Businesses, Brushed Off by Banks, Look to Customers for Funding
The art-house movie theater in Winston-Salem, N.C., needs $50,000 to snag a lease to rent the lower level of the building that will open up space for an additional screening room and larger lobby.
But the owners are tapped out. The business' long-term debt includes a recent bank loan that is funding an expensive film-to-digital conversion.
So a/perture cinema is trying something new to find financing. The art-house is asking its customers, fans, friends and family, and other independent cinema enthusiasts to contribute to a crowdfunding campaign on Indiegogo.
"It's kind of now or never, so we need to get the community behind us and those who just want to keep art-house theaters open around the country on board," curator Lawren Desai says.
As more small businesses turn to alternative funding strategies, crowdfunding is growing in appeal.
"Plenty of filmmakers are using crowdfunding as a way to finance their projects," Desai says. "We show some of those films and so we thought, why not? We should try out the model. We have great perks to give away, we are a community-minded business and we have a good story."
So far, U.S. businesses have been able to use only donation-based crowdfunding, in which enthusiasts and do-gooders, in exchange for contributions, are given "rewards" or "tokens," such as a first-edition copy of a product. In the case of a/peture cinema, patrons will get public recognition depending on the pledge amount.
But next year, crowdfunding in the U.S. is expected to take a leap to allow for individuals to make investments -- as opposed to contributions -- in small businesses. Rules to allow accredited investors are far along, but the intention is to eventually make it so that the general public can invest a few hundred or a few thousand dollars into their local businesses.
The Jumpstart Our Business Startups Act (JOBS Act), signed by President Barack Obama in April, included a provision to allow for smaller companies to raise up to $1 million in equity per year through crowdfunding. The rules essentially exempt the companies from certain securities laws that require them to go through Securities and Exchange Commission filing requirements in order to raise the equity.
Congress put the SEC in charge of hammering out equity crowdfunding regulations, primarily related to how crowdfunding portals would be regulated (should they be broker-dealers, for instance) as well as ensuring investor protections against fraud. The rules are supposed to be in place by Dec. 31 (with implementation in 2013), but with last week's resignation of SEC Chairman Mary Schapiro, that could mean the rules will be delayed, according to an article in The Washington Post .