This article originally appeared on CMF's Crowdfunding in a Canadian Context information website.
Equity crowdfunding can be perceived as an expensive and cumbersome method to finance a cultural project. FundingNomad, the first equity crowdfunding portal for entertainment projects in Canada, wants to change that perception by streamlining the process and making it easier for producers to tap into a new pool of investors.
Whether you want make a film, stage a play, or fund a webseries, Canadians have now access to an entertainment crowdfunding platform for investors: Toronto-based company FundingNomad.
Unlike Indiegogo or Kickstarter’s traditional offerings, there are no free t-shirts or prizes awarded in exchange of donations. Instead, those who donate are rewarded with equity and the promise of a share of any profit generated by the production.
“We knew this was the future... Investors want a piece of the pie. They want to share in the profits and awards of the deal,” explains FundingNomad’s CEO, Brad Kerr.
First Equity Crowdfunder for Entertainment Projects in Canada
FundingNomad has many years of experience helping entertainment projects secure funding. Typically, that has involved going to a dealer and, through them, accessing groups of private investors. Most of its work has been in performing arts, but this crowdfunding initiative has enabled the company to open up its services to all multimedia entertainment projects (including interactive media, music projects, and TV productions).
“The traditional way of doing it can be slow and painful and frustrating. The crowdfunding model blasts open the doors and you’re allowed to offer this to anyone through the Internet,” says Kerr.
For the first time, unaccredited and retail investors (the general public) can simply login to FundingNomad.com and pick from a list of entertainment projects to invest in. In most provinces, you can invest up to $10,000 (unless you’re in B.C. or Newfoundland and Labrador, where the amount you can invest is unlimited).
A New Pool of Investors
Before you make your investment, you’ll see how much money the producer is looking for and what kind of ‘return on investment’ is expected. FundingNomad says it puts producers through an extensive vetting process: a team of reviewers investigate the business, its financial and distribution plans, and any shareholders. It also does background checks (many of which are required by securities regulators).
“Our review team uses this information to determine if there is an ‘appetite’ among our investors and if the project will deliver a sufficient ROI to interest investors,” adds Kerr.
It’s a fairly new concept in Canada: provincial rules allowing online equity crowdfunding to retail investors only came into place about a year and a half ago. Kerr says it’s an attractive system to many people, especially younger investors.
Priority Repayment and Profit Sharing
FundingNomad says it does due diligence on all companies it works with, and offers marketing and investor relations services to all of the projects it lists for investment.
“With other crowdfunding services, the deal often doesn’t get funded because the producer can’t reach a wide enough investor base or doesn’t have time to do this kind of work. We don’t think that’s right. We invest significant amounts of money into marketing and solicitation on behalf of the producer,” says Kerr.
FundingNomad says those marketing efforts include email marketing, social media, PR, events, and video marketing on behalf of the producer. According to the company, the costs pay off for investors in the long run.
“Let’s say it takes a year, or a year and a half, for the profits to come. All equity investors get their initial investment paid back. They’re the first priority,” explains Kerr, adding that all equity crowdfunding is based on a system of royalties since the company works exclusively in entertainment. He says that means investors are not on the hook if the project they’ve invested in goes into debt or gets into trouble.
“You either lose your investment or you gain. In our case, if it doesn’t work, at least you typically get some of your original investment paid back. You’re not at risk as much.”
In other words, the worst case scenario is that you lose your initial investment.
Using Equity Crowdfunding in Conjunction with Kickstarter and Indiegogo
When asked about Kickstarter and Indiegogo, FundingNomad insists that it isn’t seeking to replace crowdfunding-for-reward sites. Instead, CEO Brad Kerr recommends that Canadian producers use both types of crowdfunding to their full advantage.
FundingNomad is focused on crowdfunding for medium-to-large entertainment projects (usually more than $200,000, with exceptions). As many Canadian producers know, creating a trailer or proof-of-concept is often the first step in getting a film, TV show, stage show, etc. made. Kerr suggests producers use Kickstarter or Indiegogo to pay for these trailers, then turn to FundingNomad to fund the next steps.
Looking for Canadian Productions
Right now, all productions available for investment on FundingNomad are based in the U.S. The company says that is purely because it is a bigger market with many more entertainment deals on the table. It says it’s currently negotiating with several Canadian producers and some will be listed soon.
At the same time, only Canadian investors can use FundingNomad’s services so far because of how the company is structured. It plans to expand its services to global investors soon, which would lead to increased exposure for Canadian productions.
Kerr says investing in entertainment projects is unlike many other types of ventures; investors often get deeply interested in the projects they help fund.
“When you’re talking about entertainment deals, this stuff is exciting. To show investors and the general public you’ve invested in this thing and hey, it’s a movie, it’s on the screen, it’s on stage! People get drawn in.”
Equity crowdfunding rules vary from one province to the next in Canada. For detailed information on your province’s laws, read this article.
Posted in: Industry Transformations