Transcript:
slava (00:01.558)
Welcome back to another episode of Smart Humans. I am super excited for today's episode. This is one of those examples where I love the product, but I have no idea how to make money on it. I've known this entrepreneur for years. He's an incredible entrepreneur going back all the way to the early dot com days with the globe dot com. Welcome to the show, Stephan Paternot.
stephan (00:21.635)
Good to be here. How are you doing, Slava?
slava (00:24.098)
So yeah, you now run a platform for movies, but we'll dive into that in just a second. How did you even get into alts to start off with?
stephan (00:35.011)
You know, I think I've only ever been in alts. Basically my whole career, I've been building alts or investing in alts. So the globe.com was the fringe concept built on this strange crazy thing back then called the internet that nobody understood. So I was taking the approach least traveled by everyone else in university was busy going and doing job interviews to go join Goldman Sachs or
some law firm. And I was tinkering away with a computer. I had a computer science background. For me, the internet was this giant alt. And the globe.com became our angle to come into that, creating an online virtual community. Back then, social networks were called virtual communities. But the idea was the same, like let's help people interact with each other. And social interaction online would become
potentially the stickiest concept we could come up with. So starting with that, Internet 1.0 was my career. That is a giant alt. And after the globe.com, after that first bubble burst,
slava (01:48.174)
Sorry, that was like the 90s, right?
stephan (01:50.003)
Yeah, this was the 90s, sorry, so I don't know how far back we really want to talk, but basically, yeah, the globe was 1994 up to 2001. So one giant alt for a career. Uh, and then after that, uh, once the bubble burst and everything went down 90%, I was one of the casualties of that.com era. Um, however, I kept thinking, you know, I don't buy what the pundits are saying that the internet is a giant fad and it was never going to succeed. It felt like, no, this is actually the beginning of something much bigger.
And so I set up a series of angel funds. Most of my investors had made their 10,000, 20,000% returns with the globe. I didn't make much of a return. Um, I didn't care about money back then. So I wrote it all the way to the top and wrote it all the way to the bottom. But my investors made money and they were happy. And they said, basically, Steph, whatever you look at next, we'll write you a blank check. So I set up a series of angel funds. Um,
and started backing entrepreneurs I knew who were doing their second dotcoms. And this was really at the beginning of the internet renaissance. So you know, Fabrice Grinda with Zingy mobile phone ringtones and screensavers. That was super innovative in the US. They'd been working in Europe, but he came to the US with a proven model. I backed him. That became another 10X. And I just kept finding more and more companies.
that stuck around through internet 2.0 at those early days and kept blowing up. And so I got back in the game, making a lot of opportunistic investments, but really defined by what looks like it has large scalable potential from entrepreneurs I know and trust who've done this before. Let's just back them. And luckily for my first, uh, couple of funds backed a lot more winners than losers. So that sort of kept me get staying in the alt space. Um,
And then ultimately I started to get a little more specialized. I started once the internet 2.0 was here to stay and people started understanding that, uh, there was this new thing called social networking and everyone was starting to get hooked on it. Uh, it started to be took, to create the underpinnings of the reinvention of the movement of capital. And that's when I got interested in this new thing called crowdfunding became a backer of Indiegogo early on. Um,
stephan (04:05.943)
but also became an early backer of AngelList, right? Reinventing how equity financing could go towards startups. Became a backer of SecondMarket, which was creating liquidity for large internet companies. And then it kept evolving.
slava (04:20.294)
And just as sorry, just as context or second market is Barry Silver, and then he goes on to do grayscale and now a huge crypto investor.
stephan (04:28.819)
Yeah, so lucky for me, I bet on Barry Silbert. He sold, we did well with Second Market. He sold that to NASDAQ and he took all of us and said, guys, there's this big bet I want to make. Do you want to come with me? Let's take all your gains from Second Market and put it into this new thing I'm calling Digital Currency Group. Now I knew just enough back then because I had been dabbling in something called Bitcoin in 2013 on some sketchy, sketchy marketplace called Mt. Gox. And you know, I got in, I don't remember what it was.
$13 a Bitcoin and just held onto that. You know, I knew Naval pretty well back then because of AngelList and he said, Steph, just as an insurance policy, put in 1% of your net worth into this new sector. So I did that. And lucky for me, Bitcoin started to move, but long before I could see it move, DCG came along. So that became my next big bet in the crypto sector. And I couldn't think of a better way. It's turned out to be one of the best investments I've ever made, but in large part by me,
letting an expert like Barry figure out what the angle was gonna be. So again, a giant alt sector. So everything I've ever invested in has been alts. I would actually say that what I've mostly kept away from our public stocks, for me, public stocks are the end of the road where I like to get out. Not my starting point. So I'm always looking for super early stage new sectors that have long-term potential growth. And then it's about ferreting out.
are the right players, we have the best angle that have the right reputation, right? That's sort of investing 101. But yeah, so I don't know that I know anything aside from alts. Slava, I don't know if that's helpful to your listeners, but...
slava (06:09.166)
That's why you're on the show. People want to learn from people like you. How is it that you choose what's next or where to put another 1% of your net worth? You were so early on social networking with the Globe. You were so early with people like Fabrice or Barry, so early on crypto, so early on angel investing or funds. Angel has just raised that over a $4 billion valuation. You were early. So.
