Promise 35% returns against 18-20% offered by PE, other players
The initial response to films funded by cinema-focused venture funds might not have been overwhelming, but that is not stopping them from promising high returns.
Despite the bombing of films like Victory and The Stoneman Murders at the box-office, cinema venture capital funds are promising up to 35 per cent return as against 18-20 per cent internal rate of return being offered by private equity and other VC funds.
At present, Vistaar Religare Film Fund and Cinema Capital Venture Fund are the two cinema VCs registered with the capital markets regulator, Securities and Exchange Board of India (Sebi).
Vistaar Religare has offered 30 per cent IRR, while Cinema Capital Venture is offering 25-35 per cent based on different projects. Sources said that Walkwater Media, controlled by Manmohan Shetty and UTV, was also planning to launch film funds.
“Once high networth individuals (HNIs) are assured of the returns and there is some amount of experience with these funds, it will gather popularity as an asset class. Right now, a lot of people are apprehensive with the way movies are perceived — a game of hits and flops. But these will add professionalism to the industry,” said an industry source who did not wish to be identified.
Cinema funds are structured like a typical venture fund and invest in film projects through special purpose vehicles. They also provide finance to companies, enterprises, entities and ventures involved in film production with an intention to generate risk adjusted returns.
While the targeted rates of return seem too high for a high-risk industry such as movies, experts said the funds would eventually be able to recover their costs through various rights associated with the movie. There are 42 rights, including distribution, music, DVD and satellite to be recovered over 18 months.
“We are in the process of monetising rights for movies that have been released. It is not a co-production deal always. For some movies, we work on P&A (print and advertising) deal projects wherein we fund the print and advertising campaigns. In those cases, we are first ones to get out with our profit share. The fact that promoter group pumped in 20 per cent and we got commitments from some of the large institutional investors was a great confidence booster,” said Vistaar Religare Chairman & Managing Director Sheetal V Talwar.
Vistaar Religare’s film fund has invested in movies such as Victory, The Stoneman Murders and Siddharth which have already released. A couple of others such as Finding Lenny, Joneses, Happy, Rann, Office Office and the Waiting Room are in various post-production stages. Cinema Capital Venture fund too will be announcing some deals shortly.
“Traditionally, the cost of funding films has been very high. But film funds offer growth capital to the movie production industry alongwith the expertise that they bring. In the last one year, cash has dried up and there are a lot of opportunities to provide growth capital and generate returns,” said Rakesh Jariwala, partner, Ernst & Young.
