William Leonard

Ladies and gentlemen welcome back to the Atlanta Startup Podcast. I’m William Leonard, your host and investor here at Valor Ventures, a leading seed-stage venture capital firm here in Atlanta, Georgia. Today, I’m really excited to sit down with Jon Gosier, founder and CEO of FilmHedge. Jon, welcome to the podcast. 

Jon Gosier

Thank you. Pleasure to be here. 

William Leonard

Awesome. Well, Jon, you have a very interesting background. I think it’d be appropriate for you to kick it off and educate our listeners on who you are.

Jon Gosier

Sure. Well, serial entrepreneur and built a number of software companies. Started off my career here in Atlanta, was in Savannah College of Art and Design, and studied film. Came out of SCAD, at the time, this was before there was much of a film industry here in Atlanta. Instead, it was sort of like a music town. My first jobs out of college were in recording studios and I did that for about four years. While working at a recording studio back in the early 2000s, I ended up working on a movie that ended up being Tyler Perry’s first movie directed, Diary of a Mad Black Woman. When I got to work with him then and then a few years later, I got to work with him when he launched Tyler Perry Studios here in Atlanta, and that was sort of my first foray into the film world. It ended up being a great opportunity to see from the inside how the media and content creation company was created. I just sort of made a mental note of that, because I didn’t immediately pursue anything further and film. I was more on the creative side, I did laugh tracks and audio, post-production, editing, etc. My other love growing up had been technology. In addition to film, I had a love for tech encoding. I had considered myself a hobbyist but after seeing what happened in 2000-2001, with the .com boom and then a few years later, the web 2.0 boom was right around this time when I was leaving Tyler Perry Studios, and I just decided to dive headfirst into tech. In short, I was like, “I missed the first wave of this, I might as well go for it this time and see what I can accomplish.” And so I started my first software company. You know, we can get into that later if you want. But ultimately, it led to me building a number of software startups to varying degrees of success. The two biggest I would say it was a company called MetaLayer, which I founded in Philadelphia in 2011. I went on to sell that in 2013. And then there was another company that I founded also from Philly, called Audigent, which I had an exit from back in 2017. MetaLayer was a data company focused on solving big data problems and enterprise. Audigent was a data company that focused on improving the way the music industry monetizes its data. It was kind of working on Audigent and my experiences and media, this time now on the tech and business side, that I started to kick around ideas for what I wanted to do after, which is I really wanted to find a way back into film. I had made some money over my career and decided to start investing in film after selling those two companies. I co-financed a few movies. And in financing those movies, I discovered an inefficiency in the market. What I had learned about technology over the years is anytime there’s a big inefficiency you can, in any industry really if there’s a means to make that more efficient, you make it more scalable, and you improve business. If you can do that through technology, you’ve got the good makings of a scalable tech startup. That’s what led to FilmHedge.

William Leonard

Man, that is one interesting story. You started out your career at SCAD. You went into the music industry where you met Tyler Perry. Was Tyler Perry, Tyler Perry at that time, or was he just kind of a young guy breaking into the industry as well?

Jon Gosier

He was successful because he had done his plays and he had to deal with, I believe it was Lionsgate and he had just done his deal with Turner, but he was definitely not a household name. I met him before, you know, working on his first movie. It was movies that introduced most people to Tyler Perry and then later, also worked on his first TV show. I got to be part of him and his team introducing themselves to the world and that was pretty exciting. It’s a very exciting environment to be in.

William Leonard

Yeah, I can imagine. Throughout the duration of your career, you kind of bounce back and forth between media and tech. And now, you’re really building something at the intersection of both in FilmHedge. Would love for you to kind of break down a little bit further as to practically what FilmHedge is doing, how was film financing done prior to inserting yourself into the market, and what true inefficiencies are you looking to solve?

