Fundraising Tips and Ideas?

DavidG

DavidG

Active member
Hey, I hope this post is pretty self explaining, I was wondering if people could post ideas and tips they have used for gaining some money to finance their film projects. I've seen someone in the cafe flat out ask a few weeks ago, I wonder how much they got.. its clearly one of the more complex stages of production, and I notice people rarely like to talk about money. So I thought if we piled up a bunch of ideas this could be a useful little resource.

Dave.
 
I don't like to talk about money because I've had very little success obtaining it. I do know that the person who posted in the Cafe asking for money was violating SEC rules, and could be subject to fines and such. You can't just put out a mass appeal for money -- that's considered a 'public offering' by the SEC, and they take a dim view of it. (If they find out.)

Hopefully someone else will have some success stories to share here.
 
That was my impression too, but my uncle (who is a lawyer) has informed me otherwise.

The SEC rules allow you to "approach 25 qualified investors", but what this actually means is that you can print up 25 offering memorandums and send them out to qualified investors. If an investor decides not to invest then you retract the offer (ask them for the memo back) so you can send it out again. You print and number them, and keep a log as to who you send them out to. Stated another way, merely asking for money does not qualify as a security offering.

The offering memorandum describes the project and the company that will be put together to be the legal vehicle for the project. You might make 1,000,000 shares, retaining 510,000 shares for yourself, sell 250,000 to investors, and keep 240,000 shares in reserve should more money need to be raised toward the end of the project. (Notice that you keep a little over half of the shares so you retain control of the company.) You might sell blocks of 25K shares and put anyone who buys 50K shares on the Board of Directors of the company. The bylaws of the company would then state what kind of extra power the BoD would have within the company (like signing off on selling reserve shares or accepting a distribution contract).

My uncle and I came up with my Prospectus / Offering Memorandum, I am printing up 1 - 10 and he is doing 11 - 25. People I have approached are friends, friends of friends, and guys I've seen driving expensive cars. Don't laugh, I met a guy in my gym's parking lot who was driving a Porsche Carrera 4 Cabriolet. I drive an older Porsche, so starting the conversation was easy. He does sales into the dental industry, so not only is he a prospect, but he may lead me to more prospects as well. There is also a Bugatti that appears at the golf shop next door, the next time I see him he will leave with one of my prospectuses.

If you do not know how to do these things (and only lawyers really do) then you will need to partner with or pay a lawyer to help you. If you partner with them then they help you find the investors and they become your Executive Producer. Of course they get cut in for a share of the profit.

To do any of these things you must have your package together. You need a finished script and a detailed budget. You have to have a proven workflow, and a roll of 35mm film to show someone if they want to see proof. You have to be able to talk about your project, the industry, marketing, and film festivals at length. You have to be able to answer all questions, "I'll get back to you" is OK for most sales jobs, but not for high risk / high reward investments. You must inspire confidence, because no one likes to give away money. In short, you have to be able to sell.

Bob
 
We are shooting a feature this fall, for the soundtrack we are featuring 5 or 6 local Austin bands. For one of our fundraising events we have planned we will be hosting a concert which will have performances from all the bands. All proceeds will be going into our budget to make this project the best we can.
 
But what DavidG described was a person posting on a public board asking for investors. That's far different than sending out a maximum of 25 investment proposals to a select few individuals.
 
Bob.....you drive a Porsche??? And you live in Charlotte???? Man, I need you to drive your car past my camera a few times for my feature 'Afterlife'. (Depending on model and condition of your car, of course.)
 
chapelgrovefilms said:
But what DavidG described was a person posting on a public board asking for investors. That's far different than sending out a maximum of 25 investment proposals to a select few individuals.
Click to expand...

Thats correct, asking for money is not illegal or against SEC rules. The reality is that no one is going to give any serious amounts of money without a prospectus and a legal vehicle that they become a part of.

Trying to raise $250K at $5K increments is a non starter, it's just not realistic. At $25K increments is more realistic, so the nanny state SEC puts a rule in that any investor that invests in an unlisted security must be "Qualified". (Freedom? In the United States?). I believe to be "Qualified" means you have over a $250K yearly income or a net worth of over $1M.

The government just doesn't care about someone asking for money in an attempt to raise a few thousand dollars. When you are trying to start a real business venture and the investment amounts get into the tens of thousands then the Nanny State will have their say in how you go about doing it.

Bob
 
Bob Gruen said:
Thats correct, asking for money is not illegal or against SEC rules. The reality is that no one is going to give any serious amounts of money without a prospectus and a legal vehicle that they become a part of.

Trying to raise $250K at $5K increments is a non starter, it's just not realistic. At $25K increments is more realistic, so the nanny state SEC puts a rule in that any investor that invests in an unlisted security must be "Qualified". (Freedom? In the United States?). I believe to be "Qualified" means you have over a $250K yearly income or a net worth of over $1M.

