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May 23, 2012

Crowdinvesting is Now Legal in the U.S., but Kickstarter Isn't Interested in Equity Funding

Earlier this year there was a back and forth between the U.S. House and Senate regarding a bill called the JOBS act, which among other economy-stimulating provisions, included a specific section that addressed a type of crowdsourcing that is referred to in many circles as crowdinvesting. The JOBS act ultimately passed, and the crowdinvesting provision stayed. Basically, it allows any person to invest a certain amount of money into a film and then receive equity without having to go through the SEC or be a qualified investor. This type of investing has already existed in the rest of the world, and one of the most successful examples is with the film Iron Sky. Many were hopeful that Kickstarter, with its large infrastructure for anything crowdsource-related, would help facilitate crowdinvesting. Unfortunately, that doesn't look to be the case.

Scott Macaulay over at Filmmaker Magazine is reporting that Kickstarter has no plans to move away from crowdsourcing as we currently know it. Kickstarter CEO Perry Chen recently had an interview with GigaOm, and this is what he had to say about Kickstarter possibly entering the investment crowdsourcing realm:

Some people have made assumptions about what we would do. We’re not interested in that model. We’re going to keep funding creative projects in the way we currently do it. We’re not gearing up for the equity wave if it comes. The real disruption is doing it without equity. The real disruption is when you break down the funding of a project into all these little bits. When people are giving $5, $20, $50 — people don’t need to receive a return on their investment. People are giving relatively affordable amounts of money and they decide how much they give. So many ideas, in general, in the world are not about and are not going to make money. Those things need a model. That’s the world we come from. That’s what we wanted to support.

So if you live in the U.S. and were excited about the new provisions of the JOBS act, it's a little disappointing that Kickstarter is not interested in being an intermediary in the investment model. Their hesitancy is understandable, as investment side can bring with it an entirely new set of headaches, but there are plenty of projects that could benefit from crowdinvesting. It's also possible that Kickstarter is worried about the increased fraud that would likely come from people giving hard-earned money and expecting a return on that investment. It will be very difficult to attempt this sort of crowdsourcing without a trusted organization like Kickstarter to back up your project.

Perry and Kickstarter, however, have no plans of slowing down, and they are looking to expand the company into many more categories. For example, cities have approached them about doing certain projects that are, at the moment at least, outside the scope of what Kickstarter currently allows. Surely they've got some interesting ideas in the pipeline, but it's still disappointing that we may have to go elsewhere if we are interested in crowdinvesting our film.

Should Kickstarter get into crowdinvesting? Let us know what you think.

[via Filmmaker Magazine & GigaOm]

Your Comment

12 Comments

The law was overhyped in terms of what it means to filmmakers. There is no easy way to get and service equity investors with or without Kickstarter...or for that matter with or without the new law. You're going to need lawyers, consultants, accountants every step of the way. And after production and distribution they will be needed as long as the project continues to earn money. Kickstarter has got it right and they are smart not to touch this legal minefield.

May 23, 2012

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bguest

Every filmmaker will benefit from getting funds early in the game, and if it takes one investor as opposed to a group of people to fund it, so be it. The film will be made, and that is what's important. I think every filmmaker would love to see the budget covered sooner, and spend less time on organization, marketing, and running around involving people and creating buzz rather than spending more time on preparation for production.
Why limit this opportunity?

May 23, 2012

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Kickstarter historically hands its competitor a must-have business plan. Bravo!

May 23, 2012

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Peter

I believe Kickstarter is smart, anyone who has followed finance even briefly for the past few decades knows that as far as investing with anything touching the internet the phrase irrational exuberance is not too far away. The internet will change a lot of things but not everything and if you are trying to sell your film to people you still need a business plan and as more intelligent people than I have written, the internet tends to reward superstars over nearest competitors so if investing in films was a bad investment before with choke points for distribution such as broadcast and theaters, with the internet it is truly a fool's errand. Most films won't even make their money back, and a lot of that will come to advertising as much as the quality of the film. In a year or two the novelty of a kickstarter film will wear off so you won't get that free publicity so it's best to leave it where it is with more passion projects. And I'm of the mind that when you read into the actual bill it's going to harm honest business people more than help as it seems to have been written by the con artist lobby.

May 24, 2012

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James

If kickstarter expanded to being a world wide opportunity not just for US based personnel, it would be even better.

May 24, 2012

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shaun wilson

It seems to me that the potential killer app here (which we actually already have) is just simply being able to presell a DVD/BluRay/VOD release ahead of time -- this fits the Kickstarter many small investor/benefactor model. So long as everyone understands that there is a possibility that the movie will never be made (or that it might suck!), the risk/reward proposition is extremely clear and very simple. It also gives easy ways to offer different support levels, e.g., doing special edition companion disks with extra special features, tutorials, etc. I've noticed a few people doing this to good effect on Kickstarter and it makes complete sense. If there is some machinery missing, it might be the connection between investment and fulfillment -- if (as a wild and possibly impractical example), Createspace/Amazon did a deal with Kickstarter such that it was possible to presell a movie so that the fulfillment happened automatically once the movie was released, with the film maker receiving the profits immediately and the rest minus a commission staying in escrow, this would make it simpler for the film maker and less risky for the investor. Another option might be to have all the money stay in escrow, so the investor/benefactor gets repaid in full if the movie isn't delivered by a particular date, making it possible to finance smaller films rather like a miniature version of the classic negative pickup deal.