How is it that you're identifying not even the specific opportunity, but the markets that you're going after?
stephan (06:42.967)
I mean, it's the internet in 1994 was a macro concept, right? A conceptual, it was nothing less than, hey, there's maybe a new way to live digitally where distance gets erased and you'll be connected to anybody, right? So it's such a macro concept that you just, you just have to dive in blindly and be ready for a roller coaster ride as you figure out how it's working.
Internet 2.0 actually was the less risky bet because it basically was saying, hey, the internet's actually real, but now we've got some expertise, we've got some experience and we're now going to figure out how to harness that and centralize a lot of that. So some of the right big bets will make huge returns, right? Now we know what's happened there, right? Huge amounts of centralization around a handful of corporations. So it became natural and we've seen...
This is something I talked about actually on Valley of the Boom, because I was forced to go back down memory lane and talk about, sorry, I'm going off on a tangent here, but there was this TV series that Nat Geo did where they did a retrospective, like, let's look back at how Internet 1.0 occurred and where it's ended up. And what became clear in the last few years is how warped Internet 2.0 has become. A lot of the utopian vision of this macroeconomic shift called the Internet.
has gotten deformed, it's gotten warped. Information, your own personal information can be used against you in countless ways. There's too much centralization where too much power is working against various interests that you have. So I was sitting here for the last few years going, or the last five years really like, what's the shift? How are we gonna course correct this? And that's where it became more and more evident with things like Ethereum, where there was a much grander vision than just the reinventing of capital.
but creating a new programming layer to the internet and actually broader than that, a new programming layer to society. Like how do we take power away from all these middle people, the politicians, the institutions that stand between you and a transaction you wanna do and bring more of that back into the hands of the average individual, right? More egalitarian. It's again, it's actually trying to bring back the original utopian vision of the internet and trying to make it actually practicable and actionable.
stephan (09:05.343)
And so Web3, finally it has a name because for a long time it was me, I was describing to people I would talk to with the potential of Ethereum and a world computer and all these different things could potentially do, but mostly went over people's heads and everybody who talked about it sounded a little bit cuckoo. But okay, now there's a name, it's Web3, and it's going to unlock huge new capabilities for society worldwide.
Is it right here right now? No way. You know, we've gone up the hype cycle, down the hype cycle multiple times in crypto. Right now there's been the hype cycle around web three and it's going to come back down. Same with Meta and NFTs. But like internet 1.0, those people who are just plugging away and building are just doing that. And eventually we will ascend again into the longterm evolution of web three. So long story short, we're just starting on web three.
That's where that 1% should be focused. My 1% now has turned into more than half my net worth. And climbing, I'm not stopping. I'm not thinking, well, I've done well. Now it's time to sell, sell and get out. No, I'm actually investing in the long-term infrastructure and what might be future currencies knowing I may never sell them, right? They may become the transaction engines of the future, not the US dollar. So now I'm looking more at what are the web 2.0 evolutions?
You know if I'm looking at the paradigm of what became interesting in web 2.0 versus web 1.0 Well, I'm trying to figure out what will be the play the players the networks the people that are going to take the current crypto space and Find the right angles in the web 3 space that takes time that takes effort. That's like me saying. Okay, there's a Theorem as a world computer, but you know, what are the guys at stacks doing? You know, they're trying to do a world essentially the same sort of
world computer but secure by Bitcoin. Well, that's interesting. But everyone's coming up with new angles and trying to find which of those angles will be the right play is hard. But I would say that if you're gonna make a big macro bet on the next 20 to 30 years, if you can hold that long, there, that sector is the one. Now, I'm not all in on crypto. There's other stuff I look at on the side. Like one of them is, well, what is one of the most widely consumed?
slava (11:13.718)
Got it.
stephan (11:23.907)
opportunities worldwide by all people that's growing. Entertainment. Everyone in the world watches movies and TV shows and that is just starting to roll out worldwide right. All of the growth is internationally on the entertainment side and so that became the next big bet. Well what happens when automation kicks in and people are jobless? What happens when we're talking about people getting eventually universal basic income? What are you gonna do with your time? Well you're gonna want to get educated or entertained?
One of those two things is gonna need to happen to keep society calm and cool and happy while they figure out how to keep making a better and better living. So the entertainment sector as a whole, it became clear over the last 10 years that was, if you go back to first principles of what are humans going to need, shelter and food and entertainment and education, that was a sector to get into. We can get into a little bit about that later because that's heading down towards why am I doing slated? But that was
I was looking for what's the vehicle akin to an Angel List, Angel List reinventing the infrastructure of managing funds and raising capital and managing a cap table. So Angel List has done an incredible job creating tools, leverage tools to improve the efficiency of investing in startups. The same needed to happen in the entertainment sector, which has been largely a cottage, outside of the studio system, it's been a cottage industry with gross inefficiencies. So finding that right angle in that sector has been another big alt bet.
slava (12:50.27)
Nice. So before we jump into movies, you obviously know a lot about startups investing into companies, crypto. How do you feel about collectibles, real estate debt?
stephan (13:03.283)
I mean, I know those are huge sectors, but I try to go for my comfort zones. And aside from, you know, where am I moving my family in the next 10 years and finding a good piece of real estate that will appreciate, I'm not really betting in those sectors. I was never a collectibles person. I know that NFTs is, has captured the imagination as of last year, but it's really where it's going next. That's interesting. What does that unlock conceptually? Um, but yeah, I mean, look, there's, there's people far smarter than me.
