Unlike an executive producer who takes a fee from the budget of the overall project for her contribution to the picture, a finder is only the business of raising money for the film and serves no other purpose. Many finders request a producer credit for helping to raise money, so that if they are found to have participated in negotiation of the deal between finance and the production company in excess of their role as finder, they can argue that they have produced the film, and are not bound by SEC rules requiring that only brokers can negotiate transactions when bringing money to a project they are not otherwise involved in.

The Uniform Securities Act §401(c) defines a broker as “any person engaged in the business of effecting transactions in securities for the account of others or for his own account.” Whenever a producer seeks money for a production from anyone as an investor, and particularly from third parties he does not know, a transaction occurs at the time the money is turned over. In order to qualify as the exception to the broker rule and act as a finder, the finder’s role must be limited to serving as an introduction between the two parties. Finders may not participate in negotiating the terms of the deal. In the Appeals Court of Massachusetts, the court stated clearly that a Finder brings together parties for a transaction, while a broker is involved in negotiations. Further, Mass. Gen. Gaws, ch. 259, section 7 requires that all finder’s fees must be set out in writing or it will be void and unenforceable.
While finders may not participate in negotiations between the parties they introduce, several SEC opinions suggest that a finder may provide information to the two parties regarding the transaction to be pursued. Thus, the finder should be careful not to provide term sheets, but could probably provide samples of term sheets, which either party had negotiated in prior deals as suggesting how a deal might be structured. The specific terms, however, should be redacted from the material, and ultimately left up to the financier and producer.

Protecting Your Contacts and Collecting Your Fees. If you are a finder, before you make any introductions to a producer, make sure that two documents are entered into first: A non-disclosure/non-circumvention agreement (“NDA”) and a finders fee agreement. The NDA ensures that the producer or anyone else he works with may not disclose the source of financing (without permission) and may not go directly to the source of financing without disclosing that fact to the finder. It is generally a simple two to five page document. The Finders Fee Agreement is generally slightly more complex in so far that it will deal with finding money (a) for the project at hand and (b) for projects not disclosed by the producer at the time the agreement is entered into or perhaps even not even known by the producer at the time. It is reasonable that if Movie A, for which producer sought money, is passed on by Finder’s source of funding, but producer then tells funding source about Movie B and gets money, that Finder should still collect his fee for making the introduction. So finders should be careful to ensure the agreement is drafted with specificity. Further, if finder is bringing a unique source or structure of financing, it is reasonable that once confidential information is disclosed to the producer, if the finance entity again passes on Movie A, but producer seeks money from a different financier (unknown to finder), and uses finder’s confidential information to set up the deal, then again, finder may be entitled to his fee, even where he did not make the introduction, but did introduce the concept of financing.
Producers must be savvy about the cost of the finder. Most finders do not come from financial backgrounds, and are merely making introductions because the nature of the business allows them to meet so many people, some of who may provide money to a project. Because of this, many finders have come to think 10%, the standard commission amount given to agents, is the amount they should be entitled to on money. This is often too expensive a fee to make the money worth the producer taking. Agents get paid for selling a client’s work (screenplays) or services (actors). Ultimately the producer will owe the investor his money back plus 10-20 percent of the gross profits of the picture plus a percentage of gross profits once the investors have been paid back their original investment. A bank or other financial institution may also require the producer to collateralize the investment with a bond or other meaningful property if the movie is not ultimately completed. If the finder takes an additional 10% directly from the cash raised, this must be accounted for in the budget of the film. If a film is budgeted at $2,000,000, and a finder takes 10% of that money, then the producer really needs $2,200,000. The investors are then owed $2,200,000 plus 10-20%, making the film’s cost (before the producer gets profit) substantially higher.
Producers should limit the finder’s fee to between 4 and 8 percent of the money raised for one-off pictures (for slates of films with production budgets over $10 million, an even lower fee should be granted at around 1-2% of the money raised, since financial sources such as banks are unlikely to approve a higher finder’s fee regardless), the higher amount being reserved to professional finders with a track record, the lower amount to people acting as finder because of the right time, right place theory of business. Either way, finders make a good profit just for knowing the right person and making the introduction. Producers should also make sure that NDAs go both ways, so that finders cannot approach members of the company (writer, director or other producers) without the producers express knowledge and consent. This will ensure that the producer is not cut out of the deal. Lastly, many finders do not have direct contacts to financing, but merely know a third party who knows potential investors. If this is the case, producer should ensure that the finder’s fees come out of the total finder’s fee with whoever the ultimate finder is, so that there are not fees upon fees. Finders need to disclose if the financier is also paying them. If they are, then the fees to the finder should be definitively lower.
Once the NDA and fee agreement have been entered into, the finder should then be requested to immediately set up the introduction for the parties, including any necessary materials. Sometimes, the finder may assist the parties with the submission of initial documents, but once the parties sit down to negotiate the terms of the investment, the finder may not participate in those negotiations nor may they advise either party on the terms of the deal. When the transaction between the parties closes and the money is turned over from the investors to the producers, the finder is immediately paid the fee agreed to in finder’s fee agreement. Finders may want to put in their fee agreement that the payment is made directly to them from investors, so they do not have to wait for the producer to make the payment, but in any event, such payment should be made pari passu (at the same time as the producer’s receive the money). Producers should be very wary of a finder that requires any upfront money (except for limited expenses). Raising money is very risky and in a bad economy very difficult, and most people who say they can raise money, rarely realize their intended goal. A great deal of time is spent obtaining investors for film projects in the business. When working with a finder, make sure you conduct some due diligence and then cross your fingers.

Disclaimer: None of the material in this article is intended as legal advice, and if you require such legal consultation on a particular project or work, please contact an attorney. Vinca Liane Jarrett is the managing attorney of the Law Offices of Vinca Jarrett & Associates, a full service law firm with experience in the field of entertainment, including film, television, music and media. She is also the owner and principal of SKRIPTEASE Script Consulting, specializing in drafting, editing and consulting on feature and television projects. She is currently a Board of Advisor to the Golden Trailer Awards. You can contact Vinca at JarrettBiz@aol.com and check out her web site at www.vincajarrett.com.