Category Archives: Internet

Transitioning from Kickstarting to Company Starting

The differences between contribution crowdfunding and equity funding

Sites like Kickstarter and Indiegogo have been enormously successful in popularizing the new trend in fundraising, crowdfunding. As of the writing of this post, Kickstarter boasts nearly 11 million pledges on over 100,000 different projects. For those looking to create an independent film, theater production, video game, or other creative project, sites like this have opened up new opportunities for reaching out to the public to raise money.

Many of these sites operate on a contribution crowdfunding model in order to avoid the necessity of dealing with securities regulation issues. However, new rules are going into effect on Sept. 23 that open the door to a different type of funding for these projects. This alternate method, which uses a new securities law exemption, allows artists and creators to use the power and reach of the Internet to raise money for their company as a whole, rather than for a specific project.

The Kickstarter “contribution” crowdfunding model

The method of crowdfunding currently used by sites like Kickstarter and Indiegogo is known as contribution crowdfunding. Money is raised when a creator advertises a specific project that they wish to produce. Backers then pledge money in return for the promise of receiving some item or reward upon completion of the project. This could be a copy of a videogame, a movie, or some other tangible item. These pledges are usually organized into different tiers, with each higher tier of funding getting a better reward in exchange. For example, some high tier rewards include being in the cast of a movie or lunch with the project creators.

Traditional equity funding methods

In contrast to the contribution model, an equity funding model raises money by selling equity shares in a project or company. There is no expectation of a product reward; the part ownership of the new project and potential growth of the investment is the reward under this model. Typically, raising money in this way involves strict federal and state securities laws. These laws require expensive and time-consuming registration process, making them difficult for new businesses to take advantage of.

A popular way around this registration requirement that many businesses rely on is known as a Rule 506 exemption. This exemption allows an entrepreneur to raise an unlimited amount of money without registering the securities, as long as shares are only sold to a specific class of investor and the opportunity is not generally advertised to the public. There has to be a pre-existing relationship between the business owner and the investors.

Fundraising under the newly passed “general solicitation” rules

New rules, mandated by the JOBS Act and set to go effective on Sept. 23, now allow these equity investment opportunities to be advertised to the public. Called the Rule 506(c) exemption, it permits the use of the Internet, social media, and other mass media advertising to get the word out on new projects looking for funding. As long as the investors meet the net worth or income requirements, the legal hoops to jump through are fewer than they would be for a registered investment offering. With a greater pool of potential investors found through the power of general solicitation and advertising, getting the necessary funding for a creative project could be easier than ever.

Before you start advertising your investment opportunity

Even though the regulations are less stringent under the new Rule 506(c) exemption, there are still very specific filing requirements with the SEC. The penalties for not filing these properly can be quite harsh, and prevent future offerings under the exemption. An attorney who has experience with raising funds under this exemption can help.

For more information on this new securities exemption that can open up brand new fundraising opportunities, check out this free report.

Join Me at New Media Expo (NMX) January 6-8

The world’s largest conference and tradeshow for podcasters, bloggers and online media content producers I’m pleased to announce that I’ve been asked back to speak at the New Media Expo conference. This time around I’ll be doing double-duty, giving a solo presentation and joining a panel of social media lawyers. This year’s Expo will be… Continue Reading

ALERT: Don’t use work email to communicate with your personal attorney. You may waive Attorney-Client privilege.

I‘ve just read a case out of the Federal Court in Idaho (Alamar Ranch, LLC v. City of Boise, 2009 WL 3669741 (D. Idaho Nov. 2, 2009)) which held that emails sent by a non-party to her attorney using a work computer were NOT protected by the attorney-client privilege. The court further held that emails… Continue Reading

New Entertainment and Media Law info aggregator

I’m very pleased to announce today’s  launch of a new web portal, search site and aggregator dedicated to information about Entertainment and Media Law. The Entertainment and Media Law content community collects and organizes the best information from around the web to help readers learn and stay current. The site is searchable and uses keywords… Continue Reading

YouTube institutes automated removal of unlicensed music from posted video

UPDATE: reports in greater depth on this situation, and as it turns out, the system isn’t a unilateral, automated removal of soundtracks at all.  Apparently,YouTube identifies videos with unlicensed music using an automated filter, and then notifies the uploader/user of the situation, giving the CHOICE to mute the audio, or remove the entire video. … Continue Reading

Why and How artists MUST take action when their work is infringed.

Every creative person, whether an actor, writer, filmmaker, musician or painter runs the risk of his or her work eventually being copied without permission. While sometimes, this copying is done with a clear profit motive, an increasingly common vector by which unauthorized copies appear is through well-intentioned friends and fans posting an artist’s song, photograph,… Continue Reading

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