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!

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.

Updating the Buzz

The Fellows Hip: Rise of the Gamers Movie Supporters-We're glad you're on the journey with us!
It's with an excited hand that I type this update. We have a lot to be thankful for and the road ahead of us is a promising one. Buzz is in the air as we have received some local interest with a media source. Though it's in the early stages of what may be done-they are eager and hopeful for our success and desire to assist us with some PR.
We still are in some positive and encouraging talks with a very large online gaming company. Indications are that we are moving forward to form a partnership that would be fantastic for our marketing efforts. We've had some fun and innovative conversations with them about how this would all tie in, and I can ensure you that getting them onboard will be just as valuable as having "Frodo" attached to our film, though we are still in negotiations with some A-list actors to do a cameo.
We are currently completing our crew and are very pleased with their expertise, talent and passion. Everyday more people are joining us to help ensure this film meets its goals and is a success!
The last update would be that we have some overseas interest in the film, which does include a probable financial investment. We have also reached out to many of our contacts in the industry about where they may be able to assist us, as our motto is "people helping people."
We look forward to future updates, with even more positive news, as we press on!
Ron, Scott, and Shane
http://www.openingactproductions.com/
http://www.thefellowshipmovie.com/