Money for Films: Should I Try Crowd Funding?

Crowd funding is defined as “the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations.”

This new funding source has created some businesses to try and help you meet that goal. The two most popular are: 1) IndieGoGo and 2) Kickstarter.

They both will charge a fee for doing this. IndieGoGo will allow you to be funded regardless of whether you hit your goal or not in the allotted time. If you do not make your goal, you simply pay a higher premium. With Kickstarter, it’s an all or nothing deal. If you don’t make your goal, you simply do not get funded.

For the indie filmmaker, many see this as a great way to get started. I have a few thoughts on the issue, having gone through this ourselves recently. We chose to go with IndieGoGo

1. You need to recognize you are simply going to be tapping your own personal resources. There are not thousands of people waiting in the wings to find your project and fund it. You will find a few new people, but the majority of funds will come from your own personal network of family and friends. And if they've all ready been tapped for resources, it’s somewhat hard to ask them to dig deep again.

2. Filmmakers need to STOP asking for the entire budget. I've seen one guy asking for $90,000 on Kickstarter. This is a crazy amount of money to be asking for through crowd funding. I don’t believe you’re likely going to raise these funds this way. Money at that level would have to come from a true angel investment campaign, which is very different. Crowd funders are not investors! They are giving you the money for whatever little incentives you might offer. Generally, true investors who invest significant money will want some agreed upon investment return and time-frame for the risk they are taking. Depending on the level of an “investors” investment, you also may possibly violate some SEC regulations. Now, someone will always have some exception to the rule—I get it. But, you need to stop and set realistic and obtainable expectations. You need to ask yourself, what it might mean if we don’t raise the funds. It’s great when you do, but it broadcast “failure” if you don’t. (FYI, the filmmaker only had $10 donated of the $90,000. I was not inclined to give, as I knew there was no way he was going to meet his goal through crowd funding).

Now, maybe that’s the point: as with Kickstarter, your go/no go is based upon you reaching a hard to obtain goal. But, you need to be ready for what failure might mean.

What crowd funding can be good for is a specific piece of the puzzle, such as seed money or having it go towards a specific budget item. Our crowd funding was for a campaign to help us market our film, www.TheFellowsHipMovie.com, properly. We were successful. We couldn't, and did not, raise the entire budget through crowd funding.

3. Don’t expect help from the service to advertise for you. They have so many projects that they only assist in advertising a select few. And, from our experience, I’m not sure the method to their madness. From time to time, an idea is so good it starts to catch on like a brushfire and gets well over funded. That’s what we all would like, but it’s the exception to the rule, not the norm.

Crowd funding has its place, but keep your goals realistic and achievable—and fair to you and your funders.

Now go and Express your Indie!

Filmmaking Crews are a TEAM sport!

Filmmaking is one of the few industries where the professional knows they need a fleet behind them, but the independents believe they can do it all on their own.

I’m not saying that one person cannot do a lot in the independent filmmaking world, but why would you? You cannot be an expert at everything. It’s true that very technical people can carry a lot of the load, but trying to carry the full load can drag you, and your project, under.

Right where you are, there are tons of people who are waiting for someone to step up and get something going. Just run an ad in CraigsList, and see the response you get.

Here’s my two cents. Get a team behind you. At minimum you are going to need:

1. Writer – If you are technical, usually you are not the best person to come up with the storyline. Don’t take this negatively; think of it as streamlining your craft. It’s better to be great at a few things than good at a lot.

2. Producer – This person has to be great with people. News flash – without the producer, there will be no filmmaking. Many filmmakers try and be it all. A producer can bring in funds, make introductions, recruit a great team, and then help manage that team. This person also needs to keep his eye on marketing, and how you plan on getting your film out there. If you make a great film but no one knows about it, who cares?

3. Technical – I would say this is about 90% of indie filmmakers out there today. They are the crew for production, usually as the Director/DP, and then they take on the entire post-production process as well. Meaning they film the movie, then they edit it, they do the VFX, sound design, etc. While you need others production and post-production, you should consider the following:

o Sound – Get someone to take great production sound, and to assist you with post-production sound design.

o VFX – The better your visuals, the higher the production value.

o Gaffer – Find that right person to make sure your lighting is correct. Outdoors they are not crucial, but indoors they are invaluable.

4. Score – There are way too many great musicians out there, not to be taking full advantage of what value they add to your team.

5. Actors – The world is full of wanna-be actors waiting for their chance. Give it to them!

Filmmaking is a team effort. And there are many people out there who want to say they worked on a film at least once in their lifetime. The more professional you treat your project, the more others will respond in kind.

Best of luck and keep us posted how your filmmaking adventures go! Until then – Express Your Indie!!