Jon Gosier

FilmHedge sits at the intersection of media, tech, and finance. It’s a good parallel for my career. I started off in the media. I came back to the media later, I had a long tech career. And then also, while I was in my tech career, I’ve been an active angel investor and been a venture partner at a number of VC firms. It’s like the synthesis of all my personal experience to date. What problem do we solve in the film and entertainment world? Well, one is the protection of capital, transparency, and reliability. On the investor side, a lot of tech solutions focused on the creator side. And, of course, the creators have problems. But when I look at the film industry, the problem we are trying to solve is when you bring up film investing to most investors, either they don’t understand it because they haven’t had access, or they have had access and they’ve invested in film. And because they didn’t understand it, they invested in a way that they may have lost money, right? Because they don’t really understand how to put the protections in place to recoup that money. With FilmHedge, we built a platform that was focused on solving the investor problem first because if you solve the problem for the investors, you make it a better environment for them. Ultimately, it leads to more access for creators and more access to capital for creators. Our platform is very similar to many of the sort of loan or debt sourcing software that you might be familiar with such as Lending Tree, or Prosper, or So Fi, or even Quicken Loans where you have these portals where you can go. You fill out some information, you upload some documents, there’s some analysis, and then you get advanced along to further the diligence process where our portal offer operates very similarly. You visit FilmHedge.com, if you are trying to fund a movie, you fill out some information, you tell us about it, and you tell us where you are in the process. Not every project is right for us. Most of the projects that we find, tend to have budgets anywhere between three upwards of $50-100 million movies. Not the best source of capital. If you’re a first-time filmmaker and you haven’t kind of figured out how to cross that chasm, we can give you advice. But that’s not the problem we’re solving. The problem that we focus on is for very high capital investors who want to place capital into space and experienced filmmakers who are sourcing capital. Now, here’s the problem for filmmakers. A lot of people don’t realize this, but most people in Hollywood when they’re making a movie, I would say 75% of the time, don’t have 100% of the capital that they need. Most movies go into production and there’s still a shortfall in the capital stack. It might be a $10 million movie and they may have $5 million raised. They’re like that’s good enough to get us far enough along. We think we’ll be able to finish the rest of this raise before we’re done. In those scenarios, when you hit that $5 million mark and you need to fill out the rest of that, you start to call anyone and everyone you know to fill out the rest of that gap. It’s called gap finance, bridge financing, etc. That’s the space that we plan. We are not 100% financing for a movie that has raised nothing. We’re not where we can be strategically used at the beginning of the filmmaking process, and I’ll get into that later. But I would say the most common scenario is a producer is on set, they’re in production, and for whatever reason, they’ve gone over budget, or an investor has dropped out, and now they are short, or they have unexpected expenses. They need to raise additional capital. That capital raise can be one of two things, it can be equity, or it can be debt. Equity is in the startup space. Someone puts in money, and they’re not really expecting that money back until the life of whatever you’re building is complete. What that means for a film is equity investors are signing up, not to get paid back often for many years, because that film has to come out. It has to go in front of audiences, it has to make money. The difference on the debt side is that it can be structured in a lot of different ways. Ultimately, you don’t have to wait for a film to come out and make money for debt to be paid off. FilmHedge term loans are often paid off before the movie is released. But after it’s completed, so the filmmaker completes the film, what happens then it’s sold or picked up by a distributor, a network, a studio, they take the risk of putting it out in front of audiences. There are transactions that the audience never sees. Most people never see that film being available to the mass market, but that is after the filmmaker has completed it. We sit in those spaces that sort of behind-the-scenes transactions that producers often go through to get their movies released. What that allows us to do on the investor side is we’re offering them a security one, because it’s debt. That means there’s something there that’s collateralizing, a loan, whether that is corporate paper with a big streamer, or whether that is hard assets, or whether that’s someone’s revenues or net assets. The other thing that we offer them is speed. An equity investment, you might wait a few years to get paid back as an investor. When it’s more money than you’re putting up, you might wait years for it to get paid out with what we do. The turnaround time on money can be as short as a few months to a year. 12 months at most. Your money’s being turned around. It’s much more like what you would experience as a lender and real estate than it is as in what people are used to in the media space. And then there’s a couple of other things we do for investors, transparency. There’s a big, perceived, real problem that investors have in the media, and what’s called Hollywood accounting. You kind of move the numbers around to offset your losses with any major gains that you have. You have one movie that’s a huge hit, you’ve got nine movies that were all bombs, and then they’ll shift the money that they made to cover all these losses. The problem is, if you were only an investor in that hit movie, you’re expecting huge returns. But often those returns are spread out across a producer’s portfolio of losses. And so it gets a little dicey. You really have to be smart about how you structure those deals. We eliminate the need for that because there is no spread across multiple projects. If the project is profitable, if it’s sold before any of that, equity comes back and the investors are repaid. The other thing that we help facilitate is transparency. We use API connections to the borrower or bank accounts to do real-time reporting on the use of proceeds. That’s something that media investors have never had. This is a space that has been rife with fraud, has been rife with misreporting, or just a complete lack of reporting. We find that those two features are huge assets for the investors that we work with. 

