VFX studios courting outside investors tend to oversell the advantages of their proprietary technology, the flexibility of their pipeline, and the predictability of their revenue.
Visual effects companies know investors are looking for:
1. Reliable business performance
2. Assets with enduring value
3. A foundation for rapid growth
Unfortunately, some of the nuts-and-bolts realities of the VFX industry don’t lend themselves to this kind of narrative. As a result, certain challengers are often glossed over in investor presentations. Which is a shame, because experienced investors are well-equipped to help VFX leaders innovate new solutions.
Here are the top 3 things VFX companies exaggerate when talking with investors:
1. They exaggerate the competitive advantage provided by their proprietary technology
In their efforts to differentiate themselves and impress clients and peers, VFX and animation companies often play up how their proprietary technology led to purported breakthroughs in efficiency or quality that only they enjoy.
Here’s the truth. Today, and for the foreseeable future, the amazing imagery that Hollywood demands is still achieved largely through “brute force” – that is, hundreds of artists and millions of dollars working on a project.
Proprietary tools can certainly give companies an edge performing a specific type of work. A studio’s proprietary pipelines and workflows, however, are usually entrenched in inflexible legacy technologies and tailored to very specific types of VFX and animation work. This limits the extent to which they can be shared between different studios, or even divisions of the same company, to achieve real efficiencies of scale.
The reality is that many VFX companies – even established ones famous for innovation in computer generated imagery – operate using rudimentary pipelines. Unsophisticated project management and financial management tools are prevalent in the industry also.
While brilliant people and ingenious technology are key to the visual effects industry, Hollywood continues to push the envelope in pursuit of the highest possible image quality. To date, achieving that is largely a function of the sheer amount of man hours expended to create, and polish, the imagery.
2. They exaggerate their ability to service different types of clients in the same pipeline
A factory that produces Ferraris is not the same as a factory that produces Toyotas. Turning one into the other is non-trivial.
Film VFX, TV VFX, Advertising and Feature Animation use some similar tools and “manufacturing processes”. But the optimizations and workflows that enable companies to meet the specific demands of each type of client differ to a significant degree. Many growing VFX studios underestimate the extent to which their hard-won expertise, personnel, and workflows are unprepared to service new types of client.
VFX and feature animation vendors also vary greatly in their understanding of newer forms of media, and their readiness to lean into that type of digital content in the future. Accelerating a studio's expansion into new types of projects requires more than just smarts and enthusiasm; it requires investment.
3. They exaggerate the predictability of client behavior and project awards
Client relationships in the visual effects industry are complex B2B relationships driven by loose networks of individual decision makers, each with their own priorities and concerns.
For new entrants, building a coalition of supporters on the client side is an ongoing project. They need creatives on the client side who want to work with them more than their competition. They also need the confidence and approval of executives at the client studios underwriting the work.
Established visual effects companies, on the other hand, can use the“stickiness” of these networks of client relationships to their advantage. If their offering is reliable, they can get a lot of mileage out of being a known quantity to Hollywood insiders.
Let's face it, visual effects is a service industry where clients control project schedules. Project delays, scope changes and cancellations are usually outside of the VFX or animation vendor’s control. Projects start and finish when the client says so, not when vendors would like them to. This can profoundly affect project profitability if the client treats the VFX company as a vendor rather than a partner.
