Independent films are financed in one of two ways. Either some billionaire takes a big risk or the film is funded with deficit financing, which involves pre-selling licensing rights to a piece of content where money is lent against those rights. But the pre-seller doesn’t pay until the project is done, which creates the need for the loan to complete the project.
In 2010, Matthew Helderman was a college student with film making aspirations. He wanted to produce his first feature film, The Alumni Chapter. That’s when he and a partner started Buffalo 8, a production and post-production company focused on feature films and content creation.
At that time, banks tightened their lending policies for such projects, especially smaller projects.
Advances in technology, however, was reducing the cost of movie production. That coupled with the increased ease in content distribution caused the number of films produced to grow. Now, there are about 5,500 feature films produced worldwide every year. Helderman and Luke Taylor found themselves living in the right moment and hit upon the idea to finance film projects rather than simply producing them.
The Birth of BondIt
Expanding the scope of Buffalo 8 meant buying up smaller companies and adding subsidiaries to their film production brand. By the end of 2013, they had their own fund.
“Writing equity checks for media is flushing money down the toilet,” Helderman said. “We realized we should be lending and be seen as partners, not just bankers.”
They raised a small seed round and was “off to the races.” The company completed 60 short term deals in 2014, all profitable with zero defaults and completed 60 more in 2015. But a need for a more sophisticated back office led to a partnership with Pat Peters, who joined Buffalo 8 from JPMorgan. Peters was developing an entrepreneur mindset at the time, so timing was good for him to join Helderman and Taylor. Helderman said, “Peters raised the sophistication level of our business that allowed us to raise money for a hedge fund.” As a result, BondIt originated more volume than it had capital to furnish, which created a need for third-party financiers.
One early investor was the founder of a payroll company that processed the payroll for 400 feature films each year. This gave Buffalo 8 the opportunity to acquire another company, re-brand it, and train the staff. Thus, BondIt was born. The company was restructured to place Buffalo 8 under BondIt to create an ecosystem that provides value from different areas of the movie-making supply chain.
The Life of BondIt Today
The company is incredibly busy with deal flow. Helderman reports that Accord Financial, an alternative lender, bought a big piece of the company last year. Additionally, there is a possibility that BondIt may sign a term sheet with a major hedge fund to “bolster internal capacity.”
In the global media world, the top three or four players have done 254 senior financing of feature films and TV projects. Netflix pays out over three years, but producers want access to funds faster than that. That leaves them with the option of either going to BondIt or to a bank. Because streaming services affect business in every way, it gets harder to compete against Netflix when they enter the small film projects territory. “We used to be able to sell in Europe, but Netflix buys all the rights for Europe consolidating the way content is being paid for,” Helderman said. That creates a competitive challenge for small rights financiers like BondIt.
Nevertheless, there is plenty more opportunity in the market. “It was overcrowded when we got in,” Helderman said. “Leveling the playing field with Netflix, Hulu, and other streaming services democratizes the playing field.”
BondIt’s Early Funding and Platform
Helderman raised under a half a million dollars through a seed round in 2013 and another few hundred thousand in 2014. In 2015, the company received three separate $10M fundings. There were two Series A rounds, the first of which included Glory Ventures and the second of which was led by SixThirty. The earlier Seed B round came from Startupbootcamp. The company has raised $15 million to date.
The company was originally built on aggressive grass roots marketing, with a year’s worth of cold calls and social media.. Helderman and Taylor gave lectures at colleges and on speaker panels, building the brand as media experts.
“Today, customers find us organically. We look at 300-400 submissions a year,” Helderman said. While BondIt uses analytics, Helderman said you can’t remove the human element completely. They still have to perform due diligence on borrowers.
BondIt originates, structures, and funds its own deals. They have a heavily managed portfolio that technology helps enable. Buffalo 8 selects, produces, and creates the content. On the financing side, BondIt does the due diligence through its existing network, which Helderman said “speaks volumes” compared to a FICO score. He calls it a “cash out now for cash flow later” business, paying at six, nine, and twelve months, for example, some in pre-production and some in the deliverables phase. Financing a project helps the company have more control and allows them to fund projects in pieces.
The market space is wide open with BondIt’s typical customer being anyone who is creating, distributing, or buying any type or length of film content.
Helderman paints a picture in which companies coexist, feeding off of and supporting each other at times. One company only does tax credits. BondIt has built a partnership with that company, each feeding the other deals that don’t fit their own profile. But the biggest competition comes from the UK, from a company whose financing is more flexible because they’ve been at it longer. “We partner with them on deals, but we’re all aware that it’s head to head. We may lose out on certain deals, but we find ways to work together where possible.”
Performance and The Future
BondIt signs one new financing deal every week. In total, the company has logged $60 million in transactions since founding and Helderman believes they can do that much business every year as long as they have the right funding partners in place. The company prides itself on the amount of repeat business it has. Helderman wants half of BondIt’s deals to be from new clients, but that will require introducing new products or financing structures at least once a month. Helderman loves to experiment and test market boundaries, which Helderman says BondIt is “crushing.”
“Smaller buyers are going to continue to struggle,” Helderman said, “as companies like Netflix and Hulu continue to control the vast majority of the marketplace. We need to get a facility in place to service blue chip deals. We need to set up a new funding partner and be competitive at a 5%-8% yield. Netflix spends $5B a year on content, all of which needs to be financed.” For that reason, Helderman believes BondIt needs a long-term balance sheet. “We need to be laser focused on structuring deals.” With a cheaper line of credit, he believes his company can get their business hats on and think about growth.
He sees BondIt expanding into sports lending and working with a blue chip facility (Netflix, Amazon, etc.) to help business develop on the production side. At the end of the day, he says that, like so many other companies, “We always need cash.” The golden goose, he said, would be a family office that says “Go make me 8% or 10%,” which could help BondIt create a facility with no unused fees, no servicing fees, and no expansion fees.
When looking at the things that make a strong businesses, adaptability comes to mind. It seems especially promising the way these BondIt have identified a unique market need. They saw what the market had in store, and they pivoted to fill the void. This ability to conform to the opportunities the market presents speaks well of their potential going forward.
Written by Paul Keenan and Allen Taylor.