William Leonard

This is interesting. You’re seeking to streamline this entire film financing process to bring transparency to both the filmmakers and the investors. It sounds like this is a very convoluted siloed process. I guess a question for you is you were talking about the turnaround time on receiving capital back and I guess that’s categorized as if the movie is a winner or not. How are you determining if a film is a winner? Is that a certain percentage return on the original budget? How is that really determined in the industry?

Jon Gosier

Actually, it’s the total opposite. We don’t care if it’s a winner, or if it’s a loser. At FilmHedge, our investors don’t make any more money or any less money if that movie comes out. If nobody goes to see it, versus if everyone goes to see it, we’re not in that business. We are in the business of bridging production finance to corporate pickups. What’s called a negative pickup in the movie space. Think of it this way, let’s say you make a $7 million movie, and the producer gets some agreement from Netflix to buy it for $10 million. That is a $3 million spread. It’s only covering production, nothing has been seen by anyone yet. And that producer, at first, all they have is an agreement, it’s more than a handshake, it’s a legal agreement with Netflix, or whoever, and then they have to go make the movie. Often, those agreements are in place before they finished the movie, or before they’ve even, in some cases, before they’ve even started the movie. And it’s in that space, that they would reach out to FilmHedge and say, “It’s a $7 million movie. We only have $5 million. We need to fill this gap of $2 million to make the movie.” We know that if we make it for 7, it’s going to get picked up for 10. That’s how we make money. Essentially, they pay us off with that spread between 7 and 10. We help them solve that gap between 5 and 7. We are purely interested. We don’t care if your movie goes off and makes a billion dollars. We don’t sit in that part of the capital stack. Our loans are paid off first before the movie comes out. It’s a flat interest rate which makes our money cheaper than equity. Because your equity investor lives with your profits for the life of that movie. If a smart producer looks at a FilmHedge loan it’s like, “The interest rates are a little high but the time cycle to get that money is shorter. I can finish my movie. I get the big bucks in to sell it. And then it goes on to the market and then I start making even more money.” Your equity investors are going to be chipping away at those residuals for the rest of the movie’s life. FilmHedge has been out and paid for from day one.

William Leonard

I guess that’s what you meant by you all being strategically used at the beginning of the financing process because whether it’s a winner or not, it’s not relevant to FilmHedge at all?

Jon Gosier

That’s correct. In the beginning, you can strategically use one of our loans to put some capital in place because you need capital to attract talented actors, actresses, directors, writers, producers. You might use our loan to get those people, getting those people allows you to raise equity money, and then use the equity to pay off FilmHedge. That’s one scenario. The other scenario is you’ve somehow already raised some money for your film, you’re in production, something goes wrong, you need a little bit more money. Going to some of the competitors in this space, it might take three months to get your money. If you’ve got people on set and cameras are rolling, you can’t wait three months. You can come to FilmHedge and get that money as short as 72 hours, sometimes even shorter. And then the final area where someone might use FilmHedge loans strategically would be at the end of the filmmaking process. Post-production, what’s known as finishing funds, you’ve completed the movie, you raised enough money to somehow complete the movie, but you need that last bit of capital to finish post-production audio or whatever is going to finalize that movie so you can then sell it. Sometimes it’s reshoots. Sometimes you need the actors to come back in and do voice overs. You could use our loans there. And in all three scenarios, there are ways of structuring this that would allow us to be comfortable in that we’re getting taken out before the movies are released. But that makes the producer comfortable in that they’re getting the money quickly. The interest rates are insanely high, at least for the industry, and when we’re not taking back-end points. Sometimes we do get back-end points, but it’s not our core business model. 

William Leonard

Got it. No, I love how you broke that down there. In terms of where the business is today, what are some of the films that you have financed? Are there any notable ones that have been a part of the FilmHedge stack?

Jon Gosier

We can’t talk about the kind of films in our pipeline. We have one film that we’re funding right now that should be public fairly soon. It stars some well-known actors and actresses. It’s in that $7-10 million range. It stars a music icon, or it’s about a music icon that most people, at least in America, know. I can’t say any more than that. But what I can say is the types of movies FilmHedge funds are the type of movies that you can expect to see on Netflix, Amazon, Hulu, Google Play, whatever they call it now, or networks, theaters, or cable. It’s all fairly mainstream fare. What I can say is the prototype, like the impetus for FilmHedge, came from four movies that I financed and co-financed in 2019. You can see the posters for two of them behind me, a movie called Skylines, which was a $10 million dollar sci-fi movie that peaked at number five in the US on Netflix about two months ago. And then Gemini Man was a movie that I had a little bit of interaction with but that deal ultimately fell through. But, you know, those two should give you a sense of the types of movies that we’re talking about.

