MIchael R. Barnard's Take on Obama's Crowdfunding Act

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by Sydney Levine
July 25, 2012 4:59 PM
4 Comments
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President Obama signs JOBS ACT; its Equity Crowdfunding may rebuild indie film biz.

Written by Michael R. Barnard for ReelGrok.com 

President Obama  signed the JOBS ACT into law on April 5th, 2012. Called the ‘‘Jumpstart Our Business Startups Act,’’ the goal is to increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies. It will make it easier for small businesses to raise money so they can create jobs and rebuild the American economy by amending the Securities Act of 1933. It can have a profound impact on the independent filmmaking industry.

Slava Rubin of popular filmmaking crowdfunding site Indiegogo.com, and very active in the process of crafting the Crowdfunding part of the JOBS ACT, expects this bill to create more startups and jobs for indie filmmaking.This is the first major change in securities regulations in about 80 years,” says Rubin of the landmark law signed today by President Obama.

Slava’s part in helping craft this law over the past couple years led to his invitation to be at the White House today when President Obama signed the Act. Slava Rubin of popular filmmaking crowdfunding site Indiegogo.com, and very active in the process of crafting the Crowdfunding part of the JOBS ACT, expects this bill to create more startups and jobs for indie filmmaking. “This is the first major change in securities regulations in about 80 years,” says Rubin of the landmark law signed today by President Obama. Slava’s part in helping craft this law over the past couple years led to his invitation to be at the White House today when President Obama signed the Act.

...One part of the JOBS ACT, its Title III, Crowdfunding part, is an expansion of the current crowdfunding concept that has already invigorated parts of indie filmmaking.

 While crowdfunding is the sexy environment of the moment for filmmakers, the politicians building on it for the new method of equity investment created the tortuous and unsexy acronym, “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012.” We’ll call it, simply, the Crowdfunding Act.

New Opportunity of Equity Crowdfunding

There is a difference between the current popular Non-Equity Crowdfunding and the new Equity Crowdfunding that was signed into law today.

 The common dream of aspiring filmmakers often began with a script and some actors, and then an effort to raise money to make the movie by asking everybody to invest in their project. Ads were placed, bulletins posted, and Internet messages were spread asking for people to invest. The aspiring filmmakers then would be told how illegal that is, shocked to learn that they were offering “securities” which had to be registered with the SEC. They learned that any offering to the public of any kind of ownership in future possible profits is a security. That’s “equity.”

 Michael Shuman, an economist, described it this way: “The real reason small public offerings and local stock exchanges do not flourish today is that the Securities and Exchange Commission (SEC) has essentially banned them. Existing laws place huge restrictions on the investment choices of small, “unaccredited” investors—a category in SEC vernacular that includes all but the richest two percent of Americans.

                                                                                    *****

In order to offer equity shares in their project, it appears filmmakers will need to provide a traditional Business Plan and Financial Projection, which was common before the collapse of the independent film industry, that includes the purpose for the offering and the target offering amount and its deadline, as well as the description of the ownership and capital structure of the issuer. The Business Plan and Financial Projection will also include the name, legal status, physical address, and website address of the issuer; the names of the directors and officers and anyone with more than 20 percent of the shares of the issuer. A description of the financial condition of the issuer including all other offerings of the issuer within the preceding 12-month period is also required. The filmmaker will need to make regular updates about progress meeting the target offering amount. There will be rules about describing the price, value, terms and class of the securities offered. Annual reports will be required.

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4 Comments

  • Meghan Cole | August 22, 2012 10:00 AMReply

    Thanks for the in-depth article around the JOBS ACT and further a quick insight into how equity crowdfunding requires more a of traditional approach (ie business plan) to successfully raise capital. Your readers might be interested in our blog post that carries on with success factors to Crowdfunding. http://tinyurl.com/9jhcol3

  • Sydney Levine | July 28, 2012 2:10 PMReply

    Important comment and reply from Cottie Chubb and Michael Barnard:

    Cotty Chubb:
    Michael, this is a great and useful post (Jeff should cross-post it too, as Sydney did ([which is where I first saw it]). It would be helpful if you identified several specific requests that a comment to the SEC should contain. Asking the SEC to make things easier isn't as effective as asking them to do something particular, and you (and your sources) know better than me what those specific things might be. You might also post the correct email address or webpage to which the comments can be addressed.

    MichaelRBarnard commented on President Obama signs JOBS ACT; its Equity Crowdfunding may rebuild indie film biz.. in response to Cotty: There is a follow-up piece I'm working on. I am trying to assess attitudes and awareness, as well as the current state of the SEC's thinking. For instance, I've discovered that a broad swath of today's filmmakers are so immersed in donor and mommy-and-daddy funding that they are ignorant about equity investment and cannot grasp why it's valuable and why the changes are important. Also, others have expressed their feeling that filmmaking projects are not real "businesses" and, as such, should not intrude on equity investment. For its part, the SEC acknowledges receiving less than 100 comments on the Crowdfund Act, and most have been regarding the structure of the intermediary "funding portals." (Of course, this portends a potential for abuse and shenanigans by aggressive "funding portal" operations that could find it more profitable to extract fees from the filmmaker than to provide actual investment access for the filmmaker.) These things are percolating in my mind, under pressure of the end-of-the-year deadline for the SEC rulemaking. I should get this new article out soon! I just now double-checked the link on my post, and it seems to still go directly to the SEC page for comments. However, I realize that, without guidance and context, that page may be just like most government bureaucracy access points: correct but meaningless. The major goal of my next article will be defining points with which a filmmaker might agree or disagree, and then might contact the SEC to make comments as appropriate. Thank you!

  • sydney levine | July 28, 2012 1:58 PMReply

    L.A. entertainment attorney Mark Litwak's comments on this subject are important. Read them: http://michaelrbarnard.wordpress.com/2012/07/26/public-comment-on-crowdfund-act-by-entertainment-attorney-mark-litwak/

  • Sydney Levine | July 28, 2012 2:01 PM

    More important comments:
    Public comment on Crowdfund Act by Film Finance/Securities Attorney John Cones
    by MichaelRBarnard

    The following is a public comment to the SEC about the Crowdfund Act of the JOBS Act. The comment is from film finance/securities attorney John Cones (730 Mojave Trail, Maitland, FL 32751 http://www.filmfinanceattorney.com)
    This is verbatim from the “Comments on SEC Regulatory Initiatives Under the JOBS Act: Title III — Crowdfunding” at http://www.sec.gov/comments/jobs-title-iii/jobs-title-iii.shtml#meetings

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