Out-of-town investors routinely have their pockets picked in Hollywood.

Just ask doctors and lawyers who’ve invested in films, or Coca-Cola Co. and Matsushita Electric Industrial Co., which fled Hollywood after owning major studios.

Against these odds, a special Oscar might be due the venture capitalists from Boston and Chicago who are prospering for now with tiny Artisan Entertainment Inc.

Flush with the unexpected box-office success of “The Blair Witch Project,” Artisan has filed a proposal at the Securities and Exchange Commission for a $140 million initial stock sale. The company hasn’t said yet how many shares it will sell.

If the offering goes forward, the venture capitalists could reap huge profits for a $15 million investment made in 1997 when they acquired the Santa Monica company in a leveraged buyout.

Take the money and run!

That’s the advice of many Hollywood executives and Wall Street veterans. “Small production companies have historically failed,” says one money manager, who rues the investments he made in independent film companies in the 1980s.

In truth, one big investor already has gotten out, although its exit was not widely reported. Bain Capital Inc., the Boston firm headed by one-time U.S. Senate candidate W. Mitt Romney, last year sold its controlling stake in Artisan to Geoffrey Rehnert and Marc Wolpow, two Bain partners who had spearheaded the 1997 LBO and were leaving the firm.

What luck. The partners paid only a “slight markup” over the $10 million Bain had invested, Rehnert says. Two months after the deal was negotiated, “Blair Witch” became a runaway hit.

Rehnert was named Artisan’s chairman in January, and Wolpow joined the board. A “Blair Witch” sequel is in the works. The two hope to prove the skeptics wrong. According to the SEC filing, they’ll retain a controlling stake in Artisan even after the IPO.

Working the festivals

But their “day jobs” remain in Boston. In July, Rehnert and Wolpow formed a venture capital firm called the Audax Group, and they have raised $500 million for a buyout fund to invest in midsize companies. Another $75 million has been raised for an Internet-oriented venture capital fund.

Artisan’s day-to-day management will continue in the hands of the team assembled by Rehnert over the past three years. Several key executives worked previously for independent film companies. Alan D. Gordon, an investor who put $5 million into Artisan in 1997, was named vice chairman in January.

Artisan wants to distribute 10 to 12 motion pictures for theaters each year, with most productions budgeted at less than $15 million, although some will cost up to $30 million. The goal is “to be the largest, most profitable independent distributor of filmed entertainment product,” the company declares.

To help offset the costs, Artisan in October got $200 million in commitments to finance eight films over a three-year period from individuals and insurance companies and banks. The group is called Artisan Film Investors.

Artisan Entertainment hopes to find promising movies at film festivals, as it did with “Blair Witch.” It paid just $1 million, according to reports, for that horror film, which garnered more than $140 million at the box office.

The company reported net income of $15.7 million in 1999 a fivefold increase over the previous year. Its 1999 sales were $383 million. “Blair Witch” helped Artisan almost double its sales in the home video and DVD markets to $232 million.

Value of video

Among the key assets of Artisan’s predecessor company, Live Entertainment Inc., were home video rights to such films as “Terminator II,” “Basic Instinct,” “Total Recall” and the Rambo series.

Historically, the home video business has been a strength, but it has potential problems. In its SEC filing, Artisan said the home video rights of eight of its top 30 library titles expire before the end of 2004.

The company said it faces additional risk if movies “on demand” become readily available to consumer homes via cable TV, telephone lines or satellite transmission.

As a small company, Artisan relies on other distributors to release its movies overseas. Less than 14 percent of Artisan’s 1999 revenue came from international distribution. In 1998, Artisan struck a five-year agreement with Summit Entertainment to act as the company’s exclusive sales agent in foreign territories.

On Feb. 29, Daily Variety reported that a German company, Constantin Film, “has made an offer to buy Artisan Entertainment” as well as a 25 percent stake in Summit Entertainment. Artisan wouldn’t comment, Variety said.

Will Artisan be sold? Not yet, if the venture capitalists really have the Hollywood bug. Some veterans are watching with a bemused eye.

“How do you make a small fortune in Hollywood? Start with a large one,” quips a rival fund manager.

Kathryn Harris is a columnist for Bloomberg News.