Investing in movies is about to change... again.

[Jesse Flaitz]

http://www.hollywoodreporter.com/news/forget-kickstarter-how-obamas-new-600233

 

Forget Kickstarter: How Obama's New Law Could Change Hollywood Crowd-Funding

 

Like many filmmakers, Spike Lee is using Kickstarter, in his case, to raise $1.25 million for his next project. A $10 donation gets you an autographed postcard, for $1,000 you can be an extra, and for $10,000 he'll take you to dinner and a Knicks game. But one thing Lee and others who raise money through crowdfunding cannot offer -- because it is illegal -- is a share of profits should the movie be a hit. That, though, is about to change, paving the way for a revolution in "equity crowdfunding" that could give filmmakers access to big money from small investors hoping to make a buck in a glamorous industry.

The change is coming courtesy of the Jumpstart Our Business Startups Act, which President Obama signed into law in April 2012 with the hope that removing some Depression-era restrictions on how fledgling businesses raise money could boost the economy. The first of the new rules is set to go into effect Sept. 23, and several players are gearing up for them.

While Kickstarter has no plans for equity crowdfunding, rival Indiegogo does. It will have competition from upstarts EarlyShares, Crowdfunder, Slated and several others.

PHOTOS: 20 Biggest Political Players in Hollywood

Here's how it works: Now, startups are required to pitch investment opportunities to individuals rather than broadcast them to the masses. But Title II of the JOBS Act allows those seeking money to advertise investment opportunities on TV or via Facebook or Twitter -- wherever, including at crowdfunding sites.

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. "It opens up access to a lot of capital for filmmakers," says Jason Best, co-founder of Crowdfund Capital Advisors. "There's a lot of people who are passionate about film but can't make one themselves, but they want to be a part of one. Soon, they can."

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.)

Even with the restrictions, Best estimates that the equity crowdfunding market could reach $4 billion in four years, with a nice chunk of that going to filmmakers.

STORY: Steven Soderbergh Explains Spike Lee Kickstarter Donation

Critics might balk at novices investing in film, especially considering Hollywood's notoriously opaque accounting practices. But Jennifer Anderson, COO of crowdfunding player Slated, says sufficient safeguards still are in place. "Some people view the restrictions as onerous, so anyone going through the trouble of meeting them will probably be viewed as legitimate," says Anderson. "Most people don't want to voluntarily engage with the SEC."

Still, filmmakers basically can set their own rules, including minimum investments and the structure of profit participation. Some could choose simplified metrics such as paying investors based on box office, while others might draft more complex profit definitions typically used by Hollywood studios.

EarlyShares, based in Miami, already has partnered with 5X5 Media, a film and TV studio that will use EarlyShares to equity-crowdfund two microbudget movies this year. 5X5 CEO Guy Zajonc envisions at least two per year for the foreseeable future, with investors offered 50 percent of profits in perpetuity.

In the future, predicts EarlyShares chairman Stephen Temes, "The audience will see a trailer and not only say, 'Wow, that looks great. I'd like to see it,' but also, 'That looks like such a great movie, I want to invest my hard-earned money into it.' " Temes says most filmmakers will require that accredited investors put up a minimum of $1,000 or much more but will set minimums far lower for unaccredited investors (perhaps $100) in hopes of attracting 2,000 investors who will become marketing evangelists. His firm will take up to an 8 percent fee for the movies it crowdfunds.

VIDEO: Spike Lee to Kickstarter Critics: You're 'Plain-Out Wrong'

Chicago attorney Corky Kessler of Deutsch, Levy & Engel already has lined up entertainment clients to pursue equity crowdfunding. Jeff Kehe is hoping to raise as much as $5 million to make a movie calledA Gringo Walks Into a Cantina. "Independent filmmakers have had to rely on rich uncles and outright donations," says Kehe. "Now we're on an even playing field with actual entrepreneurs."

When Title II kicks in, another company called Crowdfunder will have 500 accredited investors lined up with $200 million to spend, and CEO Chance Barnett is predicting his investors will plunk down $20 million to $30 million in 18 months to fund film projects.

