Today, even the big-ticket Hollywood studios are interested in the Indian film industry. Sony Pictures, for example, was involved in the making of Sanjay Leela Bhansali's Saawariya last year. Some private equity players have also forayed into this lucrative industry, but their investments
are not project-centric, says an analyst pointing out to the recent funding of PVR Pictures by ICICI Venture and JP Morgan.The next step in this process of corporatisation of the film industry is the entry of dedicated funds by venture capitalists (VCs) for film-making. Two such funds that plan to raise a collective corpus of over Rs 900 crore have already been announced and have started investing in some projects. Both the funds—the over Rs 700-crore Cinema Capital Venture Fund (CCVF) and the Rs 200-crore Vistaar Religare Film Fund (VRFF)—have been registered with the regulator SEBI, which they say will bring in best practices in movie production.
VC funds have the liberty of choosing various modes of investment. “VCs can either get into an agreement with the producer and invest in a Special Purpose Vehicle (SPV) launched for a particular film or can co-produce the film by entering into a joint venture with the filmmaker. Alternatively, the VC can pick up a stake in an existing film company the way a PE player does,” explains the analyst.
The biggest beneficiaries in this model are going to be small or lesser-known players who have a bright idea but are short of finance. “In a VC film fund, you have an independent board comprising people from the industry who would evaluate a project solely on the basis of merit, without any bias. Only projects, which have the potential to generate long-term returns will be considered. The acceptability level of a particular idea will be higher, as the only judging factor for the board will be the returns it can produce. Such a model will help small-time directors a lot,” says Rakesh Jariwala, associate director with Ernst and Young's entertainment and media practice.
“It is always economically feasible to invest in ten films costing four crore rupees each rather than investing in one Rs 40 crore multi-starrer. I am sure that VCs will be investing in such niche, low budget productions, which is good news for smaller movie makers,” agrees Girish Kulkarni, co-producer of the recent Marathi movie 'Valu'.
However, Sujoy Ghosh, whose directorial debut Jhankaar Beats released in 2003, believes that VC film funds will have to learn some ground realities about the film industry. He says, “Movie making is a creative process, so you cannot really hedge against risks or guarantee success. As long as the VC funds understand this, I'm sure most directors are fine about working with them.”
However, Ghosh doesn't agree that VCs will bring any major changes in terms of transparency or organisation into the day-to-day functioning of the industry, since these are already in evidence: “Movie making has now gotten extremely structured and the money seems to be totally legitimate. The industry is a lot different from the way it used to be earlier,” he adds.
Regional films also stand to benefit from VC funding as funds will always be on the lookout for newer opportunities that can deliver good returns. Apart from the large Hindi, Tamil and Telugu film markets, CCVF is also positive about the upcoming ones like Marathi and Bhojpuri, said one of the fund's promoters.
But more than anything else, this trend could help promote quality films. Audiences' tastes are undergoing phenomenal change due to interactive media like the Internet that enable someone sitting in a remote town to stream a video online and see the best international content. “You require young and passionate people to satisfy this demand, and I feel funds from VCs will be a big help for upcoming directors with innovative ideas,” says Kulkarni.
The timing seems right in other ways as well. For quite some time now, professionalism has been coming in to Bollywood at various stages of the film making process. For instance, in 2006, producer Anand Mahindroo and venture capitalist Mehool Parekh got together to start India's first film completion company, Infinity Film Completion Services (an arm of Infinity India Advisors) to provide guarantees to film producers and financiers for completion of their productions. Says Parekh, “A film fund doesn't create value owing to double taxation and also because as a non-VC, we retain perpetual intellectual property rights which otherwise would have been with the fund.”
VC funds are expected to bring in high standards of corporate governance into the film industry as they demand more accountability from producers and ensure that the project is completed as per the plan. “Accountability is ensured as the funds are bound to report to investors every quarter about what is happening to the corpus created,” says Jariwala of E&Y, which is the advisor to CCVF. “A fund is not concerned about the movement of the stock on the bourses like a corporate. Someone like a CCVF can leverage its position by investing in the right project and exiting it at the right time when it delivers optimum returns, without worrying about other things,” he says.
Sameer Gupta, managing partner at CCVF, feels that VC film funding is just getting off the blocks and says his fund will be initially investing only in projects which have good credentials. “We will be investing in established filmmakers/production houses across the spectrum to start with but I see it going towards seed funding in some time. You have to understand that seed funding is a risky area, which any fund cannot undertake when the entire concept (of VCs in films) is in a nascent stage,” he says. “Every industry follows a particular cycle and I am sure seed funds, which invest in startups with an exciting idea will get into the business soon. There is a lot of potential in the market remaining to be unlocked. CCVF plans to invest Rs 400 crore in at least eight to ten large ventures over the next 12 to 18 months.”
The Rs 200 crore VRFF, in the words of Talwar, was launched with a view to producing “language, genre, and budget-agnostic movies in India and abroad”. It already has Rs 79 crore in committed investments and is working on its first project, a film titled Awasthi and directed by Bhavna Talwar, which stars Pankaj Kapoor, Supriya Pathak, Nakul Vaid, Hrishita Bhat and Tejaswini Kolhapure. VRFF is taking the SPV route for every project and plans to complete three films by December 2008.
About 60% of the ownership of the project SPV will remain with VRFF, which aims to make money by ensuring that its films go through the entire 18-month life cycle. “As a fund, we bring in equity funding as opposed to debt. So people associating with us will never have to worry about paying off creditors before the release of the movie. Currently, we're working on some offbeat subjects and some with first-time movie makers.”
“In other countries, various film making models exist side by side. Here, in an industry growing at about 13% annually, there is scope for such models to thrive,” says Talwar. Similarly, Jariwala also sounded bullish about VC funding in films saying there is a lot of activity yet to take place in the field and the next three to six months will be “crucial” during which some more film funds can also be announced.