We all knew one of the commonsense edicts of Hollywood is “never invest in your own movie."*
-- With the sound of silence, the Market has spoken.
-- With the sound of silence, the Market has spoken.
We all knew one of the commonsense edicts of Hollywood is “never invest in your own movie." But I did it anyway.
-- Garry Marshall, My Happy Days in Hollywood [1]
A few of the many well-known movies that are self-financed: Blair Witch Project, Clerks, most Robert Rodriguez movies[2], the upcoming Cloud Atlas by the Wachowskis. Self-financing might still lead to low odds of success (probably difficult to properly study this), but it seems to me there are enough success stories to question the "never" advice.
[1] http://books.google.com/books?id=X3eXiLG9WnIC&pg=PA196&#...
[2] http://blogs.indiewire.com/theplaylist/robert-rodriguez-talk...
Investing in your own project isn't "commonsense," it's just an individual's view on risk management
Then again, Clerks was famously paid for by a bunch of credit cards. I guess there's an exception to every rule.
Smith did spend around $30k of his own money on production costs. The bulk of that was for film stock. (Similarly, Rodriguez spent $8k of his own money on Mariachi.)
Now, here's the kicker: Neither one of them spent a dime on film prints. They signed deals and let the studios take care of that. This is significant because if people talked about Clerks' or El Mariachi's budget in those terms, the numbers would be in the rane of hundreds of thousands of dollars.
To put it in perspective: Would you say you "self financed" your startup if a big multinational paid for all the servers and bandwidth from the get go? It's sorta like that.
Saying it in interviews makes for a better story ("College dropout makes major movie for $8,000!") but it's not really accurate.
I think any successful bootstrapped company might challenge that assumption.
It might be a warning sign to people who think you can't succeed without outside investment, who of course are mostly either outside investors themselves or other business people involved with funding somehow.
It might be a warning sign to people who think they're going to make easy money by being able to invest in a successful company, who are all outside investors.
I'm not sure why anyone else would care, and certainly I don't see why either the founders or their customers should.
That suspicion is the sticking point for me.
Clearly there are many types of business that are effectively impossible to start without help unless the founders are already very wealthy. Most people couldn't afford to buy a factory and industrial equipment to start a specialist car manufacturing business, even if they had a team of founders who knew exactly how to build the most profitable car design in history and how to run a successful business selling those cars.
However, many other types that can start small and grow, with a level of initial funding that normal people might have available or be able to raise without relying on formal investment. Almost anything in any creative or service industry qualifies, and even several of the most successful retail brands in the world started as someone's family business selling out of one local store.
So my question is, for any business in the latter category, is there any evidence that:
(a) taking outside investment does corrolate with a higher success rate, by any useful measure of success given that obviously we could define it in several reasonable ways?
(b) any such relationship is causal, so the greater chance of success is definitely due to the money and not (for example) to the experience of and/or information available to the people running the business, both of which would tend to be higher at least for first-time founders if they had outside help?
Causality doesn't really matter in terms of putting of customers/investors/employees; if not taking outside investment is correlated with bad things, people will avoid you if you don't take outside investment, whichever direction the causal arrow runs.
If you are starting a business and have no desire for outside funding, that is great. But if you go in knowing that you need outside funding and no one is interested, then you are in trouble. The situation of startups that hit the pavement seeking funding to no avail is all too common.
The cynical angle: if you can get someone else to put up the cash, it seems a little foolish to put up your own, when the venture will probably fail anyhow, no? why not get paid either way?
Next, if all of your net worth is tied up in this one venture, well, that's going to effect your actions. Depending on your preferred outcome, for better or worse. I mean, all of my net worth is tied up in prgmr.com, and I think I've been slightly too conservative about accepting investors/partners. (I've turned down people that would have contributed serious technical ability as well as a little money, which may have been a mistake.)
And, of course, you have the emotional stress of losing your own money. (which varies by person. I've been poor before, I'll probably be poor again. It's not as scary to me as it probably is to some people. Personally, I find the idea of losing other people's money more stressful, so maybe there is just something wrong with me.)
The biggest downside to not taking money might be that there is nobody to make me slaughter my sacred cows. If I think X industry practice is wrong, well, there is nobody else to stop me from destroying the company by going against industry practice. (of course, the other side of that is that if you take money, it's very hard to do anything nonstandard, even when it would be good for the company. If you are doing it right, you know more about this sort of thing than your investors do.)