing, and it makes us feel worthless.

It’s disheartening and stressful to watch so many others raise successfully, seeing headlines daily about how we’re in a huge bubble and Company X That Sells Ads raised $200m whereas we can’t raise 1/20 of that to actually create content.

Denial is powerful, and it let us power through a lot of times when funding leads fell through (“it’s ok, we have 5 more to try!”). I highly recommend trying denial. But there’s a point where you need to stop denying that you’re failing and just accept it. Maybe you realize you’re running out of money. Maybe it’s when you run out of new things to try. For me it was a mix of both: we’d tried every approach we could think of, we kept finding one or two leads but then they’d fall through for reasons we couldn’t control, and my bank account was getting too low. Whenever it happens, you’ll know. And you’ll spend the day in a depressed funk eating ice cream. I recommend Graeter’s.

It’s especially tough the first time someone asks how it’s going, you want to admit you’re failing, and your mouth won’t open. You’ll fall back into the “everything’s great!” stance all founders are told to take. But the world’s crumbling apart and like recovering from an addiction, step one is admitting you have a problem. Once you admit you’re failing, it gets easier to say it.

What’s harder is finding a new purpose/mission. Nothing will be as exciting to you as working on your own company, but there is lots of cool stuff out there. Unfortunately it’s extra disheartening when recruiters won’t grok that you’ve learned and grown trying to start a company and turn you away. That re-emphasizes that you personally feel like a failure, making you even more depressed, creativing a vicious circle since it’s harder to find new purpose (now I’d recommend exercise rather than ice cream).

But there is value in failing and a ton of learning along the way. Let me share a bit of my story with Visioneer and what I’ve learned as a way to give back for all the help the community’s given me.

First, have context. We’re making movies/TV/content, and we have a business process innovation — essentially applying lean startup/agile ideas — to create that content. Put in a sexier way, we’re ex-Pixar guys who intend to use the Pixar process to make content, starting with low-mid budget, live-action family comedies.

We got as far as we could on our own, building a team, finding the opportunity, putting projects together (some internal and some optioned), and more. We needed to raise money so that we could get to the next level. Between our background and the release of Ed Catmull’s popular Creativity, Inc. book where he talked about how the Pixar process not only made Pixar awesome but helped turn around Disney Animation, we thought we were in a great place.

I personally was amazed at how many resources there were in San Francisco to learn about starting a company, beyond the big-name accelerators you hear about. There are meetup groups, low-cost courses, online posts, and more. (I posted some of my notes about how valuation works.) While some topics didn’t specifically apply to us, these groups felt like moral support in addition to learning a lot! They totally energize you!

We came up with what we felt was an innovative structure for our company, combing ideas from Hollywood and Silicon Valley, making the individual films great shorter-term investment opportunities and building a lasting company with great long-term returns, respectively. We’d have the core company (Visioneer) that we’d be raising equity financing for, and it would have an ownership stake in each project. The individual projects would have more standard film financing terms and potentially separate investors than Visioneer. We set it up so that initially, if you wanted equity in Visioneer, you had to make a dollar-for-dollar investment into the first film fund so that we could take the film to the screen and provide a return on investment. Overall we aimed to raise $6m in equity for Visioneer and $6m for the first film. This would let us run Visioneer for 3 years, developing 3 projects, and we estimated it’d take 3 years to get project 1 into theaters.

Unfortunately combining these approaches made us not quite mesh with either Hollywood or Silicon Valley financing.

You can google “film financing” and find a list of companies. They’re all well-equipped for how things work now: you have a script and big-name directors/producers/actors, possibly with some private financing already, and they can help get the remaining financing. They invest in projects, not companies.

Plus, we had a more fundamental problem — we were trying to do something new and unproven. You’re always stretching your pennies as far as you can for film production. If you say your budget is $X, if you’re lucky you raise 90% of X, and it’s a challenge to actually make the film for under 110% of X. We believed spending a little more up-front in development could save money on production later on, produce a higher-quality film, and help production move more smoothly. Unfortunately convincing people who only have 90% of the budget they want to to try something new and spend more money up front didn’t work. (This is also a part of why we chose to make content, rather than trying to be a service.) The view of “we know how to make movies; why do it differently?” is totally legitimate. Although I’d argue if there were no room for innovation, then there’d be no reshoots or bad reviews! ☺

On the other side, venture capitalists traditionally haven’t invested in content, as the belief is that it’s a hit-driven business. This seems to be changing given they’re investing in podcasting, sites like Buzzfeed, and more, but film/TV content wasn’t of interest to the people we met.

