Sunday, August 04, 2013

SEC Lifts Ban on General Solicitation

SEC Building

For pretty much the entire history of filmmaking, those looking to raise funds for their film projects were not allowed to declare they were doing so publicly. Federal law required filmmakers - like everyone else trying to raise capital - to speak with investors individually, one painstaking meeting at a time. The new SEC ruling changes the game.

On July 11 the SEC voted 4 to 1 (in a somewhat contentious meeting) to approve Title II of the JOBS Act, lifting the ban on general solicitation. This means filmmakers will now be able to globally publicize they are fundraising instead of relying solely on word-of-mouth. The caveat is they must make reasonable efforts to ensure that all investors financing the film are accredited.

Who qualifies as an accredited investor?
  • Institutional investors such as banks, S&Ls, broker-dealers, insurance companies and investment companies
  • Corporations or trusts with assets in excess of $5 million and not formed for purpose of making the investment (look-through rule)
  • Directors and officers of the issuer
  • Individuals with Income > $200,000 or joint income > $300,000 or,
  • Individuals with net worth or joint net worth >$1 million (does not include equity value of primary residence)

There are still a number of rules to follow, but the good news is that this ruling allows filmmakers to engage with investors in a more open and meaningful way via social media, blogs, web sites, press mentions, flyers on light poles... pretty much everywhere. Filmmakers with large followings can now monetize those followings by reaching out to all their fans/followers in toto.

The other good news is that there are currently more than 8.7 million accredited investors in the U.S. The better news? According to an article in Forbes, of those 8.7 million investors, only 756 thousand participate in angel investments. Lifting the general solicitation ban could grow the infusion of early stage capital tenfold.

Unfortunately, Title III of the JOBS Act – which allow unaccredited investors to participate in private offerings will have to wait – it's not due to be ruled on until 2014. But if Title III passes, it will massively accelerate the fundraising process by virtue of greater promotional reach.

There will certainly be a learning curve and one complication to the ruling is a potential pre-filing of a "Form D", which could add time and/or cost to the fundraising process.  But this is exciting news for filmmakers and other "job creators" looking to raise funding and connect to investors. Good luck!

If you want to read the entire SEC document you can find it here.