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Rodrigo Guerrero, co-founder of Dynamo Capital in Colombia.
Rodrigo Guerrero, co-founder of Dynamo Capital in Colombia.

Film as an investment option Add to ...

He grew up in a house filled with film paraphernalia. He repeatedly convinced his high school teachers to let him make videos instead of write papers. He and his best friend started an annual film festival at school. But it wasn’t until he visited the Cinecitta film studio in Rome near the end of high school, far away from his home city of Cali, Colombia, that Rodrigo Guerrero had what he calls an epiphany.

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“It was there that it hit me,” he remembers. “I thought, ‘I need to get the gears going to make films in Colombia. I’m going to become a vehicle for this to happen.’ ”

Today, Mr. Guerrero, 36, is a driving force in Colombia’s film industry, charting a unique path in making films borne out of both the limitations and opportunities of an emerging industry. He is one of the founders of Dynamo Capital that manages the country’s only private equity fund dedicated to funding films, and an evolving experiment in how to get Spanish-language films made and distributed outside of the big-league Hollywood world. “If you’re not a part of that, you’re figuring out how to make it work,” he says.

Colombian producers have long faced a difficult time making it work. When Mr. Guerrero was growing up, producers either simply couldn’t drum up the funds for their films amidst a sorely underdeveloped industry or they went looking abroad.

When he graduated from high school in 1994, there was no film program in a university for Mr. Guerrero to enroll in. He opted for law school, but when, after one semester, the opportunity to go to New York University’s film school came through, he packed his bags.

After almost a decade in New York City, Mr. Guerrero had graduated from film school and had worked on a score of films in everything from sound and camera to directing, producing and editing. “I did everything because I knew I had to be able to in order to become a producer,” he says. He associate-produced the multi award-winning Maria Full of Grace, and when he returned to Colombia for its theatrical release in 2004, he found much had changed. Film schools had sprouted up. The government had set up tax incentive programs to boost a fledgling industry. A new generation of determined filmmakers was injecting the film world with a contagious energy. It was another watershed moment for Mr. Guerrero: “I realized there was an opportunity: to set up a private equity film fund in Colombia, because there was no such thing.”

Mr. Guerrero says he’s no banker, and had no idea how to set up a private equity fund. He shared his idea with a friend from New York visiting Colombia, Andres Calderon, who worked in investment banking. A few weeks later, Mr. Guerrero got a call from Mr. Calderon. “ ‘Let’s do it,’ ” he remembers hearing over phone line.

Busy and exciting times followed. Mr. Guerrero and his best childhood friend, Andi Baiz, were no longer playing around with Mr. Baiz’s father’s Sony handycam. They were producing and directing, respectively, Satanas, that went on to represent Colombia in the 2008 Academy Awards Foreign Language category. Mr. Guerrero, Mr. Baiz and Mr. Calderon joined forces with other collaborators to form Dynamo Capital in 2006.

Then, the government ushered in a new regulation that allowed domestic pension funds to invest in local private equity managers. “When that came through, we became an option,” says Mr. Guerrero. In about a year’s time, Dynamo Capital had raised a $10-million fund entirely backed by pension funds.

Dynamo’s fund is a small part of their investors’ portfolios, but they have positioned themselves as a viable option. They’ve reduced the risk for investors by funding a slate of films, rather than pour investors’ money into one major film production. And, through tax incentive programs, investors get back $40 of every $100 they invest.

Mr. Guerrero thinks that one of Dynamo’s strengths, with its core team of five 30-somethings with backgrounds in film production and investment banking, is its ability to talk to investors in their own language. “We were coming to [investors]not just with a pitch for a movie, but a business plan for a film in such a way that they could put it against any other investment option they had,” Mr. Guerrero explained.

In Dynamo’s five years it has co-financed and co-produced eight feature films, and another two or three will round out the slate for the closed-term fund.

Despite government efforts to foster a more hospitable film-making environment, making a film – and one that is commercially successful – remains a formidable challenge in Colombia. Mr. Guerrero describes a film-financing landscape inhabited only by government subsidies (they peak at $350,000), two television stations, high net-worth individual investors – and Dynamo Capital. The market for Colombian films remains largely domestic, and even then, getting on local screens long enough to recoup costs means squeezing through a bottle-neck of English-language films churning through the cinemas.

The challenges in getting Latin American films made before the eyes of viewers at home and abroad has pushed Mr. Guerrero and his team to expand their toolbox. They almost exclusively seek foreign co-productions, mostly with Mexico, Spain and Peru, in order to expand international distribution. According to Mr. Guerrero, Dynamo is the only company to have used every single Colombian government film incentive available. It was the first company to release a film ( Satanas) on DVD for dirt cheap (about $2.50) in a country where the market for legal video sales is almost non-existent. Now, they’re expanding into video-on-demand, which is only just starting to hit Colombia. “We’ve tried it all. Other filmmakers have either tried to follow us, or avoid the mistakes that we pointed out,” says Mr. Guerrero.

Further experimentation is the only certainty on Mr. Guerrero’s path. With film business models and markets constantly undergoing change, he’s embracing the challenge to adapt. Audiences are watching movies more and more via their computers, he notes, while traditional models of distribution for Latin American films is still focused on hitting the theatres. “We are way beyond the big screen,” he said. “I’m more interested in everything else that’s cooking right now, where young people are putting their energy, and where surprises can actually happen.”

He’s eager to work with a generation of filmmakers whose very nature, he thinks, are driving changes in the industry. They operate “with a completely different chip,” were raised with Facebook and Twitter, and are “promoting their movie even before they’re making it,” he said. That might mean shifting toward sponsor-, instead of investor-driven, business models.

It’s one of a host of ideas Mr. Guerrero is currently incubating to push Dynamo further into uncharted film territory, but he won’t talk about until they’re more definitive. They’re all based on finding new ways to finance, make and distribute films for audiences that are involved in a film from day one. “I’m not interested in making movies how we’ve been making movies so far,” said Mr. Guerrero. “It’s an old song that I don’t want to dance to any more.”

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Co-production powerhouse

Dynamo Capital’s $10-million private equity fund has financed eight feature films, and another two or three are projected to finish the slate. The fund tends to finance between 20% and 40% of the films they co-produce, which usually run a $1.5-million to $2-million budget.

Christmas Night (Buena Noche) is Dynamo’s only exclusively-Colombian film production. Other films already released include Anger (a co-production with Spain and Mexico), and The Hidden Face, directed by Andy Baiz and produced with Fox International Productions, released this month in Spain.

Last year, Undertow (a Colombian/French/Peruvian/German co-production) was released to critical acclaim, picking up more than 30 awards at festivals, including Sundance, and opened in theatres in several countries.

Next year, Dynamo will also release Blind Alley (a co-production with Spain), Heaven in your eyes and Ivan’s Dream.

Dynamo Capital is starting a second fund aiming to finance three to five Colombian co-productions a year. The open-ended, revolving fund will draw on private investments from high net-worth individuals.

Dynamo is raising money for a third, $150-million to $200-million private equity fund geared toward Latin American production houses.

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