The government just doesn't care about someone asking for money in an attempt to raise a few thousand dollars. When you are trying to start a real business venture and the investment amounts get into the tens of thousands then the Nanny State will have their say in how you go about doing it.

Bob
Click to expand...


There's no problem with asking for money, as long as what you're asking for is donations. But when you start asking for investors in a public forum, then the SEC certainly does have an interest. For reference, consult Dov S-S Simens' book 'From Reel To Deal', as well as other books on the subject of filmmaking and film finance.

The following info comes from http://www.marklitwak.com/articles/general/financing.html. The website contains further information on this subject.

The federal agency charged with protecting investors is the U.S. Securities and Exchange Commission (SEC). Various state and federal laws require that most securities be registered with state and/or federal governments. Registration for a public offering is time-consuming and expensive, and not a realistic alternative for most low-budget filmmakers. Filmmakers can avoid the expense of registration if they qualify for one or more statutory exemptions. These exemptions are generally restricted to private placements, which entail approaching people one already knows (i.e., the parties have a pre-existing relationship). Compare a private placement with a public offering where offers can be made to strangers, such as soliciting the public at large through advertising. Generally, a public offering can only be made after the U.S. Securities and Exchange Commission (SEC) has reviewed and approved it.

There are a variety of exemptions to federal registration. For example, there is an exemption for intrastate offerings limited to investors all of whom reside within one state. To qualify for the intrastate offering exemption, a company must: be incorporated in the state where it is offering the securities, and it must carry out a significant amount of its business in that state. There is no fixed limit on the size of the offering or the number of purchasers. Relying solely on this exemption can be risky, however, because if an offer is made to a single non-resident the exemption could be lost.

Under SEC Regulation D (Reg D) there are three exemptions from federal registration. These can permit filmmakers to offer and sell their securities without having to register the securities with the SEC. These exemptions are under Rules 504, 505 and 506 of Regulation D. While companies relying on a Reg D exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file a document known as Form D when they first sell their securities. This document gives notice of the names and addresses of the company’s owners and promoters. State laws also apply and the offeror will likely need to file a document with the appropriate state agency for every state in which an investor resides.

Investors considering an investment in an offering under Reg D can contact the SEC’s Public Reference Branch at (202) 942-8090 or send an email to publicinfo@sec.gov to determine whether a company has filed Form D, and to obtain a copy. A potential investor may also want to check with his/her state regulator to see if the offering has complied with state regulations. State regulators can be contacted through the North American Securities Administrators Association at (202) 737-0900 or by visiting its website at http://www.nasaa.org/nasaa/abtnasaa/find_regulator.html. Information about the SEC’s registration requirements and exemptions is available at: http://www.sec.gov/info/smallbus/qasbsec.htm

An “offering” is usually comprised of several documents including a private placement memorandum (PPM), a proposed limited partnership agreement (or operating agreement for an LLC, or bylaws for a corporation), and an investor questionnaire used to determine if the investor is qualified to invest. A PPM contains the type of information usually found in a business plan, and a whole lot more. It is used to disclose the essential facts that a reasonable investor would want to know before making an investment. The offeror may be liable if there are any misrepresentations in the PPM, or any omissions of material facts.

State registration can be avoided by complying with the requirements for limited offering exemptions under state law. These laws are often referred to as “Blue Sky” laws. They were enacted after the stock market crash that occurred during the Great Depression. They are designed to protect investors from being duped into buying securities that are worthless — backed by nothing more than the blue sky.

The above-mentioned federal and state exemptions may restrict offerors in several ways. Sales are typically limited to 35 non-accredited investors, and the investors may need to have a pre-existing relationship with the issuer (or investment sophistication adequate to understand the transaction), the purchasers cannot purchase for resale, and advertising or general solicitation is generally not permitted. There is usually no numerical limit on the number of accredited investors.

A “pre-existing relationship” is defined as any relationship consisting of personal or business contacts of a nature and duration such as would enable a reasonably prudent purchaser to be aware of the character, business acumen and general business and financial circumstances of the person with whom the relationship exists.

Other documents may need to be filed with federal and state governments. For example, a Certificate of Limited Partnership may need to be filed with the Secretary of State to establish a partnership. In California, a notice of the transaction and consent to service of process is filed with the Department of Corporations. If the transaction is subject to federal law, Form D will need to be filed with the Securities and Exchange Commission (SEC) soon after the first and last sales. Similar forms may need to be filed in every state in which any investor resides.

In the independent film business, PPMs are usually: a Rule 504 offering to raise up to $1,000,000, or a Rule 505 offering which allows the filmmaker to raise up to $5,000,000, or a Rule 506 offering which doesn’t have a monetary cap on the amount of funds to be raised. A 506 offering also offers the advantage of preempting state laws under the provisions of the National Securities Markets Improvement Act of 1996 (“NSMIA”).
 
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