William Leonard

Definitely. I know Gemini Man had  Will Smith, and it’s definitely up there in terms of caliber. And really shifting gears here a little bit, Jon, after you worked with Tyler Perry for some years, you talked about how you have always been interested in tech and you went on to start and build some successful companies in tech. I’m curious, building for those years, what were some of the the key lessons that you learned on your entrepreneurial journey? Because a large majority of our listeners are founders, just like yourself, who are building pre-seed companies mainly in the southeast in the software space. What are some of the lessons that you’ve learned that you could share with them and any advice for fundraising?

Jon Gosier

One that I think is really important for founders is to really focus on the problem that they’re solving. Really understand the industry, understand your customer, understand the stakeholders. That doesn’t always translate to a good opportunity for VCs per se but if you are really solving an industry problem, it won’t matter because you will always have the option of customers and just building on revenue earned. My first software company was a company called MetaLayer. Although we did get some early support from Comcast Ventures, they were the first investor. It wasn’t a huge amount. They made an angel investment in our company. We had maybe a few other angels but it was a big data product. I thought it was a perfect fit for venture capital. I proceeded to talk to like 200 VCs, this is in 2010-2012. The whole Sandhill Road Shuffle flew all over, and we came up with a big fat zero on the amount of capital we raised. I still went. I was able to sell that company and it was still successful. It was successful because we had customers. The reason why VCs didn’t like it, it was kind of before this whole data boom. They knew that there’s a lot of opportunities and data. Sometimes you can be so early that investors are like, well, we just don’t know who’s gonna win this race or what technology is gonna win this race. They’re kind of paralyzed. They just kind of wait it out, and then they kind of come back later. They’ll pick the Palantirs of the world. Palantir probably started the same, around the same time I started MetaLayer. Obviously, that’s a huge company now. We weren’t as big, but we had similar customers and that sort of thing. There were many other data companies that were started around that time, they all had different lives, but there’s still only one Palantir that ultimately won that race. If it’s new and it’s a whole lot of people attacking it at once, sometimes that can work against you. Because you know, VCs are just like, it’s too new for us to know which of these is the one to bet on and whether they end up taking some risk or not. You as the entrepreneur, if you know your segment of the market, if you know your customer, if you know their pain points, and if you know how to scale your solution, you’ll be fine. It may not look like what you thought it would, but it’s still going to be fine. I’m still very happy that business still has a legacy. The other things can be true too, like you mentioned earlier in this call. Where we sit in the market, it’s a little convoluted to understand. We’re like a very niche part of film finance but that’s okay with us. Because we know that there’s a problem here. We know that it’s a $40 billion a year market. We know that there are Many tech competitors anyway that are in this space and it’s a huge opportunity to disrupt it.

William Leonard

I really appreciate your insights on that. Interesting question, what does success look like for FilmHedge this year? I know you mentioned you have some films in the pipeline you can’t talk about right now but how do you all measure success categorically?

Jon Gosier

One of the things that FilmHedge changes, on the producer side, we talked a lot about the investor side, on the producer side is just access. Film finance is a very, very murky, very hidden kind of world. It’s often very relationship-based. You need to know very wealthy people or very wealthy institutions that can finance your projects. They have to like you, they have to like your projects. That creates a kind of a wall of exclusivity, where only people who kind of make it behind into certain rooms, get their stuff funded. Everybody else is just trying to get it done by hook or crook, or however, they can get it done. With Filmhedge, you just go to our website and click ‘Apply’. It’s that simple. We don’t care about the topics of the projects, we don’t read scripts, and we don’t care who the actors and actresses are. Now, there are other people, other stakeholders in the ecosystem where all that stuff is still going to matter. For instance, you’re not going to sell your movie to Netflix if they don’t like all of those things about your project. But at FilmHedge, we don’t care, you just apply and if you meet the terms of what we’re looking for, in terms of collateralization to get through underwriting, meaning you have either an agreement with one of these larger companies or you have the personal assets or corporate assets that allow us to underwrite your projects and underwrite your loan to fund your project. It doesn’t matter to us and so that creates a whole new path. A more equitable and accessible path for anyone, whether you’re an upcoming filmmaker or whether you’re a very well-established Hollywood player. That’s the one thing we change right out the gate. The other thing we change is for our investors. We’ve built almost like a marketplace where it’s not like some of the marketplaces that most people are used to in that you don’t know whose funding you or where the money is coming from. As the producer, we know but it’s structured almost like a wealth management portfolio on the investor side, where we understand their risk profile, we understand the types of projects they want to see their capital go towards. The FilmHedge platform algorithmically matches the borrowers to the right pools of capital that sit in our marketplace. The two never have to talk to each other they never have to meet. It’s just a very streamlined capital placement process. And to the borrower, it just looks like they got their loan funded, and then they get the money.