who are looking at every single alt sector and finding different ways to skin the cat here. And that just happens to not be an area that I'm deeply focused on. However, cannabis is another area that I was very interested in. And Naval was kind to share with me one opportunity years ago called Level Blends based out of San Francisco back when cannabis was the hot thing. And so that's a-
slava (13:41.454)
Sure, sure.
stephan (13:58.151)
That's a good example of a big fat alt that everybody was looking at, but trying to find the right angle with all the state and federal regulations at play was going to be dicey. So far LevelBlends has played out quite surprisingly quite well considering all the different regulatory uncertainties, but that is an interesting sector, but the excitement there has gone away largely and now it's a long-term gradual play. So...
slava (14:22.67)
got it. So whether it's movies or crypto or startups, everything has its own nuance. But what do you think of today's market? How would you talk about today's market? You know, geopolitical risks, uncertainty around growth, what's happening with inflation, where is going to be kind of supply versus demand, logistics, etc. Still a lot of positive things happening in the world as well. So what's your kind of two minutes on the point of view on today's market?
stephan (14:51.603)
You literally just took the words out of my mouth. I was going to say geopolitical uncertainty inflation Globalization backlash people realizing now that maybe they should have a good manufacturing base in their own country for all of their needs There's the response to the pandemic like wait. What do we do now? This keeps coming back? It's created so much uncertainty but out of uncertainty comes opportunity. So I think what you have to do
is really step back and go to back to again first principles where is society going what does society need in the long term like if you want to be you can either be super nimble and try to figure out year to year what's that what's the thing that's in but that's a guessing game and you're going to you're going to be a winner and a loser 50 percent of the time or worse um so for me it's the macro uncertainties mean you got to think super macro
terms of where are things going and I don't have any bright ideas except to go back to hey we're still at the beginning of what web3 is going to unlock i'm sticking to that territory broadly where i believe the rising tide will lift all boats um try to pick the right boats but uh that is a rising tide that's the most exciting thing for me aside from the entertainment sector again uh but there's just so much uncertainty
that's occurred in the last... I don't want to just say year, really, the last few years that I think everyone is having to do a top-down rethink.
slava (16:22.414)
Got it. And at a very simplified point of view, is it a time to buy, a time to sell, a time to hold? I mean, obviously it's asset by asset and offering by offering, but do you have any macro point of view?
stephan (16:37.943)
Well, yeah, it really depends where you're coming into things. Like if every time I've looked at the public markets and things looked bleak, like, Oh my God, there's this new thing called a pandemic and it's going worldwide. I went through all the emotions of here we go, bye market. And the market did crash. But like with every other previous crash, it bounced back in an uneven manner, benefiting some sectors, not others. I've seen the exact same thing happen in entertainment.
So in the end, it's okay. Is the economy, or are the global stock market is gonna continue bouncing back from every crash? Well, it certainly looks like that forever. Which sector does better than the other is the hard part. And everyone's trying to rethink that, right? So as a macro counterweight to everything that you couldn't do in person, it's now virtual. Well, virtual took off.
the last two years until pandemic started to subside enough that virtual crashed again somewhat and now there's a lot of talk about meta overhyped potentially for a while but eventually everyone's been talking about totally immersive digital life but again that's back to super macro if you're going to put your money anywhere i'm never looking at putting it in again at the most liquid stage at the public market
I'm looking for where is it early on? That's the higher risk area. That's where you're trying to see does this thing even have traction? But I think it's a pretty reasonable attitude to say, keep quite a bit of it still as cash. Maybe keep quite a bit of it still in things that have been around a thousand years, like gold, but also keep a good chunk of it on the thing that may displace gold, like crypto. Again, if your risk appetite is play it safe.
stay a little more diversified. If you're the type of person where you're always looking to go all in on the next big thing, like in some ways I accidentally have with my crypto net worth, I'm still all in. I am not selling and taking off anything off the table.
slava (18:41.454)
So let's dive into where you're spending most of your time on. You're obviously a super smart guy, but you're spending so much energy now in movies. Why are you funneling the energy into movies?
stephan (18:53.067)
Well, so back to sort of my original thesis that society needs more and more content, whether it's movies or series or docu-series or YouTube series, content consumption is just continuing to rise. The global spend is astronomical. It's a two plus trillion dollar market of content spend. And
It is growing five, six percent year over year. Now most of that growth is occurring internationally and some of it is currently series versus movies, but content consumption is growing. And I, for many, many reasons, like most of the world didn't have great content, now they're getting more access to it because of the streaming revolution. And they're going, Oh, I like this and I want more of it. And I want it more localized for my culture and country. And so.
more content with more niche appeal in some cases and more wide appeal in others. The streamers and studios can barely keep up with the demand. Now, will that demand... will you hit a point of every day where you can only watch so much content? Maybe. Maybe for at least the Western world, people have hit peak content saturation where I can only watch so many
stephan (20:20.099)
That's not the case worldwide, so the sector's still continuing to grow. And...
the, again, with automation and universal basic income as a concept that people are talking about more and more, I can see a day where more and more people will actually have more and more time. So why that sector? It happened to be a passion of mine. I understood social networking with the globe.com. I was fascinated with the reinvention of capital, you know, with the Indiegogo's and AngelList's of the world and now Digitally Currency Group. And I had a huge passion for film since childhood. I've been a movie buff.
