“I want to leave people with an imprint of something. Something that means something.”
Daniel Gillies, Actor/Filmmaker
All he wanted to do was to create his film. Daniel Gillies’ documentary Kingdom Come exposes his struggles as he tried to raise money to finance his first film, Broken Kingdom. Gillies’ battle is common in Hollywood and one that creators face when trying to secure financing to produce a project. Whether a creator is an industry veteran or a first-timer the toughest part of creating a project is securing financing, especially now that the usual sources have closed the faucet on the fountain of flowing funds. Unfortunately for Gillies he began his quest to secure financing back in 2007, right before the bubble burst and long before the JOBS Act inserted equity crowdfunding into law.
Creators can now look forward to a new alternative source of funding as soon as equity crowdfunding is finally implemented. Currently, crowdsourcing is used to support the arts but only allows donations to fund projects. On the one side there’s a creator with passion and an idea for a work of art and on the other side there’s a market of consumers who want to see that work turned into a finished product and will donate to see that happen. But while donation-based crowdsourcing sites host a significant number of entertainment projects, projects with bigger budgets have a demand for a larger pool of backers.
Equity crowdfunding allows investors to continue supporting the arts but also provides them with a potential return on their investment (“ROI”). With that incentive, the investor pool will widen and more people will invest in entertainment projects, thus funding the gap.
There are three major levels of entertainment finance: senior debt, mezzanine financing (or gap financing), and private equity. Challenges occur when a creator cannot secure that last 15-30% of the budget, the funding gap. Gillies was able to secure a significant chunk of his projected production costs but not all of them. This is where crowdfunding will step in to potentially save the day and fill the gap.*
Critics argue that the entertainment industry produces no profits for investors and therefore there’s no benefit in crowdfunding entertainment projects. Keep in mind that crowdsourcing has greatly contributed to the boom in artistic creation; equity crowdfunding will take it to the next level because investors can do what they did before on donation sites and support artistic endeavors but with an added incentive of a potential ROI. Additionally, Equity Based Crowdfunding is a regulated industry meaning that platforms will have to go through a due diligence checklist and vetting process to bring investors legit deals. This is another reason to invest in, rather than donate to, entertainment projects.
Creators will soon tap into this new fountain of funds to bring their projects to life – and investors will become part of that fountain, part of the crowd.
*Raises on equity crowdfunding platforms must be fully funded before distributing money to the project. This all-or-nothing approach currently exists on donation-based sites as well.