$$$? Doesn’t it always seem like we always need more of it, no matter what else is going on in our lives? Well, as we embark on our newest expedition, it seems that very thing is going to be our most challenging obstacle. When we funded “Dreams Awake” it was mostly friends and family, and of course us, who put up the required dough to see us through. But this time around we have to stretch out beyond those circles, because we need a fair more of it than those of us readily have in our possession.
Now that “One Hand Clapping” is trying to ‘wake up’ it is going to need to be fed to completely come alive. And that means greenbacks. Those little pieces of synthetic fibers, paper and ink we give so much value to in our world. Too bad we just don’t have a gold mine somewhere we could dig up, and presto we’re on the way. And isn’t it funny that paper money was first introduced centuries ago by the Chinese, as an alternative to coinage. And don’t they have most of the money in the world, or carry most of the debt, or at least it seems like it. Everything it seems we buy nowadays is from China, which of course has been going on for quite a while now.
Anyway, back to getting more funds for our next little film. We recently had a finance meeting to map out our fundraising strategies. A wakeup call realizing we are involved in a climbing marathon for sure. Just in case most of you don’t know it there are two main types of investors, passive and active. We had to decide what we wanted to do with the film, and which direction to go here. Essentially, passive investors invest their funds, but are not involved in the company or its decision-making in the creation of the film. Active investors, who usually invest larger amounts of money, are involved in the day-to-day decisions of the company. That means more chefs in the kitchen. A good idea? In most cases, I would say no. However, there can be some advantages to this situation.
Certainly, if an active investor has deep pockets, and also has a knowledge of the business, that could be a plus. And since I do think you need several views of a situation to really know what you are looking at, that situation can be a real plus. Just as long as it doesn’t become a long, drawn out committee-type affair in the decision-making processes. You obviously have to weigh it all out here.
Now with passive investors, which on the surface does seem more palatable, it can actually get more complicated. Here you are selling pieces in smaller increments, and thus need more of them. Plus, since they are ‘passive’, as in they have no say in any of the company’s decisions at all, there are no worries as far as that goes. However, when you are selling to passive investors that means you are selling a security. And that involves the Federal Government via the SEC (Securities & Exchange Commission), and the state governments where you plan to offer the securities package. Confused yet? It gets muddier.
For a small indie film company like ours it gets fairly limited how we can offer these securities. We certainly won’t (and don’t) want to do a public offering, so it would be a private offering, usually under the Regulation D rules. There are three different categories under this particular rule. There are a number of strict rules you have to follow to be in compliance here. One of them could be particularly difficult for us (and others in our situation).
Here it is: Whenever you approach someone to sell them a security (unit or piece) of the film, you must have had a preexisting relationship with them. Meaning you cannot advertise, or pitch to, or contact anyone you do not know about this. If you do not know too many people, especially investor types, you are plain out of luck. And if you do not follow this rule, you can get in major legal trouble with the SEC. Now like I said, there are other rules, but this is one that can stop lots of filmmakers. In fact, I have seen filmmakers ignore this, either out of ignorance or throwing caution to the wind. I really don’t advise it.
The conclusion here. Just putting the financial deal together can be very complicated. And this is before you even try to go out and get the $$$$. Or maybe we could find other simpler ways to fund this project; Pre-sales? Crowd-funding? Loans? Begging? Rich Uncle Louie?
Or maybe someone out there has a gold mine that has a few shiny nuggets left to mine? Or, maybe some of you are expecting pennies from heaven sometime in the near future? Oh wait, we have to have a pre-existing relationship with you first before we can do anything like that. Ha, okay, let’s fix that. Anyone out there want to do lunch? …
JAD
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