Richard Guay is familiar with the travails and opportunities that come with being an independent film producer - he's been doing it for decades, with credits like Ghost Dog: The Way of the Samurai and Kinsey to his name. But Guay's next big project isn't a film - it's a step in film financing that could significantly impact the way film financing works today. Having seen an opening in the market for a website that exists somewhere between Kickstarter and Slated, Guay is developing a site called Passion First which, taking advantage of a provision in the recently passed JOBS Act, aims to turn crowdfunding into a legitimate investment structure for independent cinema. To those who admire the Kickstarter model but wish they could invest in their favorite projects as opposed to merely donating to them, the site is sure to exert an appeal. While the site is not up yet, I took the time to speak with Guay recently, and he shared his thoughts on how the site might reform the structure of film financing.
Tribeca: Tell me about your view on the crowdfunding situation and where your site comes in.
Richard Guay: I think the natural evolution is to try to find ways to get contributions to become real investments. The JOBS Act actually takes steps to allow that - it's a formalization under SEC regulations of crowdfunding. The central difference is that this is not just about donations to receive gifts, it's allows a real investment in the project. There are a lot of regulations to follow, since it all falls under the SEC, so it's more complicated than Kickstarter. It's not something an individual producer can deal with, getting crowdfunding to turn into investments. You need access to what's referred to as a funding portal - an intermediary. That's what Passion First is. It's a website where a filmmaker can post their project under all the guidelines and regulations, and investors can look through the projects on the site, discuss them in a forum, and make evaluations and decide if they want to invest.
It may be used to finance a film's entire budget, to finance part of it, or even to finance development - to hire a screenwriter or option material.
Tribeca: So the big benefit of using this site is that contributors can receive a financial return on their contribution, but it's akin to a crowdfunding model.
Richard Guay: Yes. And you know, the JOBS Act doesn't just cover films, it covers any kind of crowdfunding, so there will be sites that address this for many different industries. We are focusing on being a portal for audio/visual content. Now, it may be that there are limits on the amount of investment allowed. It may be that films can't have budgets of over one million dollars. It may be used to finance a film's entire budget, to finance part of it, or even to finance development - to hire a screenwriter or option material.
The thing about the funding portal itself is that we can't make recommendations on things, we're not brokers. Brokers may get into this space - they can hold investor funds - but a funding portal cannot hold funds or recommend projects. It just provides a forum for people to meet. It's different from Slated in the fact that Slated enables connections to be made but the deal-making happens off the site. With Passion First, all of the financial details are available on the site - how the investor agreement is structured and so on. We're going to fall under all sorts of SEC regulations regarding what information must be provided to potential investors. Slated does do a nice job of providing educational materials for potential investors, and we'll have to do a similar thing.
Tribeca: Do you have an estimate on when the site will be up?
Richard Guay: Well, we have to wait until the regulations are finalized. Everything about this will be driven through the site - whether the investors have to be accredited or not, and whatnot - it will all be determined by the regulations. So we have to wait for those and build the site so it's in compliance. I'm hoping it goes up this Fall.
With documentaries, you have to shoot some of it before you can even get funding.
Tribeca: The idea of allowing contributors to reap a financial reward is one that exerts a lot of appeal. How do you see your model interacting with the Kickstarter/Indiegogo model?
Richard Guay: I think there are still going to be folks out there who are just fans and understand going in that their contribution is just for a reward of some sort. I've contributed to a lot of Kickstarter campaigns, in the spirit of getting something made that otherwise would not get made. That provides a resource of tremendous value. But when someone donates and someone else ends up making an awful lot of money, that's where things can become problematic. The backlash against Zach Braff was surprising - you would think the people donating to his campaign were just fans who wanted to help out. But when profit gets involved, some people start to feel like, hey, why can't I participate? That's where funding portals come in. They're going to change that dynamic. But of course Kickstarter will keep happening, and of course it's way broader than film projects. It remains to be seen what happens with Braff's movie. It'll be interesting to see what happens when it's released. You can bet that people who donated to it will follow the release of the film carefully.
Tribeca: Who do you envision your typical user being?
Richard Guay: The way the regulations are written, it's undetermined if the sites have to be used by accredited or unaccredited investors. Accredited basically means, people who can afford to lose some money. I think the site will not be for casual fans. I think it'll be for people who are interested in getting involved in investing in films. I mean, if someone has enough money they'll set up their own company and reach out to CAA or whatever, but there's another kind of investor who wants to explore the film investing world in a different way. The site could also be for companies who already invest in films - we're going to open the site up for projects that are in development, seeking development financing. There will be too many requirements for the site to really be for a casual film fan. The regulations are all written from the point of view of protecting the investor, but there are thresholds to people joining the site. I think the fans will keep going to sites like Kickstarter and Indiegogo.
Tribeca: The idea of an independent filmmaker putting up a project on the site for development financing is an interesting one, since typically such a risk is undertaken when you start working on an indie movie - there's the risk you could work on it for years with no real compensation.
Richard Guay: Development money has really gone south. It's very hard to find that. My producing partner and I are developing a couple of things, and it's all coming from our own resources, there's no other way to do it right now. With documentaries, you have to shoot some of it before you can even get funding. This will be another option for trying to find development funding. Development is the riskiest part of the process, but there may be people out there who are interested in coming in on the ground floor for a great idea.