March 28, 2012

Indie Film Financing is About to Change Forever in America: Crowdinvesting Bill to Be Signed into Law

While those numbers to the left are from Kickstarter donations, one day they could be Kickstarter investment funds. Earlier we reported that the House had passed the JOBS Act, but the Senate wanted some changes to help protect individuals from fraud. The Senate passed their version, and just today the House followed suit and passed the bill. All that's left is a signature from President Obama (which is coming), and American independent film financing will never be the same.

From reading the bill, it seems like the Senate went back on their original objections for the crowdinvesting part of the bill, and mostly stayed with what the House originally came up with. These are the provisions originally posted from the two separate bills from the Vim Funding Blog - it will be updated if I've made any mistakes (legalese is not my first language):

  1. Up to $1 million may be raised in a 12-month period, or up to $2 million if audited financials are provided to potential investors.
  2. Companies raising funds through crowdfunding may use social media, general advertising, and other similar means to spread the word to prospective investors.
  3. An investor may invest up to $10,000 or 10% of their annual income (whichever is less) in an individual offering. Investors do not need to be “accredited”.
  4. 2,000 investors is now the limit before companies are required to go public.
  5. The issuer must state a target amount, and then must raise at least 60% of that amount for the round to occur. If the 60% threshold is not reached then no funds change hands.
  6. A licensed intermediary may be used to execute the transaction. Intermediaries shall be required to warn of the risky and illiquid nature of these investments, take reasonable steps to reduce fraud, carry out a background check on the issuers, maintain records per SEC rules, and shall not offer investment advice.
  7. State securities laws are preempted in this type of offering, which means that pre-registration of offerings with state agencies will not be required.
  8. Raising money through crowdfunding will not prevent you from concurrently raising funds through other existing mechanisms.

This is good news for independent filmmakers. Really, really good news. Finding financing is one of the biggest issues that we face, and with the Kickstarter revolution, we've been treated to an excellent way to raise capital - our own Koo knows firsthand how important crowdfunding has been for independent filmmakers. The difference now, obviously, is that we don't have to use a workaround to the law. We can now accept actual investments from the general public and we can use that money to make our films. There are plenty of dangers that can result from this practice, and there could certainly be those who choose to take advantage of people, but for the most part this is going to be a huge positive and help push us into a new independent revolution.

It will be interesting to see if Kickstarter or Indiegogo can, or will become, intermediaries for crowdinvesting. If that happens, it will make this entire process that much better and more seamless (not to mention safer). It's an exciting time to be an independent filmmaker - we have impressive digital cameras that are half the cost but twice the performance of cameras only 10 years ago, and now we've got a bill that will make it possible for anyone to invest in and own a piece of your film.

The downside to all of this, of course, is that once people start investing money into something they tend to want to see results immediately. I would imagine that it's going to be a bit more difficult for filmmakers to hide for two years while they make their crowdinvested feature - because people want to know that their money is being spent in a way that benefits the film and leads to a good finished product.

Making a film is no different than running a business. It still takes hard work and dedication - and that won't change with this bill. The only difference is that you've got a few more people to answer to if you choose to crowdinvest your independent feature.

Links: Crowdfunding bill backed by US House of Representatives - BBC & JOBS Act HR3606

[via [H]ard|OCP]

Your Comment

11 Comments

Ahhhhhh Yeeaaaaaahhhh!

March 28, 2012

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Abersouth

I'm very excited by this, but I have some reservations. Anyone seriously considering taking advantage of this best have those financials and risk statement docs on hand and a bullet proof contract. Most indie investors will need hand holding so as not to expect a return, or to expect it quickly. Reservations aside, this news coupled with section 181 of the tax code (up to 100% write off for film/tv production investment), plus state tax credits could mean a lot more smaller investors getting involved. Exciting times for sure, but I hope this doesn't backfire on some unfortunate soul.