Right? So movies that are, that can win awards because they're that compelling. It was my passion. And I found a way to marry all three, um, by co-founding slated. I was looking for vehicles to invest in that we're really going to reinvent Hollywood the same way Angel List and Indiegogo and countless others have reinvented the tech financing sector. And that was it. And I couldn't find a vehicle with the right team and vision. So I ended up co-founding it with a few co-founders and
imitating as much as possible Angel List's approach, but very quickly realized that what works for the tech sector needs to be massively modified and customized for the entertainment sector. How you evaluate a movie is different than how you evaluate an enterprise. But they need a lot of the same underpinnings, which is to say you need to attract talent into a marketplace. There's always talent. There's an infinite number of people who have a story to tell and want to share it.
like entrepreneurs who have ideas for apps or new crypto networks and God knows what, but they need infrastructure to make that happen. How do I get my move? How do I write my screenplay? How do I get it? How do I match up my screenplay to a team that can help me make the movie? How do I then attract investors? How do I attract sales agents and distributors? There's all these different mechanics that I had learned over the years. I had actually co-founded a film production company called Palmstar, which has made a whole bunch of movies, including John Wick and like
stephan (22:24.507)
bunch of others and I learned there how the traditional film sector works. How does it, how has it typically worked? And I could see all the inefficiencies and that's that what informed everything about Slated. How do I make this almost like a factory floor process of simplicity to make it easy to attract filmmakers, attract the teams, attract the financing, sales and distribution. And I kept investing in that and kept building in that. And Slated now 10 years in...
is one of the largest suppliers of independent film content in the world. And we now have 200 movies a year listed on Slated getting released. And the films that have gotten released from Slated grossed half a billion dollars and won hundreds of awards and been certified fresh. So it's like, okay, we've created this system that's a pipeline of content efficiency. And now we've identified ways we can make money by taking a percentage of every piece of every film. So...
Anyway, this is me putting more of my entrepreneur hat on versus just an investor hat because if I was to step away from my passion here, could there be other businesses in this sector that I would invest in? And the answer is yes. There are other players that have different angles that are reinventing content or really film and series financing. So to me, that's just interesting. It's a passion of mine.
slava (23:41.794)
So.
Yeah, so on this show, we're trying to learn and get educated about how we can make money in these various asset classes. I once heard a joke, which I remember, which is in L.A., how do you become a millionaire? And it's you start as a billionaire and you make movies that that's stuck with me. And so how is it that I or the listeners can make money on movies? Can you help explain that? So we have 10 grand. Can we make money on movies?
stephan (23:54.711)
You start as a billionaire?
stephan (24:06.931)
Yeah. Yep.
Yes, so the answer is actually yes, you always could. The problem was is that it was a very steep learning curve. So I went through this steep learning curve. It cost me a lot of money investing in Palmstar and being an independent film investor slash producer to learn how to invest in film and do it the right way. Now what motivates every film investor and it never ceases to amaze me just how many people wanna get involved in the film and TV world, if you will.
But then it doesn't surprise me when I again, as I mentioned earlier, it's the most widely consumed content or investment class in the world that people never know how to get involved in. I go, how do you do it? How do you find the people making these things? I mean, I'm watching this stuff all the time. I have an opinion, I have taste, I have an instinct. How do I get involved in that type of movie? So I had to learn the hard way. I spent the 10 years from 2004 to 2014 with Palmstar learning how to go from being an investor.
becoming a producer and I had to become a producer to try to improve my chances of a successful investment outcome. And so what the three key motivators for an investor, I call this the three P's, one of my co-founders coined this term so he gets credit for that, but it's participation in a movie like I want to get involved like I have a vision and I want to be involved. There's patronage well I have wealth and this is an important story that needs support so I'm gonna be a patron. And then there's profit motive.
I just want to get in the business and make money. So the types of movies I get involved with that make more money than others, that's what I'm going to go do. It's one of these three P's or two of these are all three of them. That's okay. Unlike tech investing where you're writing a check and your ultimate goal is bragging rights on the IRR you generate, you're never usually as an investor in a company, you're not looking to go and help run that company. You're investing in the team that's running it to do the work. But in the film space, as I said, participation and patronage
stephan (26:06.867)
It warps things. It makes people go, you know, I'm willing to lose money in order to tell this story. And if this story wins awards and gets notoriety all the more, like the bragging rights is maybe that money losing film lost money, but it made awards. It's important people have seen it. It's changed the course of politics and people's attitudes. You know, somebody who was investing in an inconvenient truth, a documentary about the environment, Jesus, that had been done a million times.
That was probably somebody who was a patron and maybe wanted to participate with very little hope that an inconvenient truth would break out and become a worldwide hit. So all that to say, yes, there is, uh, the, the motivations for investing in film. They exist. They're broad. They're multifaceted. They're all okay. So how do you try to take your passion and your patronage, but also make profits consistently? That is the steep learning curve that we tried to reinvent.
we've done successfully now with Slated, which is to say instead of you hustling around for 10 years trying to get to know everyone in Hollywood and everyone around the world that's in the film space and you know by sheer series of coincidences getting to meet the right people you now can go into an online marketplace. Slated. You just log on and filmmakers are already there. They've brought their films and the networks of people who make that content are on Slated. So I'm proud to say
stephan (27:34.067)
All of the best picture nominated movies at the Oscars the last few years are made by slated members Above the line below the line. They're there the talent is there and they're increasingly putting more and more of their films on slated
slava (27:45.734)
What is the line that you're referring to?