What I find fascinating is that the film/VC worlds are remarkably similar, but we talk about them differently. In film, we’re taught not to talk about blockbusters (or failures). You talk about the average return, which is around 10%. However, in the VC world, you’re encouraged to talk about the blockbusters, not the average! I talked about this with a VC and found out that the average return of a VC’s portfolio is ~10%. Startups are just as hit-driven as film. Yeah, finding the awesome startups is a challenge, just as finding awesome films with the potential for a great return is a challenge, but our approach was designed to improve the odds you’d have a hit. Unfortunately that insight didn’t help us raise.

We did a lot of leg work up front, figuring out who we should target. We arrived at wealthy individuals, family offices, and similar. We were fine with this as film is an art, and art’s relied on the patron model for hundreds of years. Heck Alcon Entertainment got their start by having a meeting with FedEx founder Fred Smith, convincing him film’s a worthwhile investment, and showing him a detailed plan of how they’d be more effective than everyone else via a business innovation (“we need to find our Fred Smith” became an internal saying).

Being specific was smart, as it let us tailor our story to be as appealing as possible. Film is sexy, and there are both emotional and financial reasons to invest that are compelling to individuals. Film could give you a chance to rub elbows with stars, being on set is fun, the content will last after you die, it can be seen/loved by the entire world, it’s considered recession-proof, and there are great tax incentives.

We knew that we had to be on the ball and to impress anyone we talked with, so we did a number of things before trying to raise.

  1. We created a detailed, readable business plan. I’d never written a business plan before, and I hired a consultant who wrote the book on independent film financing to write ours. I was mixed about her work. Some parts — like the explanation of how film revenue flows and the financial tables showing comparable films, revenue, and creating models for our films — were fantastic. Others — like including 3 pages describing how social media is important to marketing — weren’t. My brother, who runs an investment fund, had the best advice: write this business plan so that an investor could read it, have a basic understanding of the industry, get why what you’re doing is awesome, and be able to convey all this at a cocktail party. She might not be able to hold her own when talking with a film industry exec, but she should be able to make all of her investment buddies jealous. I rewrote nearly all of our 30-page plan, and it’s consistently had awesome feedback. Some people find business plans to be a waste, but I found that ours helped flesh out details, find holes in our plan, and make sure our overall plan made financial sense.
  2. We created a staged strategy to get investors interested. The first stage was that we had one-paragraph description emails ready to go and created forward-able emails for some people. The second (and sometimes first) stage was sharing a short pitch video we produced, described here, to explain more about what we’re doing and to provide a case study. If people liked our material, we also had a 10-page, lawyer-approved FAQ (written in casual, friendly language) addressing the range of questions we expected to receive, updated as we received new ones. We’d send this FAQ along with the business plan as the next stage (in addition to having a conversation). Next we had scripts for some of our projects and concept art for all of them, and we’d pass that along if the person wanted more. We also expected to spend lots of time in person or on the phone with every potential investor, and we made sure we knew our material thoroughly.
  3. We put together a spreadsheet tracking people we wanted to reach out to directly and the status of those pings. An ask might be directly to the person (would you be interested in) or asking if the person knew someone who’d be interested (along with the video link and password). We also figured out content marketing-style ways to reach more people, like writing Medium articles about our experience ;).
  4. We didn’t setup a C corp or LLC. This let us avoid filing any governmental fees or having to prepare taxes on an entity that wasn’t making money, and it let us be flexible so that we could set things up however our investors wanted (e.g., if we were funded by 1 investor, a LLC with phantom stock pool for employee options would’ve made more sense than a C corp). We made sure any contracts had a clause that would let us transfer it to Visioneer once the entity was setup.
  5. We did everything as cheaply as possible. The biggest expense was filing for a trademark registration on our name, which we did ourselves with USPTO. We used 99designs to create a logo, and I even hosted our static website on Dropbox.

We received a ton of positive feedback. Our attorneys and some VCs we talked with (asking if they knew of potentially-interested individuals) told us we were way better prepared than nearly every startup they see. Plus especially with an early stage company, investors are often investing in you and your team, not the details of your idea. Consistently demonstrating you’re competent, motivated, and an expert is important!

I was really optimistic at this point! I felt like we had our act together and that we could make this happen. We’d had highs and lows before this (figuring out how to structure the company/film was really hard, having to rewrite a business plan I’d just paid a lot for was frustrating, etc.), but we’d overcome them. We’d done a ton of hard work and were ready to do more. Unfortunately it was all downhill from here.

Our challenge was finding the right people to talk with. We relied a lot on our networks to try and find leads (thank you!!), and the results were mixed.

When we did manage to talk with the right people, our work paid off. The strongest lead we had was a boutique investment firm on the east coast, and they told us we were A-players, liked us, and believed we’d do everything in our power to make Visioneer a success (hopefully they weren’t just being nice). We were continuously impressed by the conversations we had with them and wanted to work with them, too! They seemed like great partners as they wanted to work with us, rather than our working for them or their just being “dumb money” (we wanted mentorship from people smarter and more successful than us, not just a check). Unfortunately they only invest when they understand an industry 110%, and they kept not having time to learn about film. We were soaring when our initial conversations progressed but then we crashed.

