Learn about the “JOBS Act”, & how it can affect your future as a filmmaker
Q: What is your professional background?
A: I am a partner with the law firm of Elias, Matz, Tiernan & Herrick LLP, Washington, DC. My practice focuses on corporate and securities matters and I have extensive first chair transactional experience advising on extraordinary corporate transactions, including private placements, initial public offerings, secondary offerings, mergers and acquisitions.
Q: Please explain a little about the bill. Why are you so passionate about this topic?
A: The Jumpstart Our Business Startups Act (or "JOBS Act") is bipartisan effort to provide small businesses access to the capital markets by decreasing the regulatory burden currently required by federal and state securities laws. The JOBS Act, which contains the Crowd Fund Act of 2012 ("CFA"), resulted from a combination of six bills that originated in the US House of Representatives, with significant investor safeguards added by the Senate. The law was signed by President Obama on April 5, 2012. However, the use of the "crowd funding" provisions of the law is not permitted until final regulations are published by the U.S. Securities and Exchange Commission by January 1, 2013. Under the CFA, companies will be able to raise up to $1 million over the internet, subject to compliance with the requirements of the law.
Q: What are the two sides to this issue / Act?
A: Many small to medium sized companies, as well as entrepreneurs, have been unable to obtain bank loans or other funding from traditional sources and are excited by the prospect of being able to access capital from individual investors using the internet.
On the other hand, many regulators and pundits believe that the CFA permits companies to ignore disclosure requirements that have served the public well for over 80 years and will result in significant fraud on small investors who can least afford to lose their entire investment.
Q: How will this act help budding filmmakers on our site?
A: In addition to asking family and friends to help fund their film, producers will be able to utilize the power of the internet to obtain the financing for their projects. Although websites like Kickstarter and IndieGoGo have been around for a few years now, the only "return" that can be offered is some kind of "gift" (a hat, poster, dvd, etc.). With the CFA, people will be able to actually invest in the movie, and, if it is able to garner a significant (paying) audience, these investors may be able to obtain a financial return on that investment.
Q: What are the first steps one should take to start crowd funding?
A: Since crowd funding is not permitted until the SEC has published final rules, filmmakers should plan ahead for when it will be available, by learning what they will need to do to comply with the new law, talking to and/or engaging the professionals who will help them achieve a successful offering (eg, funding portal, escrow agent, accountant, attorney, etc), working on a credible business plan and doing the other typical pre-production work (budget, schedule, comparables, etc.) that will be needed at the appropriate time. Note also, that there will be some initial expense involved in doing a crowd funded offering, some of which may be able to be deducted from the offering proceeds. The CFA has express liability provisions, so producers are cautioned to make sure that they and the funding portal they work with comply with the law's requirements.
Q: What should they be cautious of when crowd funding?
A: Like any new field, the crowd funding arena will be populated with reputable service providers, persons with minimal experience and outright charlatans who will rob them, or worse, violate the law and create personal liability. Filmmakers need to take this time to investigate and interview their future "partners" who will be in a position to make or break their offering.
Q: Are there particular locations where this will work best?
A: One of the attractions of the crowd funding theory is that it should democratize the ability of filmmakers to raise financing for their productions, eliminating the "monopoly" of Hollywood. Producers will be able to target their fund raising efforts to their local community, affinity groups, persons with a common interest or however they may be able to slice and dice their perceived investor and/or audience base. Since the internet has no "location," funding will be accessible from anywhere (within the U.S. under the CFA).
Q: What do you think will happen next in regards to production funding? (Will the current trends continue, etc.?)
A: The CFA is a new frontier. The SEC is just starting to write the rules, professionals are trying to figure out how to best comply while raising the greatest amount of capital at the lowest possible cost, and entrepreneurs are working on capital structures so as not to diminish their ability to raise additional funds in the future. Working in this area, I see it evolving daily, with great new ideas percolating from all over the world. I believe that the CFA will be a great help to film makers and other businesses in the industry (such as post, duplication and efx houses).