Why Is Crowdfunding a Dirty Word?

Crowd Sourcing

May 15, 2013 • Film Financing • Views: 1171

Mention “crowdfunding” in a conversation with an investor or a producer who answers to investors and see what happens. They’ll both roll their eyes and you might even get a snicker or two. In a 2013 Super Bowl commercial that aired a few months ago, actors Seth Rogan and Paul Rudd pitch a Samsung executive on the “Next Big Thing” and when they suggest crowdfunding as a possible marketing ploy, the executive begins to snore. It appears that the only ones who think crowdfunding is cool are crowdfunders.

I’ve written about this topic extensively on this site and have had similar articles published on other film sites, and nothing raises the ire of aspiring filmmakers more vehemently than another filmmaker who poopoos crowdfunding. It’s as if I’ve suggested we take the candy away from the children and it makes them ornery. Many of them respond with nasty comments and there’s no point in defending your position with these youngsters—they like that candy and would kill to get it if they had to. They’re addicted and crowdfunding is their sugar fix. Tell them there’s far more opportunity in the world of equity financing and you might as well be speaking a foreign language. Candy good. Film investing bad.

Investors hate crowdfunding because they view it as amateur hour and nothing scares an investor away faster than finance models that don’t hold sellers accountable. To them and many others, crowdfunding is akin to community theatre. You go because your wife drags you there, but you don’t mistake it for a Broadway play. Producers who answer to investors hate it for the same reason. It gets in the way of legitimate film making and muddies the distribution waters. Even entertainment attorneys I’ve spoken with think crowdfunding is a joke. I suspect because it represents good will and good will doesn’t pay the bills. In any event, the very word “crowdfunding” has earned its way into our lexicon as something that only amateurs do, which doesn’t say much for the state of independent film and the filmmakers who sing its praises.

Crowdfunding was initially designed to help entrepreneurs secure financing for their start-up companies and it quickly morphed into a donor platform for the arts. Film, being one of those arts, attracted hoards of would be filmmakers who had been waiting for such a miracle. It was the first time they could ask someone other than their rich uncle for money and it has worked at a certain level, because it has many uncles and none of them need to be rich. If someone gives you $20, you don’t feel all that obligated to return the favor. If an investor gives you $20,000, it’s a different story. But hey, free money is still free money and damned be any stupid fool who tells you otherwise.

It’s highly unlikely that crowdfunding can be a sustainable finance tool for films. Donors will eventually grow tired of throwing their money down the drain and the good will will evaporate. I’ve subscribed to several theatre seasons in my life, but rarely go to all the plays. After a while, I stopped subscribing. I felt that I had given my share to the arts and there were better places to spend my money. For all the hoopla that crowdfunding creates, hardly anyone talks about donor saturation. Donors don’t regenerate like investors do, because it takes actual returns to keep people interested. That DVD you got in the mail after your donor-funded film was produced is nice, but it’s not a check.

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2 Responses to Why Is Crowdfunding a Dirty Word?

  1. Fresh Ginger says:

    In my real life job, I work for a state regulatory agency. Crowdfunding and crowdsourcing are hot topics right now because it is RIPE for investor fraud. The key difference is where or not someone is raising money in exchange for an equity interest (and promise of some monetary return) or they are raising money and will send you a DVD, etc. Fraudsters are always looking for a new way to rip people off and that’s a shame because it keeps real people from doing interesting projects — in my opinion.

    • FilmNotes says:

      Hi Fresh Ginger,

      So far, crowdfunding for films hasn’t arrived at the equity level, but this is what crowdfunders are hoping the JOBS Act will do. However, the due diligence that will be performed on filmmakers under the Act will eliminate 99% of the field, not to mention the microscope they’ll be under with state regulatory agencies such as the one you work for. This is what keeps most aspiring filmmakers who crowdfund from forming LLCs, doing Blue Sky registrations and approaching investors.

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