stephan (27:48.415)
Oh, sorry, above the line, that's an industry insider term. It means the most senior people making the movie are called above the line. So your lead actors, the directors, the producers, sales agents, distributors, the people that can actually impact whether this is an investment grade asset or not are on slated. Below the line means all of the cinematographers, to gaffers, to costume designers, all the people who get hired by that, by that project that's raised the money,
They're on Slated too. So they're there getting jobs because they are really skilled craftsmen getting the jobs. But as an investor, when you come onto Slated or at any point when you wanna make an investment decision in a startup, if you will, you're betting on that initial core team. Okay, so how good is the screenplay that you guys are presenting here? And how good is the director? And how good is the producer? And how good is the cast? Most people who have never invested in films don't understand how to evaluate any of them.
And so what Slated did is we made it super easy. We have various, we built various AI driven scoring systems that can score the strength of the team. Every single person attached on that team based on their track history. So imagine taking data from every LinkedIn resume and anything that could ever be a signal about how good somebody could be at building a business. We've quantified it, we've turned it into 100 point scale and you can tell right away who's,
who's really talented and rising up that you may want to work with, or who's already really well established that you that may be able to deliver with greater certainty a quality movie.
slava (29:25.934)
So sorry, the main components are what? Screenplay, director, and cast? Are those the main components?
stephan (29:30.803)
Yeah, so the key things everyone wants to know when evaluating a movie is who's making it, who's in it, how good is the screenplay, will it make money? There are those four key things. Now fifth, you could say, well critics like it, like will it be well received? Those are the key things you want to know. Now how do you get to those answers? That's what we've built, a system that tells you if the team is good and strong and capable. We acquired a company that's that
created one of the most advanced, standardized script scoring systems. It's harnessing humans. We have an army of readers who've been trained to read and review finished movies and scripts and provide 13 pages of notes and an evaluation about how good the, the pacing of the story is, the conflict, the originality, they break it all down, it's all data driven and you get this script score. And we've had so many movies released now that we've been able to determine that our script score at the development stage, when you're considering investing in it.
is highly predictive of the likelihood of the movie becoming certified fresh and making money. And when you combine that with a team score, the predictive value goes up even further. So basically, at the point of investment, while a movie is being developed and assembled, an investor can get a really good informed decision on whether this thing has a chance of making money or winning awards or neither.
slava (30:50.082)
So let's dissect that for just a second. So can I pick one of these movies on the site and put $10,000 in it? Okay.
stephan (30:56.767)
Absolutely. So there's big movies and small movies and you can get matched based on your interest So you're an investor and you could say you know what I love dramas You know what actually I'm in Germany and I love drama So just show me German dramas or you could say I don't know anything about films Just show me the highest scoring films and I'd like to put in 10k in this one 10k in this one 10k in this one 10k in this one like create a portfolio and by the way I would always recommend like any tech investing build a portfolio not just
one film.
slava (31:27.47)
Do I have to pick my own portfolio or are there baskets available?
stephan (31:30.839)
So we can, so we're a managed marketplace. That means we have a team, our executive producer team that helps a lot of our investors build portfolios. So you can get a custom bespoke portfolio based on your tastes and our team will help you through that. Or you can just shop around the site, find anything you want that you get automatically matched to, and you can talk to the filmmakers directly and decide, you know, sorry, go ahead. Yes, so for the moment, and that's.
slava (31:52.52)
And do I have to be an accredited investor?
stephan (31:57.511)
So film investing is not really a crowd. This is not a crowdfunding platform. This is not about film fans. This is about people wanting to make a return on their investment. You want to put an equity and typically you get one or two or three or four investors financing an entire movie. So it's
slava (32:11.65)
And what kind of returns should I expect in general on my movies? Like, what's the average returns?
stephan (32:19.039)
So generally, when you invest across an entire sector, if you were to say, okay, I wanna buy across an entire index, well, actually, there's two different things to look at. How do big studio films perform versus small independent films perform? You can do both on the platform, however, we predominantly offer access to independent films, right? So there's the big studio franchise movies, and this actually is worth explaining.
slava (32:37.29)
And I could do both on your platform.
stephan (32:48.431)
The average accredited investor can't go and invest in Batman or the next Harry Potter or the next Fast and Furious because those are studio movies. They're financed by the studios and sometimes in partnership with large institutional financiers not your average accredited investor. Those accredited investors can invest pretty easily into non-studio movies. So just about any movies that's gone to the Oscars you know, Koda, King Richard, Liquorice Pizza.
These are all independent films. These are the types of films that are unslated. We've had The Sound of Metal unslated, which won two Academy Awards last year. We've had Uncut Gems unslated, the Adam Sandler movie. So you'll find a lot of these independent films unslated. You can go in, you can get matched to these films, you can reach out to the filmmakers directly, or our executive producer team will curate a list of films for you and help you build up the portfolio. How do you make the returns?
If you invest across a portfolio of high scoring films, you have a much better chance of making a positive return than versus investing in an average independent film. Like investing in an average tech company, if you do it once on one, you're likely to lose your money. If you do it in at least five or six, you're likely to break even or potentially make a small profit. If you do it across 10, your likelihood then of having call it two or three breakout hits that will make up for the losses on all the other five, six, seven films is much greater.
