An excellent story - Decision-making criteria used by venture capitalists investing in film

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School of Business | Master's thesis
Degree programme
Entrepreneurship and Innovation Management
In recent years, feature-length fiction films have caught the interest of venture capital investors (VCs). The entertainment industry is extremely risky to invest in, but taking risks while investing in new ventures is nothing new to a VC. A wide variety of research exists on both VC decision-making as well as film financing. However, what makes the film industry differ from investing in more traditional VC industries, such as technology start-ups, is the dual nature of cinema in Europe. Films have traditionally been seen more as a cultural than economic industry, with state aid being awarded for cultural and societal value. Additionally, as demonstrated in the interviews, entrepreneurs generally have a lack of understanding on how their product will be evaluated when seeking VC funding. These, and the film industry’s unique characteristics create fruitful ground for new research. The aim of this study is to narrow the understanding gap between VCs and film entrepreneurs, and to provide more knowledge for VCs to facilitate investing in films. The objectives are to explain how film investments are evaluated, and what makes the film industry differ from traditional VC industries. The research questions are what are the decision-making criteria VCs use when they consider investing in film projects and do they differ from the traditional criteria? The analysis takes a practical, qualitative approach and builds its understanding of investor decision-making evaluation through direct expert interviews with seven VCs and three industry experts. This is the first time this topic has been researched and a rare opportunity to hear from these investors. Based on the interviews, 21 decision-making criteria were identified and five were chosen for analysis. These included the track record of the producer and the team; creative talent and the script; global and national markets; financial considerations; and sustainability. The opinions and preferences of the investors were aligned on some factors and differed on others, which demonstrates the challenge entrepreneurs face understanding the phenomenon. The most significant criteria were financial considerations, followed by the track record of the producer and the team, and the creative talent and the script. The criteria that had the most differences of opinion were markets and sustainability. As for motivations to invest, the interviews brought up approaches such as quicker returns, portfolio diversification, historical stability of the media industry as well as cultural value. The chosen key criteria could belong to traditional VC decision-making evaluation categories. However, it is clear from the data that there are differences when it comes to the evaluation process. When evaluating films, VCs are required to assess topics such as creativity and scripts. Small industry circles, especially on the local level, can also affect the focus areas of due diligence examinations. Additionally, the study presents two areas of recommendations for entrepreneurs: how to secure and prepare a pitch, and what kind of support to expect from a VC in addition to an investment.
Thesis advisor
Shulist, Patrick
venture capital, decision-making, entrepreneurship, film industry, evaluation, film financing, startup teams, creative industries
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