Interview with Corky Kessler
Corky Kessler on Crowdfunding Act 312 853 8448.
Corky Kessler: On April 5, the president signed into law the Jobs Act 2012. Within that Act there were two provisions. One is the Crowdfunding Act, but it’s not the typical Kickstarter or Indiegogo crowdfunding. It’s from an investor’s standpoint crowdfunding. And the second one is the New Business Act.
Let’s talk about crowdfunding. This has to do with any security that’s formed; an LLC is a security under the securities definitions. So, for any security you can either do crowdfunding with certain parameters or you can do the New Business Act.
Let’s start with crowdfunding. Under the Crowdfunding Act, you can go up to a million dollars of investment. That’s actually people buying, not donating like Kickstarter and Indiegogo, but buying units in an LLC. You can raise capital up to a million dollars and can go after both accredited and unaccredited investors, only if you have a private placement memorandum to go along with your set of LLC documents. There is other business reporting and there are business plan requirements that go with that. So, there’s an added expense.
If you want to raise money, regardless of how much or how little you want to raise you can do it under the New Business Act. The New Business Act says if you’re going after accredited investors only, and accredited investors are those people who have made $200,000 or more in the last two years and expect to make the same or $300,000 if it’s a joint return, or they have one million dollars of net assets, excluding their home.
There are separate requirements to be accredited for companies and trusts and other types of investment vehicles, but we don’t need to go into that, just know, you must be accredited. And if you’re only searching for accredited investors you need a private placement memorandum and all your LLC documents. If you satisfy these documents and other qualifications, you can now, for the first time ever, in the SEC rules for either the Crowdfunding act or New Business Act, you can publically solicit, market and advertise your investment opportunities.
There are going to be a lot of charlatans, Carole. There are going to be people who put these investments on their websites and talk about their investments and their PPM and their LLC’s. So, I say to my clients, “how do you differ?” Consider, Charlatan versus non-charlatan. And I’ve told my clients, that I want them to list their team by name, including me. Put my name out there, my background, my clients’ backgrounds, define on your website what an accredited investor is and set yourself apart because of the qualifications and credibility of the people who are part of your team.
The Crowdfunding Act and New business Act are for any business. It’s not just film or television; it’s any security like a LLC. You can have an LLC for a business that you set up, for buying real estate. So, it’s not just for film or television. But, it really benefits filmmakers and producers because they can now publically solicit market and advertise; predicated on the fact of their ability to pay to have the necessary documents done.
We have another problem. Many people will go to Legal Zoom or get copies of PPM’s and LLC documents and try and do it themselves because they don’t want to pay the attorney to do it. It is bad advice. It could come back and hurt you.
First of all, in Legal Zoom, if anybody wants to talk to the lawyer that drafted the documents, there’s no lawyer to talk to. And you have no malpractice or protection on the documents that have been drafted.
Secondly, if you go and get forms and start to adapt the forms to try and save dollars, again, there’s no lawyer that’s going to be there to talk to about documents that he or she did not prepare. So, you’ve got problems. This is for people who are really serious about going out and raising dollars and bypassing the brokers.
The SEC is mandated to have rules and regulations by July, 2012.
Carole Dean: Do you think filmmakers will set up their own crowdfunding portals and get cleared with the SEC to have their own crowdfunding online or will it be too burdensome to create their own portal?
Corky Kessler: No. This has nothing to do with Indiegogo and Kickstarter and it won’t affect them at all. They can do what I talked about and work with Indiegogo or Kickstarter for donations for their project.
Corky Kessler: Filmmakers should spend the money and use this new ability to publically solicit. They could send out mass emailing. They can put it online on their website. Every filmmaker’s got a website or a place people can see what they’re doing. For the first time ever, you can solicit market and advertise online, on YouTube, social networking portals and even tweet about your film.
Carole Dean: What should filmmakers budget for legal fees?
Corky Kessler: I can do a set of these documents for around $15,000, that’s including the private placement memorandum and the five LLC documents. But, again, it has to be someone that is serious.
Carole Dean: Will it be the filmmakers’ responsibility to make sure the investors are accredited?
Corky Kessler: No. There’s a form that investors complete. It’s part of my LLC documents.
Carole Dean: The investor fills out the form thereby relieving the filmmaker of that responsibility?
Corky Kessler: Exactly. But, the filmmaker should state when they put it out there, that this is only for accredited investors and give a definition of what accredited is and please don’t ask for these documents if you don’t qualify.
Corky Kessler: But, on the crowdfunding, if it’s less than a million, you can go after unaccredited to, up to 35 investors. But, you can’t raise more than a million dollars.
Carole Dean: If you get 10 unaccredited investors at 50,000 that’s not bad, right?
Corky Kessler: Right. That’s fine, but then you’re under the Crowdfunders Act.
And you can only go up to $1 million of investment. And you have to have a business plan and business reporting, these are the additional things you need to do. This can cost from $5000 to $10,000.00 more for these items.
Carole Dean: So, basically, if I had a feature and the budget was under a million, and I wanted to go after accredited and non-accredited, both, what do I budget for my legal?
Corky Kessler: Then your total costs, would probably be in the neighborhood of $25,000.
Carole Dean: That’s what it is now, right?
Corky Kessler: Yes, but it’s much less if you do it under the New Business Act and you’re only going to go after accredited. It’s about $15,000.
CaroleDean: So, what advice do you give your filmmakers?
Corky Kessler: I’m telling all my clients that have current LLC’s but haven’t gone out to raise money yet, to let me do the private placement memorandum to go along with that because they’re still a new business. They haven’t really gone out and done anything. And for that I charge a flat fee of $8,500.
Corky Kessler: I’ve been doing quite a few of those to allow my clients to publically go out and market the film to potential investors.
Carole Dean: Well, when can they really start? I’ve heard several dates.
Corky Kessler: You can start now.
Carole Dean: Start now but we don’t know what they’re going to require of the crowdfunding portals until–.
Corky Kessler: Yes, but Carole, the rules on the SEC are going to be sometime in July. There was a mandate of 90 days. The rules will not change the law. So, you can still be prepared to do all that I said and wait. And then you’ll be ahead of the game and when the rules come stating what else you may need to do, you’re still going to need the private placement memorandum.
Carole Dean: Oh, so you really see this as benefitting filmmakers?
Corky Kessler: Yes. In fact, I’ve been talking about this. I have in fact contacted all my clients and prospective clients regarding this. I have even given a seminar in Los Angeles on this topic. I’m still trying to get the American Jobs act 181 extended but for the time being, this is a pretty good substitute. The SEC never ever allowed public solicitation, marketing or advertising. This turned the SEC rule upside down.
Carole Dean: So, it’s a brand new day for filmmakers?
Corky Kessler: Yes. This is for any new business owner, including Filmmakers, television production or any LLC that is formed as a new business.
Carole Dean: And that new business owner can solicit money on the Internet.
Corky Kessler: Yes, via any social networking portals, television and YouTube.
Carole Dean: Wonderful. Corky, I know you give seminars in various cities, so if people want to get on your mailing list, they would, then, email you at what address?
Corky Kessler: My email address is Kessler, . My direct line is 312-853-8448. My cell is 312-925-2110.