"There is $30 trillion in total personal savings and investment accounts in the U.S. If equity crowdfunding captures 1 percent, that represents $300 billion," says Barnett.

He even sees opportunity for larger studios: "They can offload some risk while also marketing their film, with thousands of people talking about it while it's still in the funding stage."

[atheisticmystic]

Now we'll see if artists (like Zach Wossname from Scrubs) put their money where their mouth is, and offer some profit sharing on their pet projects.

[geordi]

But will this be accompanied by the payment of PROPER rates to the crew, or will the "we are crowdfunded, so can't pay these hih crew rates" be the new way of producers keeping money in their pocket instead of ours?

[VASI]

If it's a "crap" it's a "crap" and no one going to put the money (or done investment). <-- This doesn't change.

[engaudio]

But will this be accompanied by the payment of PROPER rates to the crew, or will the "we are crowdfunded, so can't pay these hih crew rates" be the new way of producers keeping money in their pocket instead of ours?

Maybe there's a away to have your investment of time, not cash recouped?

ie: I worked 20 days @ xyz per day =  equivalent cash investment of xyz.

A question for the lawyers i imagine..

 

Grant.

[Ze Frias]

Maybe there's a away to have your investment of time, not cash recouped?

ie: I worked 20 days @ xyz per day =  equivalent cash investment of xyz.

A question for the lawyers i imagine..

 

Grant.

 

This refers to sweat equity. In a normal start-up corporation, the founders would likely get sweat equity equivalent to a certain percentage of the company, usually all adding up to 51% (or 50.1%) to remain majority owners. The rest would be given to angel investors and to VC 1st round investors, as well as saving a certain percentage for an employee option pool, further investment rounds, and a rainy day.

 

That said, investing in films, as this article presents, will likely look much like traditional start-up investment IMO. The founders, which will likely be the writer(s), director, and/or producer(s), will in fact have sweat equity as they will be pushing this movie (synonymous to a corporation) from the get-go. They will seek initial angel investment from their family and friends, as this will help put some leverage in their project; they finally have some funding, no matter how minuscule it is. Then they will seek a major investment (synonymous to VC 1st round), through the likes of Indiegogo perhaps. If movie investors are anything like start-up investors, and something tells me that they are and will be, they will want as big a piece of the pie for as little money as possible, and they will want that pie sliced as little as possible.

 

As such, I think it will be very difficult and highly unlikely that anyone else in the crew will get sweat equity. The top billed cast, maybe (and a BIG one at that), but not the crew. These investors would rather pay us off once than to have us on the permanent payroll through equity and dividends. They will want all future profits to be divided in as little pieces as possible. That is not to say that it won't be possible to get sweat equity for crews in films if this does go through, just highly unlike in my eyes.

 

Lastly, if you are able to get sweat equity in a film, you should consider greatly whether your sweat will yield a good return on investment. This will be part of the risk, but if you do decide to go forward, remember that if the film does not do well (which is likely with under-budgeted films), you will likely lose the time invested, and thus, money.

 

 

But will this be accompanied by the payment of PROPER rates to the crew, or will the "we are crowdfunded, so can't pay these hih crew rates" be the new way of producers keeping money in their pocket instead of ours?

 

If they are raising for a micro-budget, I wouldn't count on properly paid rates. The films that will likely pay appropriate rates are the ones that raise 6 and 7 figures. You may try and push for sweat equity as suggested by Grant, but I think that would be a long shot, and a risky one.

