Last year, President Obama signed into law the Jumpstart Our Business Startups Act (a.k.a. “Jobs Act”) (full doc PDF). The Act “requires the SEC to write rules and issue studies on capital formation, disclosure and registration requirements.” Starting this Fall, the most import aspect of the Act relevant for indie filmmakers is the provision on Crowdfunding.
Current SEC rules restrict start-up companies (e.g. indie film productions) from seeking investors on a broad scale via advertising to the masses. That kind of offer would be considered a “security.”
The common dream of aspiring filmmakers often began with a script and some actors, and then an effort to raise money to make the movie by asking everybody to invest in their project. Ads were placed, bulletins posted, and Internet messages were spread asking for people to invest. The aspiring filmmakers then would be told how illegal that is, shocked to learn that they were offering “securities” which had to be registered with the SEC. They learned that any offering to the public of any kind of ownership in future possible profits is a security. That’s “equity.” – filmmaker, Michael Barnard
I remember several years ago Ethan Hawke and Civilian Pictures partnered up on a film project titled, Billy Dead – where an initial public offering was planed to raise $7.9 million by offering 900,000 shares of “Billy Dead Inc.” stock at $8.75 a share. Not sure why it didn’t come to fruition, but we can speculate that the complexities of SEC rules and regulations made it impossible to get this project green-lit by any attorney or accountant on the production team. Or maybe the SEC just didn’t approve it in the end. You can read more about this endeavor here: SFgate and Money.CNN.
Now, Title II of the Jobs Act will allow filmmakers who seek funding to advertise investment opportunities on social media sites like Facebook, Twitter and crowdfunding sites. Investors must be qualified or “accredited” to participate. The Hollywood Reporter explains that aspect…
Potential investors must be “accredited,” defined as an individual (or married couple) with a net worth of $1 million excluding their primary residence or an income exceeding $200,000 in the two most recent years ($300,000 for a couple). Under those rules, about 9 million Americans qualify.
Even “unaccredited” investors ultimately can participate via Title III, which should go into effect in 2014. Individuals with a net worth or annual income of $100,000 can invest 10 percent of their income, and those with a net worth or income less than that may invest up to 5 percent or $2,000, whichever is greater. (A filmmaker will be able to raise only up to $1 million a year per film from these investors.)” – from The Hollywood Reporter – ‘Forget Kickstarter: How Obama’s New Law Could Change Hollywood Crowd-Funding’
There are some equity crowdfunding startups that will take advantage of this new opportunity. Here are a few to check out:
I believe that the pros out number the cons on this whole “crowdfunding equity” scheme. Let’s take a look:
- Still going to be complicated accounting.
- No proven model for indies.
- Big studio productions can still dominate/overshadow the independent film offerings.
- Having a stake in your success will make fans more involved/engaged in the promotion of your film via social media and word-of-mouth.
- Profit incentive is better than that typical Kickstarter rewards – specially for indie films without any “name” stars.
- Makes indie filmmakers rely more on the pitch video to sell their vision.
- Opens up indie financing opportunities in a big way – you can do a lot with a $1 million dollar budget.
- No proven models for indies – so you can be a pioneer of this!
Time will tell if this will work and propel a whole new batch of independent filmmakers whose vision can come to realization through the help/investment of financiers who believe in the art (and commerce) of film.