Crowdfunding – Going Legal

Crowdfunding always seemed like a “wank” to me until I started to look into the new SEC Rulings from July – 2013. (They’re taking effect in mid-Sept – 2013). Really, I had the idea that Crowdfunding was an effort by a bunch of Indie wanna-be’s whining to raise funds without making the effort to understand the Business of Film.

Maybe it was a hope and a wish before, but now it’s about to go open up Indie financing in previously unknown ways.


The Crowdfunding process is actually making “an offer to sell securities”, so it falls into the sacred territory of Hedge Funds. The people who invest will own a few points in your film – the number of points will be proportional to the amount of money invested – this is the same principle as Hedge Funds, and, indeed, is regulated by the same Regulation D of the Securities Act.


Many moons ago, right in the middle of the “dirty thirties” following the terrible market crash in October, 1929, the US Securities & Exchange Commission passed a ruling saying that you must register every offer to sell securities. At that time they left a loop-hole – Regulation D – a list of “Rules” for small businesses who couldn’t afford all the red tape involved with this registering process. The Rules are numbered 501 through to 508, so you may see terms like “Reg D, Rule 506”, etc. The rules are meant to be protective of the integrity of non-registered sales of securities and are restrictive.


The Jobs Act, which is the legislation behind the Federal Film Tax Incentives (generally referred to as “Section 181”) encourages investment in small business by easing certain securities regulations.  As part of the general compliance with the Jobs Act, in July 2013 the SEC passed Rule 506 (c) ) to allow general solicitation and advertising for a private placement offering. However, in a Rule 506(c) private offering all of the purchasers must be accredited investors and the issuer must take reasonable steps to determine that the purchaser is an accredited investor. The SEC legislation can be downloaded by clicking here


The SEC has defined an “Accredited Investor” in 8 ways – see this link for a very clear, and easy to read, definition of the 8 definitions .

The most interesting to me is #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”.


I think an article by Carl Brown in “Slated” on July 19, 2013 says it best:

“ … even if the SEC’s final rules don’t end up inducing millions more private investors overnight into the film industry, they will still spur the need for more diligent background checks, not to mention private placement memos that are grounded in more realistic and informed financial projections. The demand for better film data and verification paperwork will increase, and so too the likelihood that this industry will win acceptance and long-term legitimacy among a wider pool of accredited investors”.


You will see a field of investors opening up which had been blind to us all before; however, it will also raise the bar on the quality of proposals required by the Indie Producer. Yes, the creative idea will still have power, but there will be a very high expectation from “Accredited Investors” that the Indie Producer is competent to handle their money. Your challenge will be to generate that confidence by demonstrating that you understand finance.

To find out more about how to get to that point of generating confidence see this YouTube Video:


Cheers and happy prospecting / John


About filmproduction
I have worked in the film production industry since 1985, working on over 50 different productions of every size in 6 different countries. My self-published book, "Walk The Talk" is written in an easy to read manner for film students and working professionals who haven't had the chance to learn how to 'Direct the Money'.

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