March 28, 2012

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I agree completely with Nathaniel. It is a great opportunity that should simplify and expand possibilities for indie filmmakers. I would advise all filmmakers seeking to raise money under these new rules to engage an entertainment attorney as early as possible in order to legally comply with the new laws. Very exciting news!

March 29, 2012

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Nat,

As far as I know, Section 181 died at the end of last year (unless you "grandfathered" your picture into an extension by filming a scene before Dec 31st & had other documentation in place). Are you saying that congress and Obama renewed it? If so, please let me know. That would be great news.

But all that said, consider this: Section 181 only applied to "active" investors anyway, not passive ones. And, yes, while a certain attorney in the Mid-West kept hyping the idea to many filmmakers to use 181 as a promotional aspect of their offerings, said qualification for any investor as "active" seemed more a legal gray-area dance-about than anything solid. (Expect to see future audits from the IRS for those involved, once they start figuring that out.)

When an investor makes an investment in a movie, they are usually passive and have no say in the venture's management. Hence, the investment is a "security" and is offering & sale is regulated by the SEC. (You don't want a hundred or so "co-producers" telling you how to make your film anyway, do you?)

This new crowdinvesting concept, which I applaud vigorously, allows a filmmaker to sell securities to passive investors. And passive investors cannot take advantage of the what 181 offered.

-- DG

March 31, 2012

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Dave Gregory

As an indie filmmaker currently running a Kickstarter it sounds excellent for attracting business investors to features. For a short film I'm not sure I'd want to add the complication but like I said, for a feature it's perfect. Plus, I'm sure Kickstarter (or a new variation of it) will evolve with the new law and at the very least will provide sample forms, contracts and recommended advisors.

March 29, 2012

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OT, Joe, how does one protect the intellectual property in say, KS?

I've read the fine print but it seems onus on owner of said concept, etc.

You may have another perspective or not agree, but I'd be interested in the opine for the regulars here.

I'm going to the ACA Copyright seminar on the 11th, this will be my first question.

Thanks,

Rob

March 29, 2012

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It's quite a bit easier in products but a lot more difficult in movies. It's all completely on you - Kickstarter wouldn't get involved in a situation of copyright infringement. The thing about films is that ideas can't be copyrighted, so if someone took your idea but nothing else, you're just out of luck.

March 29, 2012

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avatar
Joe Marine
Editor-at-Large
Shooter/Writer/Director

While ideas cannot be necessarily be "copyrighted" per se, in the state of California they are protected by business confidentiality laws. Always make submissions "in confidence" and make sure that is understanding is clear to all parties.

March 31, 2012

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Dave Gregory

Sorry for the typos above. First cup of coffee hasn't kicked in yet.

Idea theft is a serious issue for writers -- especially those in states other than California (and even for those of us here too).

Always create a paper-trail that shows whom you submitted material to and when. Priority Mail with a Delivery Conformation is always a good idea.

It *is* possible to win an idea theft case, but very difficult. They're usually settled out of court. I've stopped some companies from thieving from me and failed with others.

Also, in live pitches, it is best to have a third-party witness tag along & be present.

BTW, just because someone is an "entertainment attorney" doesn't mean they're any good. Call around, ask for & get references. I've had great ones & awful ones. And you'd be surprised who is awful, too.

Just speaking from experience.

March 31, 2012

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Dave Gregory

Koo, please post about my sci fi vfx short film on Kickstarter! http://goo.gl/CuHUz
I was one of your supporters for Man-Child. We only have six days left.

We've been retweeted by Harry Knowles of "Ain't it Cool News", Hal Hickel Animation Director ILM Rango and Pirates of the Caribbean, Scott Squires VFX Supervisor ILM and Legend 3d, Clifton Collins Jr, Steve Ellis, Movie Maker Magazine, and others...but we're still struggling for people to find us on Kickstarter.

March 29, 2012

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No offense, but maybe if you didn't need to shoot with a RED camera (and brag about it), you wouldn't have to be raising so much money.

March 29, 2012

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Hummer