If you're looking to raise capital for your media project, the U.S. government just inadvertently did you a big favor.
Early last month the Jumpstart Our Business Startups, or JOBS, act, was signed into law and it received something we don't see much of in Congress these days: bipartisan support. The goal was to make it easier for budding businesses to acquire the cash they need to get off the ground and it does this by, among other things, relaxing regulations that have been in place for years. See, for a long time startup companies were prohibited from trolling for venture capital with a wide net, essentially soliciting potential investors cold; the rule was that you had to at least have some kind of a relationship with the people you were asking to take a chance on you and your idea or there existed stringent guidelines that they had to meet as "accredited investors." But with the rise of the Internet and social media, it became obvious that technology had severely outpaced the spirit of that kind of strict regulation. If you have a hundred thousand Twitter followers and fifty thousand Facebook "friends," is it really out of line to approach them with an investment opportunity for a small sum of money from each of them?
For the past three years, Kickstarter has provided the popular model for a new brand of capital acquisition and investment known as "crowdfunding." If you've been living under a rock for an extended period of time, crowdfunding is exactly what it sounds like -- it's a means of soliciting money for a proposed entrepreneurial project (usually media related) from across a vast spectrum of the social media world. The idea of Kickstarter is to set up an organized system for people to donate to creative endeavors of their choosing and it's worked well, particularly for aspiring artists looking for funding. What the JOBS act will do, though, is allow a large group of people to not simply donate but invest in projects of their choosing. The act permits a startup to cull up to a million dollars in investment capital from the general public, in other words average people who don't have an existing relationship with the person or people looking to get a company or idea off the ground or are necessarily "accredited investors" under current SEC regulations.
What this could mean for the world of media is almost impossible to overstate. Indie filmmakers would seem the most likely to benefit from the regulatory relaxation in the JOBS act, but make no mistake: the ability to solicit investors via the power of the Internet will be a huge boon to every media platform. Musicians, artists, models, video game producers, writers, as well as fledgling companies that cater to them, will all be able to seek funding directly from the public in exchange for as much as a share of the profit and as little as a t-shirt or a couple of nice insider perks once the product is released or has come to fruition. Not only that, but through crowdfunding, a product is given access to an instant network of supporters who will exponentially publicize and put the word out through social media not simply because they're a fan but potentially because they have a vested interest in that product's success. These days, all you need to become an overnight sensation is a group of people getting behind you on Twitter, Facebook or YouTube. Record label A&R departments will rarely even consider signing new talent in today's world without millions of likes/followers/views lowering their financial risk; crowdfunding can ensure a built-in support structure for your project right off the bat. It really does represent the future of investment in media -- the democratization not simply of media itself but of the ability to receive a return on the support of it besides simply the enjoyment of the finished product.
The question of course becomes obvious: How do you set up a system to ensure that fraud is avoided and that everyone gets what's promised to them, given how the Internet often operates as a kind of Casablanca, which is what makes it such a vital marketplace to begin with? The new legislation already requires that investment deals be made through an SEC-approved intermediary so that everything can be verified as being on the up-and-up and there will be more regulations to come, compliments of the federal government. But the current legislation would seem to indicate that the Congress (at least conceptually) may finally understand that too much regulation in our new media culture is detrimental to business; this hopefully means that they will encourage the SEC to work hard to protect both investors and entrepreneurs and hold the leash on both loosely enough to encourage growth
The bottom line, though, is that this change in how startups seek financial support for their endeavors in the Internet age has been a long time coming. And its effect on what we see, hear and read -- on the way media is produced and circulated to the masses -- will very likely be incalculable. It's a brave new world of opportunity out there for artists, entrepreneurs and everyday investors alike. In the end, we'll all benefit.
Follow Ivan J. Parron on Twitter: www.twitter.com/PARRONLAW