I met a film maker on a flight this week and we talked about his project proposal.  He is funding his film himself but also seeking angel investors.  The total amount he is seeking is $125,000 and he plans to market it via some traditional channels in the film industry. 

Independent films are marketed primarily by the distributors and require little dollars from the film makers.  Typically, the budget only covers making the film and a few expenses related to getting it into distribution.  However, some filmmakers do include a marketing budget as they plan on taking the film to festivals. This film-maker plans on applying for many film festivals and hopes to get into a few.  Some festivals may fly him there, but overall there will be some expenses. 

The question is whether he should include the travel dollars in the budget.  This may be logically sound but he pointed out that an additional $25,000 was an increase of about 20%.  Would the investors shy away?  Is there enough difference between $125,000 and $150,000 that would cause investors to say no at the higher amount? His point was that for the targeted investors this was a big difference.

He may be right.  For some of his target investors $125,000 may be a stretch; they may use fund raisers.  A additional $25,000 could crater the idea.  However, I think it’s a matter of how you pitch it.

The other problem is that most investors expect to see marketing expenses.   They know that without marketing then there are little chances of getting their money back and make a profit.

One idea is to propose a budget that is $150,000 but that $25,000 of that is targeted for a marketing reserve with specific points on where it might be used. If that money is NOT used, then it would be immediately paid back to the investors.  In reality you could pitch it as $125,000 plus a reserve of $25,000 that would be only be used for X and paid back in a year if it is not used.

In conclusion, my recommendation is that you do need to include a marketing budget (or a contingency budget), but it could be presented as a reserve. This reserve is not used unless needed.  It can be paid back immediately and not count towards shares  (%ownership) but that really depends on what is negotiated.