Question

discussion minimum 500 words

An independent movie producer with a modest but loyal fan base is short of funds for her next movie. Knowing that a bank loan is an unrealistic option, she is considering crowdfunding.   But she is not very familiar with it or how to go about starting and conducting a crowdfunding campaign.

Prepare a report for the producer explaining the different approaches to crowdfunding, including the equity funding approach. Alert the producer to any drawbacks that might make people less willing to contribute to funding her movie and positives that might make people more likely to fund her movie. Conclude your report with a recommendation of which crowdfunding approach you believe would be most effective for this independent movie producer.

Answer 1

Crowd funding is pooling capital or funds from a large number of individuals for the purpose of financing a venture. The amount of capital that is contributed from each individual is small but the total amount of capital is significant as the number of contributing individuals is large. Crowd funding makes use of vast networks of people and pool them through different mediums like social media and crowd funding websites. In crowd funding the pool of investors is expanded beyond the traditional investors like the owners, friends and family of the owners and angel investors and venture capitalists.

There are different approaches to crowd funding that can be used. The first and the most straight forward approach of crowd funding is ‘donation’. In such an approach the donor simply makes a donation and does not receive any thing in exchange for giving the donation. This approach of crowd funding is used mainly to support projects that have a social cause. Other type of projects in this approach is charities and political campaigns.

The second approach to crowd funding is reward. In this approach the contributors get no financial return for their donations. Rather the contributors are promised a perk or a thank you reward for their support. The third approach is the debt approach (also known as peer to peer lending). Under this approach large number of people invests money and funds in small increments. The investors are promised an interest on their contributions. The fourth type of approach is known as the royalty approach. In this approach the contributing individuals are offered a royalty in the form of a percentage of revenue once the project is on the ground, up and running. Lastly the fifth approach is the equity investment approach. In this approach the crowd is used for the purpose of micro-investments. Ownership interest is generally given to the contributors. In cases where ownership interest is not given a portion of profits or a financial return is provided to the contributors.

People will be less willing to contribute to funding the movie of the producer if they think that the movie is based on a weak script, or the movie does not have bankable stars or the movie’s direction will not be that strong due to a weak director. All this leads to a possibility that the movie will not earn enough profits or do substantial business in the market. This prospect may lead the crowd to abstain from investing in the project.

The positives that will make the crowd more likely to fund the movie project is the promise of a positive and lucrative return. The movie producer can make use of a site like Kickstarter which enables crowd funding of creative projects.

My recommendation is that the movie producer should go for the debt crowd funding model (also known as the peer to peer lending model). Raising money using this model will be easier for the independent producer as contributors will be attracted to getting a fixed return on their contributions.

(505 words)