The producers talk about their EIS experiences and their busy slate.
The UK Government is expecting a positive decision from the European Commission on state aid approval for reforms to EIS (Enterprise Investment Scheme) and VCTs (Venture Capital Trusts) by the end of this month (May). It is widely expected that the annual investment limit for qualifying companies under EIS will be raised from £2 million to £5 million.
If and when this happens, one company very well positioned to take advantage will be Formosa Films, run by Martin Carr and Neil Thompson.
Formosa has already been in the EIS business for several years, raising investment for such films as Clubbed and Twenty8k. Now, the company is looking to expand. It has a bulging development slate with films ranging from romcom Top Shelf to suspense thriller Guilty.
As Carr notes, investors in EIS schemes for film haven’t always been well treated in the past. “What happens is that filmmakers often get pressured very, very hard by finance houses to push their investment back - so EIS is the first money in and the last money out.”
“That’s completely unfair,” Thompson states. “The model we’ve always used is our investors completely own all the rights in the films so if the film does fly, they will do really well. There can be nothing more annoying for an EIS investor to invest in a successful film and still only get a tiny bit (of upside).”
On Formosa’s gangster pic Clubbed, the investors didn’t make big profits. Even so, most were ready to come aboard future projects.
“We are very, very good at communication,” Carr says. “We involve people very heavily - they know what is coming. They don’t feel like you have vanished….if we make a movie that tanks, because we involve the investors, they’ll look at it and say ‘You did all you can.’ If we make a movie that goes out in every cinema in the UK and they don’t get paid, that’s the last movie we’ll ever make.”
The Formosa bosses gave the Clubbed investors “some of our position” in their next film, Twenty8k (due to screen in the market in Cannes where it is being sold by AV Pictures.)
On any given EIS fund set up by Formosa, there are likely to be around 100 investors. Their level of financial commitment varies hugely.
“The minimum you can invest with us is 5K so we have quite a lot of investors who just come in for that. It’s really a bit of a punt for them, like backing a horse!” notes Thompson.
These investors are consulted throughout. They’re invited to screenings of rough cuts and serve both as de facto coproducers and as a ready-made focus group. “We even had one of our investors who wanted to read the script just before we started pre-production. We want to encourage them as much as possible - we give them access to everything. He (the investor) came up with a fantastic idea for the end, which we shot,” says Thompson.
The Formosa business plan is to use EIS combined with the UK tax credit to fully finance their films. (On Clubbed, the company also had support from Screen West Midlands.)
One reason for relying so heavily on EIS is to ensure the investors are given strong recoupment positions.
As both Carr and Thompson point out, tracking down potential EIS investors is not nearly as easy as some outsiders believe.
“It is a 24/7 job,” says Carr. “It is wining and dining in the most expensive restaurants on earth.”
At a recent conference on EIS organised by Screen with accountants Nyman Lisbon Paul, Thompson was startled by how naive some attendees were about how EIS works. “They think people just give you money. It’s not like that at all. We have to work incredibly hard.”
Reacting to recent changes in EIS legislation, Formosa is setting up its first Seed EIS (SEIS) Development slate. The aim is to take advantage of the income tax relief of 50% for individuals who invest in shares in qualifying seed companies to support the development of new projects.
The excesses of the sale and leaseback era (and the backlash that followed) have made some investors wary about film. However, the Formosa bosses point out that EIS is “vanilla - it does what it says on the tin.” Carr and Thompson always form a PLC for each new Fund and provide fully audited accounts so that “our investors can see what we spend on elastic bands.”
Formosa has been in existence since 2005. The company is now raising funds for its new romantic comedy Top Shelf, which Thompson will direct. Carr and Thompson have close relations with BAFTA winning writer Paul Abbott (who coscripted Twenty8k.) Carr is a partner in Abbott’s company Abbott Vision, which focuses on making “high end” TV drama and has a first look deal with Fremantle.
“We’ve got things that were TV and could be movies and things that were movies that could be TV,” Thompson explains the overlap between Formosa and Abbott Vision.
Yes, Carr and Thompson acknowledge, making films through EIS can be a complicated and painstaking business. Carr has an anecdote to acknowledge his point. “When we came to the end of Clubbed, Neil asked ‘If you knew what this was like, would you ever have done it?’ I said ‘never, ever.’ He said ‘now you’ve done it, would you do a film another way?’ and I said ‘probably not!”