Crowdfunding has great promise. And, it has exposed a vibrant new class of citizen funding.
In the spring of 2010, in comments on Jeff Steele’s Film Closings blog at http://filmclosings.com/2010/04/new-method-indie-financing/, I publicly assessed crowdfunding as having the potential to generate a normal maximum of, say, $5,000 if one spent all one’s time on it. Then, that leapt forward to the potential normal maximum of $15,000 to $20,000. Now, this year, there have been reports of reasonable numbers of fundraisings over $50,000. This is merely an anecdotal assessment, but those are numbers I now see reported.
And, crowdfunding is just as susceptible to “catching lightning in a bottle” as indie movies are. Look at the $200,641 raised by the now-notorious DIASPORA* (see http://www.kickstarter.com/projects/196017994/diaspora-the-personally-controlled-do-it-all-distr) because of the coincidence of their crowdfunding to develop a safe-and-sane social media software at the same time that the public was going ape-shit over Facebook’s privacy fiasco.
It seems people want the citizen funding opportunity of crowdfunding. It’s simple, transparent, and easy to implement.
Perhaps now the moribund bureaucracy of the SEC—the “Securities and Exchange Commission,” the investor protection bureaucracy borne of the Great Depression (see http://www.sec.gov/) will somehow be made relevant. The mass appears to be forming behind crowdfunding, and bureaucrats—as defines them—are unlikely to see it coming.
The SEC seems to be anachronistic, an annoying ante-bastion only for the uber-level of professionals in the investment industry who still dwell in studio-slate financing (whatever that is today) . It benefits the immense, greedy pipeline that lies between investors at one end and creators at the other. But, that may finally change. Bernie Madoff may well prove to be the gravestone for the SEC, if not merely an albatross around its neck.
All of us need protection, both the investors and the creators. The SEC established fairness rules. You can’t sue me for no reason at all (per “safe harbor” rules), and I can’t run off with your money (per “fraud” rules). That’s fair.
But the SEC has failed at protection over and over again. It reacts to the post-mortems of actions taken by aggrieved investors themselves, and usually much too late. It is common for crooks to destroy the life savings of unfortunate investors before the SEC can even blink. It is a glacier of public bureaucracy, giving the illusion of safety because of its sheer bulk. Yes, it moves! An inch a year.
Crowdfunding may be the future, leading the way to integrity, clarity, openness, and opportunity that have been destroyed under the SEC’s watch. As we watch the entire world’s economy collapse, it appears that the only protection the SEC offered was to its snuggle-buddies, the insiders of the investment industry who knew, for instance, which rules to skirt in order to create horrific but profitable sub-prime mortgage schemes. Everybody else got screwed.
Of course, nothing can completely protect investors from themselves and their greed. Over and over again, investors ignore the realistic pitches of honest creators and instead flock to the outrageous promises of crooks (Madoff being the most egregious, but only one of the many that are reported in the news each year).
I sense that crowdfunding is so transparent and straight-forward that common folks flock to it because of its refreshing promise: open, simple, direct, and transparent community.
This must be the way to build a new, healthy investor class for the indie film biz!
Of course, success with crowdfunding is never guaranteed. Many efforts have succeeded, but many others have failed.
The SEC is very last-millennial and slow to adjust to the real world of what citizens need and want. Yes, the SEC is especially comfortable for the professional investment industry, just as are smoking jackets and large exclusive male-only clubs, but as far as citizens are concerned, the SEC belongs, at best, on a library shelf; take it down, blow off the dust, confirm an old procedure, then put it back.
There are costs and energies to pursuing voluntary citizen funding, but those are a lot less than the cost and energies to launch an Exempt Reg. D Private Placement Memorandum under the SEC, and the overall results may be better.
There may be a downside. The downside of voluntary citizen funding is the potential for what is commonly known in the investment industry as “dumb money.”
I have publicly mentioned that a very likely drawback to crowdfunding is not yet known. That is, what will happen when the films get made, and one of them is successful? I believe some voluntary citizen funding donors will petition courts to have the crowdfunding sites’ complex boilerplate clickable terms and conditions tossed out, and to have the citizen voluntary donors re-classified by the courts as investors, owners of equity, due profit participation. Courts are usually favorable toward citizens.
When donors see the Domestic Gross Box Office report of an opening weekend of $21.3 million, such as, for example, last year’s projection for the $2 million production THE LAST EXORCISM (see http://www.studiobriefing.net/2010/08/low-budget-flicks-make-impressive-debuts/), some donors are suddenly likely to develop an entirely new memory of what their $25 donation was.