William Leonard

Got it. You’re really democratizing access to capital here. How can filmmakers apply? I think you say go to the website, what is the team website?

Jon Gosier

In many ways, we are democratizing access to a type of capital. But it’s a very niche type of capital, and you really have to know how to use it as a producer. It’s not going to be appropriate for every filmmaker. What we aren’t doing is helping people who struggle to get into the filmmaking game. Get in, because this is not the solution for you if that’s the problem that you face. We’re careful about that. It’s a type of capital we’re democratizing access to. What we’re democratizing is reliability, scalability, and assurances for investors to grow the marketplace from that side. I would say that’s 90% of what we do, and then the 10% is the access for producers. And then to go back to your other question, what does success look like for us? It’s just growing the number. It’s growing, the pool on both sides, the pool of applicants in the pool of investors who are contributing to those applicants. 

William Leonard

Got it. Awesome. And traditionally, Hollywood is known as the mecca of film-making financing production. But in recent years, Atlanta has become known as the Hollywood of the South. I’m curious. Now, how have you seen the city of Atlanta, the state of Georgia influence and impact the film industry as a whole?

Jon Gosier

Atlanta and Georgia as a whole has been really disruptive to the overall ecosystem. What you’re starting to see is for 100 years, LA, Hollywood, the West Coast kind of had this industry sort of, not monopolized, but at least in America, it was fairly well monopolized. What you’re starting to see is because of the rise of streaming, because of the dropping costs of technology, and because of migration patterns of people in the US, you’re starting to see that change quite a bit very rapidly. Hollywood had 99% of the US film market. Now in terms of decision making, where projects are shot, where people live, who want to be in that industry, let’s say it’s gone down to 70%. That’s a huge shift. And where has that shifted to? A big portion of it has been here to Georgia. Georgia is literally where the most films in the world are shot now. Now, that’s deceptive. Because it’s where they’re shot but that does not mean that’s where they’re greenlit. Where they have been greenlit, where they’re financed, is still the power centers, LA, New York, London, Paris, Berlin. Those are still the power centers of where the money comes from. Where the money comes from tends to be where the heavyweights live and they’re the decision-makers. What’s starting to change in Atlanta is some of the people who are not quite those people who greenlight projects, but the people who work for them, the people who know the business, people who have worked with them for a long time, they’re starting to migrate away. Because the cost of living on the west coast is just too high, or the taxes are too high, or the compliance is too high. They’re just starting to leave and go other places and where they go, they bring their talent. They bring their connections, they bring their access to capital, and so another reason why we built a solution to solve investor problems is we know that and we know that there’s a lot of money moving to Georgia. When I talk to people on the investor side, they often say that, “Yeah, we like this market, but it’s very inexperienced when it comes to managing the capital.” Investors don’t inherently trust producers. You’ve got to build that trust. We like to think of FilmHedge being a solution that bridges the gap of trust between producers and investors. We’re doing it here from Georgia. Ultimately, we like to think that will bring more capital to Georgia and allow Georgia to become more of a player when it comes to greenlighting its own projects. FilmHedge, as it exists today, will not greenlight a movie, but we have the relationships with the people who do. Those are the people who can put up $10-30 million for a film.

William Leonard

I think you said the true migration of people is what is really underpinning the growth in why Atlanta and Georgia are seeing the most movies being produced here in the world. You’re seeing it in the tech world. People are migrating from the Bay Area to the southeast, from New York down here to the southeast as well. I think there’s only going to be more growth happening in this ecosystem over the next five to seven years. Eventually the decade is likely as well. Jon, I think this was a really interesting conversation. I was glad that you were able to join in and share a lot of insight into what FilmHedge is doing, how you really came to this idea, the origins of your career, the Nexus behind creating access to certain types of capital, and its importance. With Georgia, growing as a film hub, and a film nucleus, the FilmHedge is just gonna grow right along with it. I’m excited to see the growth that you and the team experience and really hope to have you back here on the podcast sometime soon, man.

Jon Gosier

It was a huge honor. Thanks for having me on. We’re just excited to see. Obviously, the tech space is growing but we’re really passionate about the finance side of media. We think that with more people interested in that side of tech media in finance, I think it’s going to be very good for Georgia.

William Leonard

I agree. Jon, it’s been a pleasure. I look forward to catching up soon. 

Lisa

Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.