This approach also potentially makes it possible to scale the production to match the likely sales figures given some harder numbers than you'd get by trying to make an estimate cold. For any business, making a profit is basically a direct consequence of spending less than you earn, so anything you can do to protect that margin helps reduce risk.

May 24, 2012

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Why mess with a model that works. I have given money to numerous projects, including Man Child, that I do not consider an investment on kickstarter simply because I am exited in the project. This is what I feel kickstarter is about, all I want out of the deal is to know I had a hand in helping someone realize a dream or get a worth will initiative off the ground. Any person partaking in crowdfunding expecting a return is doing it for the wrong reasons. Sites like Kickstarter and Indiegogo have help many people who otherwise would never get their creative works developed and produced. In my opinion "crowdinvesting" will soil and corrupt what is a good thing for all. Just one more thing, I live in South Africa, how would you propose giving me the return on a $50 "Investment" at the end of the day the charges I will en cure will far outweigh the return. So why would I now give my $50?

May 25, 2012

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The statistics are out there that projects typically have a better chance of being funded if people invest rather than donate, and the amount given is usually much higher when they are equity projects, rather than donation-based. There's no reason why crowdfunding and crowdinvesting cannot coexist together - for some reason people think all projects will turn into equity projects - but frankly - equity is for projects that are in the $50,000 range and higher. Koo's success with Man-child is exceptional, and it's a testament to the community he has built here, but his is exactly the type of project that could benefit from crowdinvesting. If you're making a project that honestly doesn't have a chance at making money, it probably doesn't make sense to take investments - donations would work better.

As far as living in South Africa, I have no idea how that would work, investments across nation lines are tricky, so I'm not really sure. Crowdinvesting has been legal in other places for awhile - meaning investors didn't have to be accredited to give a certain amount of money. Iron Sky was hugely successful getting money in this way. There's also nothing preventing projects from allowing both crowdfunding and crowdinvesting money - so just because you set up a way to allow investments, it doesn't mean you can't also have the traditional donations system.

My whole point with this is that crowdinvesting could help those projects in that $50K range and higher that have a chance to make a profit, but would very likely fail if they choose to go the donation-only route.

May 25, 2012

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Joe Marine
Editor-at-Large
Shooter/Writer/Director
158

There are always going to be one off exceptions but I'm not sure in the current market there is much space for a lot of 50k movies to make their money back and profit, and it would end up worse for filmmakers just starting out because the space will quickly become crowded with veterans as my unscientific examination of Kickstarter has shown that projects with people with some form of name recognition have tended to done better (unless they just have a one of a kind project or kick ass pitch), When people invest they come with a whole different set of expectations and I don't think that will necessarily be good. Let's face it, most of the movies people make in that range are stepping stones or passion projects and without the backing of a major distributor most of them will never be watched. I'm of the mind that a lot of the hoopla over crowd funding assumes two erroneous things, one there needs to be more movies and two there's a market to support them. Look at the fall off in box office since the 90s for genuinely indie movies and at under 50k how many people in the crew are getting a decent wage? The whole thing sounds like a bunch of headaches for whoever takes it on, as the few people I know who have funded Kickstarter have been hesitant to go back after just one of their projects failed to materialize I can only imagine the lawsuits Facebook IPO style for projects that fail for whatever reason to meet expectations. Someone will step in because there's an opportunity however slim to make this work and good luck to them, but there is nothing near sighted or stupid about Kickstarter not wanting to wade into the investing pool.

May 25, 2012

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James

Well I wasn't just referring to that number specifically, I was saying films $50,000 and above - so films that need $100K, $200K - the type of money you'd almost never get on Kickstarter or Indiegogo. You're not getting a decent wage on most Kickstarter projects anyway - I'm not sure what difference it makes whether people invested or donated. I think the idea is that this law opens up doors for people who have carved a niche for themselves, and have a fanbase, however small that might be - people who are also creating a community online. Distribution is hard no matter the budget range, but the higher the budget, the more money you've got to spend to make it back.

May 25, 2012

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Joe Marine
Editor-at-Large
Shooter/Writer/Director
158

Thanks Garth!

I think Kickstarter is doing the right thing by staying with the gift-based rewards system. They are explicitly about creativity and investing makes it a whole nother game. That said, this leaves the door open for another player in this space -- one that is explicitly focused on managing crowd investment. Will be interesting to see who can capture the space!

May 25, 2012

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Ryan Koo
Founder
Writer/Director

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April 14, 2013

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