We had another lead, an individual who’d invested in film before and liked our early materials. I offered to meet with him in person, but getting him to reply to set a time proved impossible. A 3rd party made this connection, and the investor finally suggested a time for all of us to have a call. Everyone showed up for the call but the investor, and we never heard from him again.

Many of the traditional film people we talked with were clearly very protective of their financing sources — they didn’t want to share, although one offered to make an intro if a project she was working on worked out.

I was genuinely amazed what a contrast the people in Silicon Valley we talked with were. For example, a couple VCs offered to make introductions to some people they knew who would’ve been perfect investors or great keystones to find film investors. In each case, the person they made the intro to never replied. But I was genuinely impressed with how people in Silicon Valley who we didn’t really know were going out of their way to help us.

If you’re in tech and reading this, keep this in mind: I think a core part of what makes the Valley special is being willing to help other people out. Heck for all you know, tomorrow you’ll want a job from the guy in the hoodie asking for your advice today. The Techstars Code of Conduct sums this up well.

Let me add as an aside that I don’t at all think Hollywood is dumb. Far from it! I’m amazed at how Hollywood has continually re-invented itself as time changes and continued to produce great content with great returns. However, I think there’s some stuff Hollywood does well and some it could do better, just like I think there’s some stuff Silicon Valley does well and some it could do better. They can learn from each other and both become more awesome, and I’ve seen some signs that’s starting to happen. A producer friend introduced us to another producer who had an investor looking for animated content (unfortunately she lost her funding so that fell through). Through another friend’s introduction, we’ve been talking with a person at a Hollywood studio, and he’s been amazingly helpful to us with no incentive to do so.

Some people helped us a ton — they went above and beyond, asking everyone they could think of about us — and we’re incredibly grateful. Unfortunately most of the people they knew weren’t the right type of investor, but still. Their support was heart-warming.

Some friends knew people who fit our investor profile perfectly but were hesitant to mention us. While disappointing, I can’t fault them: money/investing can often be difficult to talk about, especially when these friends have personal relationships with the investor, and what if we lost the investor money. We’re asking our friends for a big favor. Taking that into account, I tried asking one if he could say something like, “I have this smart ex-Pixar friend who’s working with an ex-Pixar writer to make movies, and they’re trying to raise money. Any chance you know someone who might be interested?” That was still a little too uncomfortable, sadly.

I was disappointed with our attorneys. I put effort into finding them, and they came highly-recommended. We had a great initial meeting, and they had startup/business expertise in-house and an entertainment attorney they worked closely with. One benefit of working with startup-oriented attorneys is that they often have connections to investors and can help you get started (sort of like how Silicon Valley Bank is more than just a checking account). Unfortunately our attorneys turned out to not be terribly responsive when asked to review documents; it often took multiple emails to make it happen. They also mentioned lots of possible leads they knew when we talked in person, but they never replied when I emailed to ask if they’d had a chance to reach out to those leads or could make an intro.

This whole process was amazingly stressful, as I’ve written about previously, and the stress impacts daily life. You might wake up one morning, very excited, and then an email about a lead falling through can leave you in a funk the rest of the day. I’ve joked that I empathize a lot more with bipolar people now. That post talks more about how I dealt with the stress.

Some people asked me why I didn’t move to LA. After all, one of the key points in the excellent book The Rainforest: The Secret to Building the Next Silicon Valley is that location and the ecosystem around you matters. If we’d raised successfully, I probably would’ve moved to LA as it would’ve helped with production/distribution. Initially, we needed to find wealthy individuals and family offices, and they’re all over the place (especially in San Francisco). I don’t think moving would’ve helped especially because my business partner does live in LA and it’s an easy flight or drive from SF to LA. This also goes back to “do things in a cost-effective way:” moving to LA would’ve been expensive, and I don’t think it’d have moved the needle on fundraising. However, if you’re starting a tech company, you do need to be in SF (or NYC or Tel Aviv or somewhere with a great startup community) as what you need — those ecosystems — only exist in certain places.

Unfortunately, despite trying everything we could think of, we failed to find people interested in investing in film. Jeffrey Skoll, the “second employee” of eBay, used his personal wealth to found Participant Media. Peter Thiel has co-produced a film. Marc Cuban has 2929 Entertainment. Larry Ellison’s family founded Skydance Productions and Annapurna Pictures. Jack Ma is using some of Alibaba’s IPO money to get into film. Amazon’s making original films. Netflix is spending even more on content. Film’s hot! Sadly we’re not.