So for instance, the average independent film that we see is typically anywhere from like a half million dollar budget to a three million dollar budget. And the average box office returns that you'll see on these films are about two or three million dollars, which will typically represent about 20 to 30% of the total returns on a film. So that is to say, if you multiply two, three times a box office of a film, that represents the total revenue potential for an independent film.
Will your portfolio have more of these hits or more of the misses? The game changers are analytics. So when we have applied our analytics system, the team script, financial scoring system as a gating mechanism where you say, okay, slated, point me to the high scoring stuff, typically then we will help you build a portfolio with a much higher ratio of hits to misses. If you don't use the analytics, you will end up with a typical hit to miss ratio where you'll barely make a profit.
stephan (35:13.827)
So when we were doing, when we've done this in forward tests for studio movies, for instance, we did this actually to prove out, hey, if we could outperform the market, I wonder if institutional capital will be interested in this. And so four or five years ago, we started doing forward testing, taking all of our analytics and evaluating studio movies before release. Central Intelligence, La Land, you know, we just took a, we took a sampling of about 110 movies, big, medium and small.
before they got released and ran our analytics and crossed our fingers and waited until those movies came out and saw how they performed. And what we found was across a broad index, this was something like two and a half billion dollars of production capital that went into this, these all these studio movies, is that on balance, those movies made a six, seven, eight percent return. So that would have meant if you would have deployed your money over a two, three year span, you would have had an ROI of seven, six, seven, eight percent. Not particularly interesting.
But if you used our scoring system and gated out all the ones ours was saying they're going to be misses and only kept those that said we're going to be hits, we generated a 300% return. So three, three times, well, three times your capital, an ROI of 2.8 versus an ROI of 1.1 and that
slava (36:31.542)
And that ROI, if I put in 100 grand today or a thousand today, when am I going to see that money? Is that like in a month, in a year, in 10 years? When do I tend to see the results?
stephan (36:43.427)
So it depends if you're investing again, if you're investing in a movie that's finished, if you were investing in a studio movie that's finished, you might see your returns within six months. If you're investing in an indie film that's finished, like IE they're just looking for some finishing funds, you might see your return over the next one to two years because the movie's finished, it's looking for a release, assuming it gets an appropriate release, you're gonna start making money at that point. Now,
Depending on how well the film is received, you might make your money back very quickly, or you might make your money back over another year or two.
slava (37:17.442)
Where would you recommend to invest in the life cycle?
stephan (37:21.015)
Well, it depends. That's again, the three P's. If you're looking to be more of a participant and you want to sort of help shape something that's a passion project, you're coming in at an earlier stage, what's called the development stage. And at the development stage, you'll often hear stories about movies that can take eight, nine, ten years to go from development to release. And then they may become a wild success, but you've had to wait eight, nine, ten years for that. So.
slava (37:42.158)
So let's say I'm focused on profit.
stephan (37:44.567)
So if you're focused on profit, it's again, either you, you invest development pre-production on something that has great scores and outperforms the market. And within a couple of years, you're making a return or you're gonna be investing in stuff again, that has high scores, that's basically completed. And your only risk is you're waiting for the delivery of the film to a distributor or that a distributor will pick it up.
So it's the most common place people are investing in film by far is in the pre-production phase. Like the team is assembled, the script is great. They have a start date and they're now looking for their production financing. Right, so all of the development risks, those two, three, four, five, six, seven, eight years of development risks are gone, they're done, that's passed. And now you're just coming in right before they're ready to start shooting. That's where you're probably gonna have the lowest risk profile. And if the scores are good,
there's a pretty good chance if you have a portfolio of films going into production, you're going to end up having a positive return.
slava (38:50.99)
So you've mentioned these scores many times in the AI, and we all believe you that there's lots of great analytics, but not everybody gets the benefit of having you personally, Steph, on the show. So we get to talk to you personally. So what are the three things that really matter? Not just the generic words, the directive. What are the three things that inside baseball you really know, if we can find these three things, we're going to make a lot of money?
stephan (39:18.844)
for film investing specifically? Screenplay score and director.
slava (39:20.022)
Yeah, exactly.
slava (39:24.95)
No, no, but screenplay score. What does that mean? Like, what exactly does that mean? Like give us like a real inside scoop of, you know, how to make sure we got a great investment.
stephan (39:27.109)
Oh, sorry. Okay, so.
stephan (39:35.267)
So when I say screenplay score, it means that the screenplay has been analyzed by our team and it comes back with a score that will tell you that this is a very high likelihood of success, it's ready for production, versus a lower score that tells you this screenplay needs more work. And this...
slava (39:52.226)
But what does a high score mean? What are the actual details?
stephan (39:56.304)
Well, on slated that would mean any screenplay score over a 70 out of 100. Implies...
slava (40:01.758)
And how do you get an 80? We want to know the actual secret sauce. We want to know the details.
stephan (40:05.527)
So, okay, so basically, okay, so this company that we acquired and integrated and isolated, they've got this army of readers. We have about 35 readers who've all been trained. Three readers are randomly assigned. It's a double-blind process. Three readers are randomly assigned to each submitted screenplay. The readers don't know who the filmmaker is who submitted it, so they can't be biased towards that filmmaker, and the person submitting it...
