Is Equity Crowdfunding the New Best Way to Finance Your Film?

Here’s how indie filmmakers can make use of new rules and platforms to dive into film equity finance.

Equity crowdfunding has gotten a lot easier to navigate thanks to platforms like Wefunder and Start Engine, as well as the pivotal introduction of Regulation Crowdfunding to the U.S. Securities Exchange Commission in 2016.

A few years in, and we’re starting to see filmmakers take this route. Thanks to platforms with free legal primers, investment contracts, and legal templates, what was once an unintelligible series of rules and regulations is now a financing option within reach for independent filmmakers.

Tired of schlepping tote bags on Kickstarter to your extended family or applying for grants that you have zero odds of getting? Maybe feature film equity finance is the answer to your film funding woes!

First off…

What is film equity finance?

Odds are, you didn’t get into filmmaking to learn the ins-and-outs of finance. Here’s a quick primer.

Film equity funding: you get people to invest in your film. You don’t give them tote bags or signed DVDs, but a return on their investment if you make money, and possibly a share of the film.

Here’s how Forbes explains equity financing for films:

Equity-based financing is simply having investors contribute money—actual cash—to the production in exchange for an ownership interest in the film and the profits derived from the exploitation of the film. While there are many ways to structure these types of deals with many different ways for the investors to re-coup their investments and turn a profit, they all revolve around the same questions that must be answered: (i) How much ownership does the investor receive for the investment? (ii) How will the investor re-coup their investment? (iii) How will the investors see a profit?
The main thing to remember when dealing with investors is to be up front with them regarding the production. Investing in film is an inherently risky game, especially considering that independent films rarely make money for their investors, and you must disclose this risk as well as all other investment risks or you could be held liable for misrepresentation and/or violating other securities regulations. Therefore, it is imperative that you spend the money to consult with an attorney on any equity structure.

Why equity crowdfunding is different for filmmakers than previous equity

If you saw "re-coup" and "attorney" and got a headache, bear with us. There are a lot of headaches with traditional equity investment. The good news? Indie filmmakers need not face them all. Traditional attempts to raise money or ‘offerings' require an investment to be considered a sale of a security and therefore incurs all the mind-boggling and expensive requirements of public offerings and paperwork of security registrations. Indie filmmakers circumnavigate these requirements by relying on three SEC exemptions for security registration requirements. There’s a great breakdown from Raindance you can read, but in brief, these are the three exemptions:

  • SEC Regulation D, Rule 506(b)
  • SEC Regulation D, Rule 506 (c)
  • SEC Regulation Crowdfunding law

The SEC's Regulation Crowdfunding law is the newest to the list and possibly most exciting for filmmakers. As Venturebeat describes it:

"Regulation crowdfunding (Reg CF) began on May 16, 2016. It allows any startup or small business to raise up to $1,070,000 online from family, friends, and followers (accredited or not) provided issuers use a crowdfunding website that is registered with the Securities and Exchange Commission (SEC). Since its launch, nearly 1,000 companies have registered with the SEC on 50 platforms, and over $127 million has been committed to campaigns."

How does Reg CF work? As explains:

“Companies can raise up to $1 million, and individuals with income or net worth under $100,000 can invest a total of $2,000 in one or more businesses in a 12-month period. Businesses must comply with Securities and Exchange Commission requirements including financial and disclosure documents, although the paperwork is far less than what companies complete when they're going public.”

How the new Regulation Crowdfunding platforms can help

Financial disclosure documents to the SEC? Gross! Here’s where the platforms come in. Wefunder, which has raised more than any other equity crowdfunding platform, helps by providing you with base documents and easy-to-use divisions and rules for projects according to how the SEC would want them disclosed.  (Regulation A+ is if you plan to raise over the $1 million limit of Regulation Crowdfunding.)

In addition to helping you navigate how to legally offer equity in your film, a platform like Wefunder also provides you with the documents you will need to submit.

(While it doesn’t have the highest rate of success of all the platforms, Wefunder has raised the most money from investors to date, and claims the lowest fees at 7.5%. )

There’s plenty more information that you can delve into in the WeFunder FAQ, but for now, if your eyes are glazing over, let’s look at a real-life indie filmmaker example!

