Crowdfunding and the JOBS Act

Entertainment Lawyer Question and Answer Forum:

Welcome to this week's Entertainment Lawyer Q&A, published by The Film & Television Law Quarterly and the entertainment law firm of BLAKE & WANG P.A. Each week an entertainment lawyer will respond to reader questions and publish the best discussions.

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Question:

How do I set up a PPM for my film? What is the JOBS Act? Can I raise investment money from crowdfunding sites?

Answer by Brandon Blake - Entertainment Lawyer:

There is no doubt that private equity investment is a major source of financing for independent feature films. In fact, investors in Rule 506 offerings invested $895 billion dollars last year alone. Yes, almost a trillion dollars was raised in 2011 under Rule 506 for all different investment types. That is more than five times the $169.9 billion that was raised in IPOs globally for 2011. So the money is out there, the question is how to bring that funding to feature film budgets.

Our law firm has been setting up Rule 506 offerings, as well as other offering types, for feature film producers for more than 12 years. We expect the next 12 months to be the best period we have ever seen for producers raising private equity financing.

The Jumpstart Our Business Startups (JOBS) Act was passed in April of 2012, and is being implemented now by the SEC. The JOBS Act was designed to make raising money easier for small businesses, including feature film producers. The best feature of the JOBS Act is Title II, which will allow start ups and film producers to advertise their investments to the general public for the first time, provided the offering only allows “accredited investors” to invest.

This new provision will overcome the only real disadvantage to exempt offerings, which was the restriction on general advertising. By providing for general advertising of film investment opportunities, the SEC is going to exponentially increase the success rate of private investor financing, unlocking groups of investors who have probably never been approached about feature film investing.

While the SEC seems to be doing everything right on the JOBS Act, Title II, it has disappointed many micro-financing entrepreneurs with the failure to fully implement the JOBS Act, Title III, which was supposed to allow for crowdfunding sites like Kickstarter.com and others to raise investor money, not just donations.

The SEC has greatly complicated that process, among other things requiring any crowdfunding website to be a member of FINRA, the same securities regulator that major brokerages and investment banks have to join. The regulatory and reporting requirements are so steep that there would be no way to profit from running a crowdfunding site in the United States. The SEC has also stepped up enforcement of crowdfunding sites, making them risky for both the owners and the users.

So the SEC is both giving and taking this Holiday season, but there is a good chance that with the new JOBS Act Title II in effect in the coming months, startups and film producers could more than double last years haul from Rule 506 offerings, which will make a great Holiday gift for the film industry.

As with any legal matter, please do not make a decision about complex matters without consulting an experienced entertainment attorney first. I have been representing feature film projects and television series for more than 14 years. Please feel free to contact my office about a quote.

- By Brandon Blake, Entertainment Lawyer

About the Editor:

Brandon A. Blake is an entertainment lawyer and producer who works with Academy Award winning actors, directors and filmmakers. A complete biography is available online.

About the Entertainment Lawyer Q&A: The Entertainment Lawyer Q&A does not create an attorney-client relationship, nor is the information treated as confidential. Responses to selected questions will be made public and shared with our subscribers. All entertainment law information is informational in nature and is not intended to be acted on without entertainment lawyer counsel.