I’m currently working on an investor agreement and have a question pertaining to their share. I’m early in the stages of funding and am expecting to bring on more investors. I’m doing the standard 50/50 producer/investors split. If I end up raising more or less than the budget I’m aiming for, does the investor’s percentage change along the way and would we have to rewrite the contract to reflect that? Is there a process that makes this simpler? Thanks in advance.
Financing / Crowdfunding : Investor agreements by Danny Villanueva Jr.
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Film finance is not simple. Some important disclaimers first: In this post no legal advice is being given, no attempt to establish an attorney-client relationship is being made, and no such relationship is being established.
If you are raising money from passive investors, you are selling a security. You will want to comply with federal and state securities laws. One of those requirements is typically that you give each potential investor a private placement offering memorandum (PPM) before their investing. Even if a PPM is not specifically required by law, if you disclose inaccurately or omit material information in your communications with potential investors, you may have committed securities fraud. Using an experienced securities attorney licensed in your state to help you should be considered essential.
If more money is raised than the minimum in a film finance offering, investors share on a pro rata basis. Their percentages are based on the number of units owned by each member, which is determined after the offering is closed. This all needs to be disclosed in the PPM mentioned above.
The minimum raised needs to be enough to complete the project, including the costs of the financing. The investor funds are held until the offering reaches the established minimum, when they can be released to produce the film. If the amount is not met, then the entire offering is cancelled, and all of the investors’ funds get returned.
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Thank you for this info!