How it worked for Jim Cummings: The Beta Test

Cummings successfully raised $350,000 on Wefunder from 370 investors. Sweet!

You may know Jim Cummings from Thunder Road, which was both a very original as well as financially successful film. Also, Jim is an all-around nice guy that we've covered here on No Film School. Here’s his description of the film’s previous success and pitch for investors:

How does it work for payout? The ROI is 125% for investors and a % share of the film company in perpetuity. So if you invested $100, you’d get $125 back plus the 0.001% share for the film. If you invested $10K or 1% of the film company, you receive $12.5K in return, and then 1% of every dollar that comes in for the film in perpetuity.

If Cummings can successfully deliver an ROI to the investors in the next two years, it will be a great cue to other filmmakers (and investors) that this is a model that can be followed!

What do you need to start an equity crowdfunding campaign?

Get a lawyer, decide your offering, and build a case like The Beta Test, explaining to those interested certain aspects of your project that might make it a more attractive investment, including your previous success. Take Cummings’ example: Thunder Road was shot for $190,000 and made $400,000 in its first year.

This is what The Beta Test team explained to prospective investors:

  • You/your film company’s previous success
  • Your new film's synopsis
  • Your new film's audience
  • Your new film's business plan

This is how Jim Cummings explains their business plan:

"Our financing will go entirely towards the production of this feature film; our location rentals, our crew, and our cast. Our 60K Camera Grant from Panavision will more than cover our equipment needs which will allow us to put all of this financing up on the screen.
As with Thunder Road, Jim will edit the film in our Atwater Village offices. We receive zero payment as creators from this WeFunder as our contracts are organized to give our investors privileged returns so that they see their complete ROI before we see a dollar.
In the event of coming in under budget, those remaining funds will roll entirely into the digital marketing of the film, to get as many eyeballs on the movie as possible."

Why is equity better than Kickstarter and Indiegogo?

At the end of the day, to go the way of equity crowdfunding requires a learning curve on finance and getting an attorney. But it could outweigh those initial hurdles if it pays off better. Our friends and relatives are growing increasingly weary of the steady flow of requests to back a project. Do they really need those overpriced tote bags? Equity crowdfunding is not charity, it’s an investment. And when people have a chance to make back money on your project, they are that much more likely to support you past that initial throwdown of cash. As frames it:

"Many small companies bypass crowdfund investing and raise money instead on sites like Indiegogo and GoFundMe that don't require paperwork and that have no limits. But having investors is appealing… Investors who are excited about the company, including those who are customers, become ambassadors for its brand."

Do you have opinions on equity crowdfunding? Would you try it, or have you done it already? Please share!     

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Your Comment


Thanks for doing the legwork and demystifying this, Oakley! Really appreciate it, and can't wait to see how Jim's new film does.

January 1, 2020 at 6:29PM

Rob Hardy
Founder of Filmmaker Freedom

Thanks Rob as always for reading. I'd love to see more filmmakers take a crack at equity crowdfunding after Jim we can further demystify and copy their success!

January 2, 2020 at 9:54AM

Oakley Anderson-Moore

Such an inspirational read! Thank you for sharing

January 1, 2020 at 10:25PM

Freelance Photographer

Kudos on this article. I love this pragmatic content, and it demystifies an aspect of filmmaking that usually leaves me pretty bewildered. Thanks Oakley!

January 3, 2020 at 12:18PM

Bryan Howell
Screenwriter, corporate videographer, and indie filmmaker

I'm so glad you're writing about this. I was the first filmmaker in the U.S. to successfully use Equity Crowdfunding to raise money for a feature film. We raised over $1 million for our Christmas movie. It was hard work, but worth it! You can hear me talking more about it on Alex Ferrari's podcast here and can also sign up for my free newsletter on tips to do it yourself:

January 30, 2020 at 1:05AM, Edited January 30, 1:06AM

David Jay Willis
Producer/Director/Crowdfunding Expert

Maybe I missed it, but what happens if you don't reach your goal? is it like kickstarter, where you don't receive anything and the campaign fails?

June 17, 2020 at 9:09AM