It doesn't know who the readers are. They don't know if they're getting, you know, two men and a woman, three women, people of color. It doesn't matter. It's completely randomized. Four or five days later, or up to a 30 days later, depending on whether you've paid for a rush or delivery or not, you are going to get a 13 page report back, detailed analyst report from these readers, and these three readers will have scored across 10 categories. Tone, craft, conflict, pacing, all the key.
traditional metrics that matter to a screenplay on a five-point scale. All three readers will average their scores and they will come back with each reader will come back with, um, a recommend, a consider, or a pass, or a strong pass or a strong recommend. So how strongly do they recommend that this is something that should be made? If you have one of those three with a recommend, you might qualify with a 70. It means, Hey, there is a potential audience out there for this film.
You don't have to get all three readers to love your film, because most people don't all love the same thing. But what you want is at least one out of three to say, I would watch this, I like this. That'll get you up into the 70. Now, if you get two people recommending you, that means two out of three people are really into this, that's going to get you up into the high 70s, but potentially to low 80s. Once you get up to three people giving a recommend, or let alone a strong recommend, you are in Oscar-winning territory.
This is like as good as it gets, it's almost impossible to get over an 85 and get everybody to love your stuff. Even great material will usually have some audience that goes, man, well, I didn't love it. It was okay. So that's the key is how our readers evaluate. And this is a super repeatable process. If you were to take the same screenplay draft and submit it to three other random readers, three other random readers, three other random readers, we've tested this. They all come back within a two and a half point margin of error of each other.
stephan (42:24.163)
So it is highly consistent and repeatable. And we found that every five point increment in your screenplay score doubles your likelihood of being certified fresh. And we have actually published this, we published this years ago online because we were like, hey, Hollywood, check it out. Data matters. You can know how things perform and it blew people's minds away. And we were like, okay, well, what else can we know beyond just how powerful the screenplay score is at predicting outcomes?
And what we also did is we did research on 10,000 directors looking at the rotten tomato batting averages. So, okay, we got first-time directors who've made maybe some short films. And we got really established directors, Alice Steven Spielberg, who've made tons of stuff. Let's look at all of the rotten tomato batting averages. For those who don't know, rotten tomatoes is the metric that everybody looks at for if a movie is good or not, right? And we found, lo and behold, that...
If we looked at the batting average, Rotten Tomato Batting Averages of directors, first time repeat directors, well-established directors, they were also super predictive of the outcome of a movie. But what was most surprising to us is that a first time fresh director could outperform directors who are well-established versus there's genius directors who consistently hit it out of the park, but those people are ungettable. But what was interesting is, oh, it's actually a better bet.
bet on a first-time fresh director than somebody who's made two or three films where it's not quite as fresh. Maybe they had one hit but then they've had two that weren't. So they have more experience but you're better off going then with the first person who's had the one fresh film. And so you combine the director score, the script score, with some a few other scores like the producer score because a producer who consistently delivers movies that win awards and makes box office will have a higher chance of delivering a good
three things. It's does it have a great script score? Does it have a good director score? And then what we have is called a financial score. So we bought another company that did box office projections and we integrated that into Slated and that is the AI driven, that is the most AI driven component of our entire scoring system. It looks at all movies ever released, all TV shows
stephan (44:44.099)
from box office to awards to how many people voted for them and what type of critical reception did they get? We look at so much data, it's almost obscene, and crunch all that data and then say, okay, based on what our AI models can see, with the input slated as giving of a particular screenplay and a particular team, what do we project it should be able to make, both in theatrical and non-theatrical?
And then it looks at the budget of that movie and says, well, based on movies like yours, with teams like yours and a budget like yours, whoa, you're way over budget. It may make money. It may make like gross dollars, but it's not going to do a good ROI. Or it may say, oh, wow, your budget is so small, you will make a good return, but actually you'll make an even better return at a slightly higher budget because that will yield higher production value. So that creates a financial score. Again, that's out of 100 points. We try to keep it as simple as possible. Everything's out of 100.
And a financial score of a 60 means high probability your film will just break even. And if you're hitting a 70 high likelihood that you'll do one and a half times your money and 80, you might double your money. A 90, you might triple your money. And you can't go higher than a 99 where we're saying, look, you might make five times or more your money, but we don't know. And it's probabilities. And so if you look at the, again, that the script score is the most important, then it's the team score. Can they execute? And then the financial score tells you, is it the right size budget they're asking for?
for the potential outcome. Because that at the end of the day is again, is a very unknown thing to most investors. Great team with great script, doesn't necessarily mean it's gonna make money.
slava (46:11.278)
Got it.
slava (46:18.946)
Did you have King Richard on your platform? Oh, I like that one. So.
stephan (46:21.535)
No. We did not. Oh no, that was a cool movie and we loved it. So we don't have everything on our platform. We have tons of stuff and usually I find out what we have after the fact. Like, oh my god, that movie was on our platform.
slava (46:32.046)
Sure. So if we were going to analyze that, do you have any sense for what would be your analysis of King Richard?
stephan (46:43.415)
It's so hard to know because my personal tastes have very little to do with what our team of readers evaluate when they read stuff. And I'll give you an example of what I mean. There's a movie that we were considering investing in. I don't know if I'm allowed to disclose it. It was a Gerard Butler action movie. And one of our own team members at the company watched a screener of that movie and came away going, no, this isn't good. I don't, I don't like it. It looks awful.
