I want to use crowdfunding to get investors for my feature film project. Can I get investors through my own website or do I have to use another site like Kickstarter?
Answer by Brandon Blake, Entertainment Lawyer:
Great news for everyone looking to begin promoting his or her feature film, television, and music projects to investors this year. As you may remember, back in November of 2012 I provided an update on the progress of the Jumpstart Our Business Startups (JOBS) Act, which was passed in April of 2012. Well the SEC has been working extremely slowly in enacting the JOBS Act, but things are finally starting to move forward.
The SEC just voted 4 to 1 in favor of implementing section 201(a) of the JOBS Act, known as Title II, which lifts the ban on general solicitation and permits filmmakers, television producers and music labels, among others, to openly advertise that they are raising money in private offerings.
What does all this mean for independent entertainment producers? It is a big deal, because for 80 years the SEC has prohibited any kind of public advertising of small offerings. Because of this limitation the only way to approach new potential investors was through the use of stockbrokers or, more clandestinely, finders. Now after all of these years, the era of investor “introductions” is over and producers can finally do things like buy Internet and radio advertising, use mailing lists, and even promote offerings on television.
However, this is certainly not going to be a free-for-all and there are some important limitations left in place by the SEC to keep producers in line while marketing small offerings.
First, the SEC still requires that small offerings be filed for exemption through the SEC. That means that before producers can start advertising their offerings they will have to prepare the same limited offering materials that have been required for years, and there are now additional reporting requirements with the SEC. The SEC is going to require filing 15 days before the start of general solicitation, and also within 30 days of completion of general solicitation. Both of these are new requirements and will require use of the new EDGAR filing system.
Second, state law is not going to be pre-empted, so producers will have to be even more careful planning their marketing strategy and making sure that their limited offerings are tailored to the particular states where the best investor prospects exist. Nationwide advertising campaigns will still be limited by what each State will allow under the new regulations.
Third, the SEC will restrict the investment to accredited investors only, which are high net worth individuals, companies and a few other types of investors. So the tradeoff on general advertising will be the requirement to only allow more sophisticated investors to buy in.
So how will all this impact raising money online? The good news is that once you have an offering filed with the SEC, you can openly promote the investment online, including through your own website. Sites like Kickstarter are still strictly off-limits, however. The reason is that the SEC has not enacted the crowdfunding portion of the JOBS Act, which is referred to as Title III. This is the more controversial and complicated portion of the bill and it might well be another year or more before it is enacted.
Our firm has been handling PPMs, limited offerings and investment companies for the film, television and music industry for 16 years. Feel free to contact BLAKE & WANG P.A. (www.blakewang.com) for a quote for affordable, high quality legal service.