Those would suddenly see themselves as aggrieved, entitled to “their fair share” of that $21.3 million. Further, they will not grasp how little of that reported figure actually filters down to the producer who started the crowdfunding effort in the first place. For instance, the $2 million THE LAST EXORCISM was reportedly sold to Lionsgate for $1 million, but citizen donors are unlikely to grasp that. Yes, I said the two million dollar movie sold for one million dollars. That happens. (I do not have any knowledge of where funds came from for THE LAST EXORCISM — it was not likely from crowdfunding — nor knowledge of what participation the producers had beyond the one million dollar purchase price from Lionsgate.)
The SEC is not likely to have intelligent participation in that situation. They will likely be flummoxed and incapable of response, since it involves an approach that is “new” and something that investment industry lobbyists will thwart, since citizen activity skirts the profitable investment industry. The SEC’s only participation will likely be as the repository of legal references to their ancient rules and regulations, which could function in the legal field even if the SEC were dead. These are rules and regulations that failed to protect the entire world’s economies from the current economic destruction.
And remember, the SEC did not stop Madoff. They failed to uncover his crimes even though they had plenty of opportunity; he was well-known to them. (see http://www.nytimes.com/2009/10/31/business/31sec.html) They often fail. As for investments in the purely evil mortgage consolidations that caused the collapse of the world’s economy? One can only laugh. (see http://www.propublica.org/blog/item/wall-streets-money-machine-the-short-story)
The SEC was instrumental in Madoff’s punishment only long after others exposed him as a criminal, long after citizens lost their life savings to him. This is a common sequence of events. Of course, a lot of it must be laid at the feet of gullible investors who are eager to believe outrageous lies from smooth talkers rather than reasonable assessments from honest people who sound dull. Again, crowdfunding may prevent part of this problem because of the transparency, peer-review, easy entry, and clarity.
Here’s what I fear: I worry that SEC bureaucrats will eventually be motivated to justify their existence by taking disastrous, egregious actions to prove their might by attacking, unreasonably, crowdfunding and filmmakers. (see “The Securities and Exchange Commission Post-Madoff Reforms” at http://www.sec.gov/spotlight/secpostmadoffreforms.htm)
This is significant: many filmmakers seem to be unaware that their requests for investors are illegal. Regulations are very clear that a request for money now that will be repaid from profits later is the sale of securities, and highly regulated under the SEC. That’s why crowdfunding must facilitate only donations from citizens. There cannot be equity participation (a share of profits). A request has been crafted and submitted to the SEC to allow some form of public equity investment via crowdfunding. (see http://www.sec.gov/rules/petitions/2010/petn4-605.pdf) There are other possibilities under existing rules and regulations that might allow larger funding opportunities, perhaps as much as $1 million.
Citizens may win.
I think an important take-away is the vibrancy, acceptance, and growth of the crowdfunding concept. I see it as proof that there is a latent investor-class for indie films; that citizens want a simple, transparent, community-accepted opportunity to participate in the movie-making process.
As it grows, and hoping it continues to grow, everything indicates we are approaching the tipping point where it will soon become possible to raise the entire budget of a low-budget indie feature film via this new energized, socially-active citizen donor-cum-investor class. And the citizens will have a chance to participate in the productions, creating new earning opportunities.
The need exists, and not only for filmmakers. Reports estimate that $3 trillion in investable funds languishes in non-investment caches because of fears of the current processes of our investment industry. (see “The Mysterious Case of the Missing $3 Trillion” at http://www.portfolio.com/industry-news/banking-finance/2010/01/07/wall-street-securitization-loan-packaging-machine-breaks-down-during-financial-crisis/) The professional investment industry finds it valuable these days to horde cash instead of investing. This, in spite of ongoing tax breaks for corporations.
Citizens want a transparent system not overrun by greedy obfuscation that benefits the pipeline more than the contributors at either end of the pipeline.
Filmmakers may win. I do not yet see any indication that crowdfunding is supporting a new infrastructure for an indie film biz. Each project so far seems to be a micro-budget closed-loop endeavor that does not grow infrastructure. However, as crowdfunding is used more frequently for higher-budget projects, those projects will begin to lay the groundwork for a new infrastructure. If that happens, most “mini-moguls” will consider it the start of INDIE FILM BIZ 3.0.
In addition, if crowdfunding is able to leap over the SEC and begin to offer equity participation in ROI film projects, the indie film biz will see stability and growth. “ROI” means Return on Investment, the distinction between those indie films that require outside investors who expect potential payback versus those indie films that are funded out-of-pocket and with only a vague hope of possible revenue, if any.
I believe crowdfunding needs nurturing and honing. It is proof the exclusive Wall Street-class investment industry has left the citizens behind and even ripped them off, and the citizens know it. Besides, what’s more fun than making movies??
That, to me, shows great promise for crowdfunding.
There are several crowdfunding sites. Here are four that may be of interest to filmmakers:
Fans Next Door http://en.fansnextdoor.com/
There are many tutorials and personal accounts to help a filmmaker build a crowdfunding campaign. Do a search for “crowdfunding” to find some that appeal to you.