Luck/timing/circumstance really plays a role in starting a company. I’ve been frustrated looking at some companies I thought were silly, wondering “how did they raise that much when we keep failing?” A big part of it is that they were lucky to be in a situation where they could raise money. However, even if I disliked their idea, I do respect these founders a lot for recognizing the situation they were in and taking advantage of it to raise successfully. I’d encourage anyone else starting a company to always be aware of the situation you’re in and if the stars are close to aligning.

I do think we made two big mistakes, but we probably would make them again if the situation was the same.

The first was at SXSW ‘14, I met a VC at a party for a friend’s company who seemed to really like me and was interested in film. He said he wanted to invest. This was before I felt like we were ready (we were still pitching ourselves as “the next Amblin entertainment” and not “the Pixar of live action”), and I replied that we could use mentorship more than money but that we’d love to talk investment very soon. Unfortunately he was a guy you had to talk to in person — his assistant handled all his email, and we never heard from him again. Part of me feels like I made the right choice by being honest, and the other part wants to kick the first part, wishing I’d seen this as a lucky situation and said “yes, let’s do it!” staying with him until I had a check.

The second mistake was that we teamed up with a film industry exec who seemed perfect but was far from it. He got what we were doing and liked the idea, had a bunch of great connections, added gravitas, and already knew of one meeting at a major network looking for content that we’d be great for. He seemed excited, and very shortly after agreeing to come on board, he even updated his LinkedIn profile to list his position with us as his current position.

Unfortunately he just didn’t have the same hunger we did, and he often wouldn’t reply to emails or phone calls. One time I had to ask if he was ok/was he in the hospital to get an answer. Sigh. (I swear this process made me awesome at restraining my urge to kick people.)

A better mentor with the right connections could have helped us a lot more, but unfortunately we never found one. The people we were really hoping to bring on board were all busy with their own projects and thought this would be a conflict of interest.

One big thing I personally did right was that I’d saved very conservatively when I had a steady paycheck, I did what I could to cut down my expenses, and I tried to find freelance work that still let me work on Visioneer. These three things let me work on Visioneer much longer than I originally thought. I also sold a bunch of things that I hadn’t used lately, and I probably would have tried driving for Lyft if my car wasn’t a coupe. As a tip, unless you’re very lucky, it’s going to take you much longer to find financing than you expect, so figure out what you need to do financially to give yourself the runway to get started.

Despite failing to get Visioneer started, this journey has been awesome. I’ve learned a ton about business, communication, leadership, and more. I’ve met some amazing people and started doing business storytelling workshops with two of them. I’ve worked with other entrepreneurs to help craft their pitches to investors and to customers (whad’ya know, turns out I know something about pitching a story). I had the chance to be a product management consultant for a few companies, meeting even more awesome people, and there’s one product in particular that I can’t wait to see announced. Not having a set 9–5 job also gave me the time to shoot this urban star trail series, which has been called “[some] of the most unique images ever” (wouldn’t one look great on your wall?). I’ve also started working on a site dedicated to the joy and fun of photography, wanting to do something small and fun.

You’ve read this far: have a pretty photo as a reward.

So what’s next? We still have a couple potential leads for Visioneer that we’re following (please do contact me if you’re interested!). If one of those works out, we’re 120% committed! But based on our past experience, I’m not optimistic.

We’ve been looking at doing some VR work now (a mix of live-action content and tools), as it’s quite popular now and we have the expertise. I’m not sure I have the mental/financial energy to start from scratch, even if I think a VR company stands a better chance at being funded (but if you’re a seed investor interested in VR, also feel free to contact me).

We also started working on a 2D animated project that I’m really excited about, featuring a 13-year old girl interested in science as the hero. Stories can change the world, and we believe in getting more women interested in STEM. We’re trying to do all the development on that ourselves as cheaply as possible, and then we’ll do a crowd funding campaign to produce a 22-minute pilot. If you want to be notified when that’s live, contact me. Unfortunately there’s no paycheck working on that.

I’ve been looking around some for interesting product management/media /entrepreneurialism opportunities, hoping to use what I’ve learned. If you know of something, please reach out ☺ I’m trying to avoid recruiters, one of whom essentially told me Visioneer was a waste of time and made me more depressed. And angry.

I guess the answer is I’m not really sure what’s next. Fortunately by admitting failure before I was totally in a desperate situation, I can focus on finding something I’m passionate about! One of the biggest things I’ve learned working on Visioneer is that uncertainty is OK as long as it’s an adventure. After all, in the end, it’s the journey that matters.

(Special thanks to Eliot Peper for the post title idea and notes! You all should read his books. He’s like the John Grisham of startups.)

Product at Roblox. Formerly product at Embodied, Magic Leap, & Lytro. Ex-Pixar. Views are my own. Find me on Twitter at @joshanon

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