Just days before the American Film Market began last November, the Securities and Exchange Commission (SEC) finally promulgated regulations (after a two-year delay) that allow companies to solicit investments from the general public over the Internet—i.e. equity-based (or “for profit”) crowdfunding.
While many are touting this as an exciting new means of raising revenue for films, the lawyers and financiers in attendance at AFM were all of the unanimous opinion that equity crowdfunding, as applied to independent filmmaking, sucks. Why?
There is a big difference between traditional donor crowdfunding, like Kickstarter, and this new profit-motivated financing technique, an expensive and dangerous proposition. While equity crowdfunding may work for potentially high-reward investments in the tech world, it’ll likely be disastrous for the world of high-risk/low-reward film investments. And it is invitation for moviemakers to be sued when their investors don’t see their money back. By contrast, old-fashioned donor-based crowdfunding remains useful, provided you understand its limitations.