[studiomprd]

" I wouldn't count on properly paid rates. "

... except for the Spike Lee's and Zach Wossname from Scrubs 's

 

and how about this:

http://www.hollywoodreporter.com/news/why-lee-daniels-butler-has-605011?utm_source=Sailthru&utm_medium=email&utm_term=hollywoodreporter_headlines_confirmed&utm_campaign=THR%20Headlines

[Ze Frias]

" I wouldn't count on properly paid rates. "

... except for the Spike Lee's and Zach Wossname from Scrubs 's

 

and how about this:

http://www.hollywoodreporter.com/news/why-lee-daniels-butler-has-605011?utm_source=Sailthru&utm_medium=email&utm_term=hollywoodreporter_headlines_confirmed&utm_campaign=THR%20Headlines

Well, Spike Lee's new joint, as well as the others you mention are raising over a million dollars, they should certainly have enough to pay proper rates. My statement was referring to those films that are raising for micro-budget films, in the vicinity of 10k to 100k. They will definitely not be able to pay full rates

[Henchman]

And why Is still wouldn't invest in especially a Spike Lee crowd funded movi, is because if it was a great script or idea, why can't he get such a low amount from a studio to make his movie.

And why doesn't he simply fund it himself, if it's such a great idea.

Well, Spike Lee's new joint, as well as the others you mention are raising over a million dollars, they should certainly have enough to pay proper rates. My statement was referring to those films that are raising for micro-budget films, in the vicinity of 10k to 100k. They will definitely not be able to pay full rates

Nah. He'll probably keep most of it for his own directing fee.

[studiomprd]

" He'll probably keep most of it "

I have a notice on my drivers license...

If I ever need a heart transplant,  I want a producer's heart....

... it has hardly been used.

 

[Ze Frias]

Nah. He'll probably keep most of it for his own directing fee.

 

I did say that he should be able to, not that he would. :/

[Henchman]

I did say that he should be able to, not that he would. :/

Why should he?

If he isn't going to forego his own directing fee to help fund his project. Why would anyone want to help fund his lifestyle?

I seriously don't understand why anybody would give money to no of his kick starter projects.

What's next. Giving money to the likes of Spielberg or George Lucas?

[Christopher Mills]

Actually, I think he's on record as saying he won't take a fee, but will spend all the money raised on actual costs.

And in my part of the world, if you have a budget of at least $300k, you are almost certain to be an IA signatory.. and yeah, I know how low that tier pays...

 

AND... yes you can try to negotiate an actual equity stake on a low budget movie.. If you are in touch with the actual producers, of course it's negotiable.. though most of them are going to say no.

[Henchman]

Please tell me why one should give a millionaire kick starter money.

http://www.celebritynetworth.com/richest-celebrities/directors/spike-lee-net-worth/

[VASI]

Investing.. Big word, little people can understand what mean in one economy. And yes. I am speak from one country who have trouble with economics and I see around me "stupid" investments.

 

Well. The game is changed. I will follow. But not at this route.

 

@Henchman: http://www.indiegogo.com/projects/ubuntu-edge

[Henchman]

 

@Henchman: http://www.indiegogo.com/projects/ubuntu-edge

More insanity.

[VASI]

Yeah.

[Christopher Mills]

no, you're not investing in a kickstarter project (at present).  You are donating money because you like the project and/or the premiums.

thanks to all who donated to the ones I am part of... you are not an investor, and I don't expect my projects to ever make a profit

Spike is also able to get private investors.. but they'd likely want to discuss the project content, which may not yet be locked.

He polarizes people and I don't always agree with him.... but my concern with his project, that will be commerically offered, is that I will have a smaller chance of a bona fide film industry funding source considering to underwrite my projects.  "Hey, if more established pros than you use crowdfunding, why should we fund your movie?"

[Henchman]

That's my point Christopher. Guys like him are going to destroy crowd funding.

Quite simply because of what I said about his project. Which is, why are millionaires looking for crowd funding.

And why shod anyone's give them money.

I actually find it incredibly selfish of him.

I think it really puts a bit of a negative spin on kickstarter.

[Philip Perkins]

This new twist on crowd funding is not confined to filmmaking.  I worked on a spot for a new financial company that is doing this for more normal company investments.  And yes, all the owners of the new company were millionaires.  I kept thinking about Jay Gould.

 

philp

[studiomprd]

" Investing.. "

please don't use that word, when it is" donating", giving away the $$