Welcome to Just Crowdfund the $&*# Movie!, where indie moviemaker Jayce Bartok talks about the dos and don’ts of crowdfunding from the trenches of his own crowdfunding campaign. Have a question for Jayce about his movie, Tiny Dancer, or just crowdfunding in general? Ask away at .
What do you do when you’ve exhausted all of your “crowds?” When you feel you can’t ask your amazing family and friends for one more nickel for your project and still be able to hold your head up? You think about getting investors, of course. But that’s easier said than done. Not only is it difficult to convince someone to invest in a micro-budget project, but I’m finding it’s even harder to figure out how to legally accept investments!
Tiny Dancer is fiscally sponsored by NYFA (New York Foundation for the Arts), which gives us 501 (c)(3) status, meaning all donations to our project are tax-deductible. Well, first I learned that you can’t be a 501 (c)(3) and take investments. It’s a big no-no with the US government. I’ve heard that in the UK and elsewhere in Europe you can structure those two separate fundraising methods into the same project, but not here. So Tiffany and I are faced with a dilemma: When do we abandon our little nutty crunchy artsy not-for-profit status, thereby taking away our ability to apply for the many grants that require recipients to be a non-profit?
Then, how the heck do we actually solicit and collect investments? It’s easy enough to write a business plan outlining what you are offering to potential investors. But how do you deal with the legal aspect? Do you offer shares?
To sell actual shares or subscriptions, you usually need a PPM, or Private Placement Memorandum, a hefty document spelling out the whole process for potential investors that must be registered with the SEC and is costly to prepare. So what if I’m only raising $50,000 through investments and the PPM costs half that to create? What if I just want to sell $1,000 shares to everyone on my block?
It gets complicated, because you definitely need a PPM and other legal protections before accepting smaller shares from what are considered unaccredited investors. But what, exactly, is an accredited investor? According to the SEC Website, an accredited investor can be:
• a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
• a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;
Apparently, accepting investments from accredited investors means things go a lot more smoothly. (Which makes sense; I would imagine unaccredited investors could claim they were wiped out if your movie fails to earn a profit, and then they could come looking for you!) So if you are seeking investors, look for ones that are accredited, and instead of creating a PPM to sell them shares, try to convince them to give you larger amounts, then include them in the LLC.
I am familiar with this process from our last film, The Cake Eaters. On that film, investors Patrick, Carol and Bob Morris (We love you!) optioned the script and took care of the rest of the $2 million budget. But how? I know there was an LLC involved, just as there is in all movies. You set up an LLC, or Limited Liability Company, for each film, creating what is essentially a company for the film itself. Managing member(s) structure how the film will be divided and the profits shared.
Once you’ve set up both your LLC (it’s rather easy to do, either through a lawyer or online) and your film’s bank account, the next step is to offer membership in the LLC for a certain investment (decided upon by you and stated in your business plan). As long as you target accredited investors, you should be relatively safe. I don’t know if you are getting this from my tone, but when dealing with these kinds of matters, it’s always best to consult a lawyer who specializes in entertainment law, not the advice of a moviemaker-type like me. Think of this as a good foundation.
Tiffany and I definitely have some thinking to do before we make our next move.
Jayce Bartok is an actor/producer/writer/director who runs Vinyl Foote Productions from Brooklyn with his wife Tiffany. He wrote, co-produced and starred in The Cake Eaters and can currently be seen in USA’s “White Collar” and in the upcoming feature films Predisposed, opposite Melissa Leo, and Price Check, both of which premiered at the 2012 Sundance Film Festival. To stay updated on his Tiny Dancer progress, follow @JayceBartok and @TICNYC on Twitter.