Help on a film: the Intern

Oh the infamous intern/free labor…or is it? Most don’t even know that if you are a for profit company, then a true intern must be paid or you are in violation of the Labor Laws. Ouch. Trust me I know. This is not 100% true, but in most cases it is.
I know if you are doing a feature and using the latest RED camera, who wouldn’t want to jump in and help. I mean look at all the new graduates coming in to the workforce with no true skills. Plus, it’s FREE labor to you. But, that is actually not the case, and the Labor Department is starting to crack down, so be forewarned. And if you do want to use unpaid interns, you have to check off these six items: http://wdr.doleta.gov/directives/attach/TEGL/TEGL12-09acc.pdf
Just a few to highlight: the intern must be given adequate training to equal that of a school; the intern can not just take over someone else’s job who would be paid to do it; and you can’t take advantage of them, meaning you truly want to help the young intern get some real experience so he can eventually get paid for this type of work.
So, imagine, you can’t just have an intern as your boom op, because he would have to not be replacing someone who would/could get paid for that role. So you have to have a boom op. If you want the intern to get some experience, then the paid boom op must stand aside-still getting paid himself-and help the intern learn the ropes. You can’t just send the intern for coffee or errands, because that would be a PA job, not getting experience as a boom op. They must be “learning the trade.” It does actually make sense, if you stop and think about it.
Having interns can be a great opportunity for you and them. But, I think, sometimes what we’re truly looking for is a “volunteer.” We had several volunteers on our film.

Another really good article:
http://laborlaw.typepad.com/labor_and_employment_law_/2007/11/unpaid-internsh.html.

How to find investors with money the right way for movies.

Of course I have to qualify that I’m not a CPA or an attorney. Laws change all the time, so please do your own due diligence and ensure what I’m saying is accurate and correct, or better yet hire an attorney to do so. This is just a fellow filmmaker trying to help.

I’ve seen a lot of misinformation going out about investors. In fact many people are down right breaking some federal laws. I’m sure its innocent, but breaking them never the less.

Investments are generally dealt at the individual level, but once you cross over to soliciting for investors, the SEC comes in. I’m assuming this is just an LLC, and thus it is considered a “private” investment.

Here at some highlighted points to note (if not filed with the SEC):
1. An investor must be a “substantial and a pre-existing relationship”.
To be "pre-existing," a relationship should be “known” before the terms are developed and the investment begins. You have to know them before you start asking for the money.
The internet is new and still being defined as it relates to investors, but what I am sure of is you cannot blast a simple email out to others asking for money – as you are not allowed to advertise for investors and this has been deemed advertising. Just like you are not allowed to take an ad out in your local paper.

Is this how you think you are going to find your money anyways – through an email blast? Finding investors is hard work, you’re not going to find a legit investor with a sympathy email blast.

2. You are only allowed 35 non-accredited investors.
If they do not meet the qualifiers below – they are non-accredited. So, if your budget is $200k – and all you have access to are family and friends (most are probably non-accredited); a general rule of thumb: divide that by 35 and that’s the minimum amount you can accept for an investment.

An accredited investor is defined by Rule 501 of Regulation D of the Securities Act of 1933, and must abide by the registration requirements of the U.S. Securities and Exchange Commission (SEC). These investors must meet certain criteria.

The federal securities laws define the term accredited investor in Rule 501 of Regulation D as: (refer to http://www.sec.gov/answers/accred.htm for more information)
1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Money is out there. Is it easy – no? But doing it the right, and legal way, is always the best way.

Some other great articles are:
http://startuplawyer.com/preferred-stock/life-is-too-short-to-deal-with-non-accredited-investors

http://allaboutindiefilmmaking.blogspot.com/2009/05/how-not-to-use-internet-to-find.html

How to use the internet with investors:
http://firemark.com/2009/05/13/how-not-to-use-the-internet-to-find-investors-for-your-film-or-theatre-project

Film Funding: How to use Section 181

I know there's been much talk on Section 181, but I wanted to chime in and give my two cents, as I fear not all of the information may be accurate.

Being a former cop, I know there is the "spirit" of the law vs. the "letter" of the law. I know what we all want Section 181 to be, but alas I'm afraid it has not been interpreted that way by the most important entity - the IRS. I know the legislation was written in such a way as to help investors feel better about investing with film in the US, to offer them an immediate tax break.

However, regardless of how we might interpret this, the important interpretation is how the IRS has defined it. Not an attorney or a CPA, just ask Mr. Wesley Snipes.

This is taken directly from the IRS:
Here is the link that explains the IRS regs that are in place for the statute section 181.
http://www.irs.gov/irb/2007-12_IRB/ar10.html

It is clear that there are a few major items that qualify for the deduction,
  -member of the production company
  -ACTIVE producer in the production
  -invested capital in the production

This allows for the amount of capital investment to be deducted from taxes in the year the expenses occured vs having to wait for income from the production before being able to take the deductions. It all evens out in the end.

It still has a cap of $15 million in total deductions, and has been retroactively extended till the end of 2011.

I do know that they are trying to amend the legislation to reflect the spirit of the law, and I know the IRS is trying to be very liberal; but for now - you better be very careful in how you "advise" others on Section 181.

Out of all of our current investors, myself and the two other owners of our company were the only ones able to take advantage of 181.

This is not official advice, just some thoughts - do with it as you may.