April 18, 2012
I am an entertainment attorney representing independent filmmakers. With respect to crowdfunding, I believe it to be a viable option for smaller budgeted film or music projects,much as Kickstarter has established. The benefit of this approach is to avoid small fractional equity interests which are impractical to administer, instead relying upon other quid pro quo consideration such as access to the set, a signed script, a DVD, etc.
I do not feel that the crowdfunding approach is suitable for larger budgeted independent films in which equity in the film is consideration for the investment due to the fractional equity percentages.
Relaxing current restrictions on the manner of solicitation, while maintaining investor suitability vs. risk, and disclosure of investment-relevant information criteria would in my opinion be a postive opportunity for independent filmmakers and musicians.
If digital media,via the Internet or directly to mobile devices is used to solicit investment it would seem reasonal to me to require a simple notice filing as part of the existing Form D noting the website or other method of communicating or soliciting the proposed investment.
Currently legal counsel have the responsibility to advise clients of the necessity to have suitable business entity and equity structure, to fully disclose the nature of the investment and all relevant information, and to provide objective as opposed to "puffing" information to assist potential investors in fairly evaluating the proposed investment. These criteria should be maintained.
Many financial analyses simply assume various levels of potential revenue in order to create some "multiple" of investment principal rather than disclosing the anticipated revenue streams for the particular project, and then showing through an objective mathamatical calculation where the break even point is for investors to recoup principal and begin return on investment. The latter methodology is the approach of Louise Levison, author of Filmmakers and Financing, and President of Business Strategies in Sherman Oaks CA.
Investor protection can be maintained under the existing criteria for disclosure in the offering documents, while a broader latitude for how the offering is introduced is permitted.