our scoring system scored it and came back with good scores. Good scores at the script score, good scores at the projection point. And by the way, this was during the pandemic. So we had reasons to be more worried about like, well, you know, it may do some money internationally, but not much domestically and which of the streamers are going to buy it. And we, we hesitated and we didn't end up bringing money to that movie because we got a little, we were on the fence about it. It ended up performing even better than we had projected. And so one of the most savvy.
studio executives in our company got it completely wrong based on all of his experience of greenlighting great movies He got it completely wrong and we he was that was his Initiation and understanding how dependable our scoring system can be and often The the older you are and the more experienced you are the more you see the world in A prism of what works in your mind
and you can't see anymore what might work that's outside the box. And what we have in our reader reviewer team are a lot of young people. So we have basically the next generation of audience are our readers. And they don't come at this going, Oh my God, I've seen this movie a thousand times. Boring. They come at it with fresh eyes. They may have very different perspective on what they like, right? They're not necessarily your typical movie going audience, but they are the next generation. They are the ones who are either going to show up at the theater or going to show up on Netflix and watch it or not.
And so they're an incredible signal, and often it's contradictory to what I might think would be a great movie, and I stand corrected! Most of the time I stand corrected by them.
slava (48:49.575)
And so if I said okay Steph, let's take a hundred thousand dollars. I want my money back in three years And I want profit. That's what I'm focused on. Where what are we putting in over the next six months?
stephan (49:04.619)
Well, I mean, that's hard to know. Again, it all depends on the independent side. It's gonna really depend on, are you coming in right before production? And are the scores good enough that there's a very high likelihood this film will get released, right? Because plenty of movies get made and shelved and go nowhere. If those odds are good, well, typically after the production occurs, the production may be completed within two or three months and be in post-production. And then they may find themselves going to a festival in the next six months, maximum a year.
which is where they may end up getting the distributor that buys them. And then the distributor may release them, release that film, like in the case of Apple, they bought Coda and released it after it went to Sundance. They bought it for what was considered an insane sum of money. They were proven right. And then Coda was released by Apple very quickly thereafter. So your return on investment could easily happen if it's the right profile film, right at the point of production, and they don't have any major snafus with execution, where they they.
drop the ball and the production isn't good. Then they get into the festival circuit or a distributor will pick them up before they even go to the festival circuit and the distributor may release them within a year and you're making a return. You might get bought out entirely upfront and turn a profit immediately and they take the remaining worldwide ancillary rights or it may be a revenue share where you may have more potential upside if it performs or you may not fully recoup as quickly if it doesn't perform.
So the options are find those films on Slated that are right at the bubble of going into production that have good scores. Or the other thing we're doing, because we proved out these analytics at the studio level, is for the first time we are going to create a studio co-financing fund using our analytics. So we've actually been in discussions now with four major studios who've said, Slated, if you can bring us a couple hundred million dollars in production financing.
You guys can green light, you guys can finance any of these high scoring films, any of these films that qualify. And ordinarily that type of a fund that we're setting up would only be accessible to large institutional accredited LPs who can each put in, you know, 10 million, 20 million, or institutional players that just want to deploy, you know, 50 million or 100 million. But we are actually, we actually are going to carve out a small piece in parallel to the fund and create both an SPV
stephan (51:26.403)
for smaller accredited investors who want to participate in financing studio movies. And we are actually gonna also run an experiment and create the first film fund dial. That's an experiment. We wanna do the first one. What's unique is simply that we have access to these studio movies, we have access to our analytics, and you'll get to tag along alongside into films that normally you would never get access to. So those are the two vehicles. And I'm mentioning the fund because the fund is much more certain in terms of the return profile.
You're investing in studio movies that might already be completed. They like to bring in investors right up until the point of release. And then you make your money back. Like the minute the film is released. So the, the return profile there of the fund is you're investing. You would still be in the fund multiple years, but the returns start flowing within 18 months, you're starting to see money come back into your pocket.
slava (52:19.214)
Great, so as my final question, we like to put all of our guests on the spot. So three years from now, I'd like to have you back on the show and what do you recommend we buy today, specifically, not generalities like go find a movie you like. What specifically should we invest in today that three years from now we feel will be a good return?
stephan (52:41.943)
Ethereum too.
slava (52:44.114)
Alright, so it's not even a movie. Alright.
stephan (52:46.471)
No, no, no. I mean, look, movies, knowing which movie is going to be the hot next movie, that's impossible for me to know. I couldn't tell you. You'd have to start researching it and finding these top-scoring films. But if you want to know where to put your money right now, in three years, you'll come out ahead. I am really long in Ethereum 2, right? That's the new staking network. They're going to be unlocking all of the money that's been staked there. There'll be liquidity, and I believe that Ethereum 2 will be the dominant.
smart contracting platform for the foreseeable future. So that would be my one big bet.
slava (53:20.406)
All right, with those words, thank you for the journey. It's been a while, Ry. We started with the globe and talking about first principles, navigating how to invest into movies. I learned about the fact that there's 10 data points for scripts, which is super exciting. You need to diversify across 10 movies so then you can have a good portfolio and then finishing up with Ethereum too, which came out of nowhere. Thank you, Steph, and we look forward.
stephan (53:42.864)
The only thing I would add to that would be potentially the slated film fund we're building because it's one of the coolest new things that we're doing. But again, that and Ethereum 2 might be the two big opportunities.
slava (53:56.386)
Perfect. Thanks for coming on the show. We look forward to having you back.
