Equity crowdfunding still on the starting blocks

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UK-born director Simon West (Con Air, The Expendables 2) recently announced he is raising capital for $10m action comedy Salty via equity crowdfunding platform SyndicateRoom.

Investors are being invited to buy shares in a specially created company Salty Film. But as speakers at last week’s Asian Film Market in Busan, South Korea explained, examples like this are still rare.

Although equity crowdfunding has the potential to become an important tool for filmmakers, it still faces regulatory hurdles around the world. Platforms such as Crowdcube are focused on start-ups and business investment, and are not really handling film.

The four speakers also compared crowdfunding strategies in the US, UK, China and Korea and in all cases the donations and rewards system of crowdfunding still dominates. They also advised filmmakers to adopt a hybrid approach by combining crowdfunding with more traditional forms of film financing.

Stephan Paternot, CEO of Slated, an online platform that brings together investors and projects, explained how equity crowdfunding legislation is slowly making its way through US Congress. “The JOBS Act [Jumpstart Our Business Startups] will help crowdfunding evolve past donations and rewards, but the rules are still being defined and it hasn’t benefitted many people yet,” Paternot said.

He also explained how crowdfunding in any form still accounts for a tiny fraction of the $14bn spent on making independent movies in the US each year: “You can raise around 10% through fans and have to raise 90% yourself. Crowdfunding does not solve all the problems.”

Paternot also explained that projects such as Veronica Mars and Zach Braff’s Wish I Was Here, that raised half or all their budgets through crowdfunding, are exceptions as both come with a massive in-built fanbase.

“But crowdfunding will start to be seen as a pure positive – it’s a smart way to raise money and a fantastic way to market your film,” Paternot added. “You need to counteract potentially negative views from the industry, and the best way to do that is to attract professional investors.”

British Film Institute (BFI) head of distribution Alex Stolz explained how in the UK, crowdfunding is being used in combination with public funds. The BFI matched funding for two projects that partly financed their distribution through crowdfunding: Jules Bishop’s comedy drama Borrowed Time and Sound It Out, a documentary about record shops.

Borrowed Time approached the BFI after raising $34,700 through crowdfunding, while Sound It Out raised $16,00 by approaching BFI first and telling their fanbase that the government body would match their donations.

“My interest is more about the crowd than the funding,” Stolz said. “You need to engage the audience to market your film and crowdfunding is a very effective tool to do that.”

He added that equity crowdfunding has also started in the UK, but is highly regulated. “Only experienced investors can invest in those platforms so that limits it to a small portion of the market. It’s a really interesting area for growth, but it’s all about donations and rewards at the moment.”

Meanwhile, iQiyi Motion Pictures head Li Yansong, described a different model in China, where Baidu is offering members of the public an opportunity to invest in local movies such as Ann Hui’s The Golden Era through crowdfunding platform Baifa Youxi. Alibaba has also launched a similar crowdfunding platform called Yu Le Bao.

Baidu says it is offering “double trust” insurance products rather than crowdfunding in the strictest sense. Baifa Youxi offers the public a chance to earn returns of up to 8%, but they’re compensated by Baidu if the film is not a commercial success.

“This model has huge potential in China as we have a large volume of internet users. But if the film fails, we have to face the consequences, so we need to conduct very in-depth research before we engage in each project,” Li said.

Popfunding CEO Shin Hyun-uk explained that the Korean government is still debating a bill to legalise equity crowdfunding, which won’t be passed until next year. “So far it’s all been donations and rewards or credit based,” Shin said, adding that there are cultural as well as regulatory barriers to crowdfunding in Korea.

“Korean people don’t like to be so public about asking for money,” Shin explained. “Also, Popfunding just provides the platform, but people expect us to do a lot more – they expect us to do promotional work for the movie. So we have to campaign about what crowdfunding really is.

“It requires work – if you approach a big investor like CJ, you only have to convince one or two decision makers. But small investors ask a lot of questions. It’s a lot of hassle to get a small amount of money from individuals.”

Paternot added that technology would have to catch up with the regulations once rules on equity crowdfunding become clearer. “There will be a huge change, but humans are slow to learn and adapt and it will take many years for people to get comfortable with how this works. For one thing, you need a database of credited investors – investors want to know how good the companies and teams are behind the films, and filmmakers want to know how credible the investors are.

“It will be three to five years before equity crowd-funding grows up, and even then it won’t dominate,” Paternot added. “You’ll always have a few sophisticated investors at the table with all those less sophisticated ones. ”