If you thought Jack Nicholson crashing through a door with an ax was scary, try getting a movie produced.
It makes the Shining look like the Sound of Music.
Marlon Schulman and Brian Herskowitz have been in the entertainment business long enough to know it is far from a meritocracy. Many factors influence what you see and what you don’t beyond the quality of the script or uniqueness of the concept: Cost, personal preferences/biases, star power, or lack thereof.
In this environment many entertainment producers become risk averse. They see a few patterns which seem to work and they run with them. That explains Kung Fu Panda III or the latest Die Hard.
Sometimes entire genres get pushed to the periphery as studios and their risk-averse decision makers follow the latest trends.
Take horror and suspense. Despite having tens of millions of followers plus live events, merchandise, video games and other properties creating a $95 billion global marketplace, content producers struggle to obtain funding for projects which clearly have a demonstrated audience.
That is why Mr. Schulman and Mr. Herskowitz created Horror Equity Fund, a vehicle where fans can fund and get an ownership stake in everything from movies to haunted mansions to live events.
Because fear is a basic human feeling, it has the same effect across cultures, Mr. Herskowitz said. That is a main reason why the industry has a global reach.
“Horror travels well internationally, where a joke may not translate well into every culture. If someone jumps across the screen at you, you are going to be scared.”
“It’s a universal visceral event.”
Mr. Schulman played a key role in bringing Japanese animation into the mainstream. Like the people he will soon be courting with Horror Equity Fund, he started as a fan.
At the time the industry was underserved by its distribution deal. Mr. Schulman was working in distribution with Orion Pictures and created a better one, which, in combination with figuring out a secure way to accept credit cards online (this was in the late ’90s) helped the industry take off.
“I realized then the power of community and undeserved demographics,” Mr. Schulman said.
Mr. Schulman said he kept tabs on the development of the JOBS Act and knew that if structured the right way it would allow creative entrepreneurs to apply technology to reach underserved markets.
While he watched Mr. Schulman assembled a trusted group of people, no small feat in such a competitive industry.
That team includes Mr. Herskowitz, an experienced writer, screenwriter, teacher, producer and entrepreneur. Sam Guzik is one of the most knowledgeable legal minds on crowdfunding and the JOBS Act. He has worked tirelessly to make sure it meets the needs of American business.
Additional group members include film producers, Oscar-winning actors, video game producers and finance professionals.
Mr. Herskowitz said his experience as an independent film maker allows him to see the development of entertainment from multiple viewpoints.
Investors in a project do not get to participate in any stage of the project’s development. The passion initially tying them to the project evaporates and they never want to participate again.
The fewer the number of potential funders, the harder it is to get funding, which affects the quality of talent available for the project. It becomes a circle where you cannot get money without a cast and you cannot get the cast without money.
Horror Equity Fund aims to reduce the risk of financing projects. The team will screen projects for quality before accepting them into the fund. Once accepted the project is assigned a trusted accountant.
Using the example of a movie, they will take the script to distributors to determine their interest. An interested distributor might need some changes before they commit. Assuming the screenwriter is fine with the input the project proceeds.
In exchange Horror Equity Fund gets a commitment such as a minimum guarantee confirmed by a Letter of Intent that helps reduce risk. That guarantee may be used to confirm an actor’s participation which helps generate momentum.
Start with industry veterans who know the genre and the difference between quality and schlock. Add access and guarantees. In some cases the team will put their own equity into the project. Then take it to an affinity group numbering in the tens of millions.
While no guarantee of success, the odds are substantially better. Because the Horror Equity Fund business model anticipates earning fees, Executive Producer salaries and/or other profit participation positions, they are invested in each project’s success throughout, Mr. Schulman said.
Both Mr. Herskowitz and Mr. Schulman stressed they are not talking about rewards-based crowdfunding where established names like Warner Bros. give fans a coffee cup in exchange for the money needed to produce Veronica Mars.
“You can own a piece of the success with mitigation of risk,” Mr. Schulman said. “Knowing you have a team who will do everything they can to see that this project makes money.”
Horror Equity Fund’s current focus is look for accredited investors to lead a Regulation A+ raise with a mind toward a mini-IPO at some point.
The funding process to get a project growing is daunting and deters many prospective content producers, both Mr. Schulman and Mr. Herskowitz said. Offer an alternative to the broken model and many talents will keep at it. The entire industry benefits.
Now a talented writer, for example, can take a project to Horror Equity Fund, and if they like it they can take it to studios.
“This hasn’t been done before,” Mr. Schulman said. “Before they would just stumble over them then market the crap out of them.”
Speaking of crap, Mr. Schulman said Horror Equity Fund is developing a “Scare the crap out of me” video contest where people are invited to send in one-minute videos which will be judged by a panel including Seinfeld alum Jason Alexander.
Winners get access to Clive Barker’s production company (and others), “access they otherwise couldn’t get,” Mr. Schulman said.