The Angel Studios Model and a Brief Explanation of Securities Laws Angel Studios relies on the tastes, opinions, and feedback of our audience members. When we want to make a new movie, TV show, or documentary, we don’t ask Hollywood executives to put up millions of dollars. Instead, we ask the Angel Guild, viewers like you, to vote on what you want to see next and then filmmakers give you the opportunity to support the project through a variety of different methods including regulated securities offerings, like crowdfunding or Regulation A offerings. Before we go into more specifics, let’s answer your first question. Why Does Angel Studios Do it This Way? It’s simple. We think the wisdom of the crowd, their collective intelligence, is much more accurate and trustworthy than a few powerful executives in Hollywood. And we think that same crowd should get to participate in the project the same way Hollywood executives would. What is Crowdfunding? Crowdfunding is just like it sounds—a crowd of people raising funds. Filmmakers who work with Angel Studios have the option of raising money from the crowd to help bring the show to life. If the show decides to raise money this way, then it engages in what’s commonly referred to as “equity crowdfunding”–a form of crowdfunding that is regulated by the United States Securities and Exchange Commission (the SEC). Through equity crowdfunding, you can invest in a show in return for a security interest in the company. There are two different regulations that filmmakers typically rely on to raise funds. Regulation Crowdfunding (Reg. CF) “Regulation Crowdfunding generally refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people. Companies can use Regulation Crowdfunding to offer and sell securities to the investing public giving the public the opportunity to participate in the early capital raising activities of start-up and early-stage companies and businesses.” Regulation A (Reg. A) Regulation A is often referred to as a “mini-IPO” and has some similarities to Regulation Crowdfunding. However, Regulation A allows companies to raise more money than they can under Regulation Crowdfunding. In addition, companies conducting an offering under Regulation A must provide more information to investors than they do under Regulation Crowdfunding, although this information is still more limited than companies provide in a traditional IPO. “Regulation A allows companies to offer and sell securities to the public, but with more limited disclosure requirements than what is required for publicly reporting companies. In comparison to registered offerings, smaller companies in earlier stages of development may be able to use this rule to more cost-effectively raise money.” Each of these regulations has different rules regarding, for example, who can invest and how they can invest, how much money a filmmaker can raise each year, and what information must be provided to investors during the offering and on an ongoing basis. Additionally, even though these are regulated offerings, investments in productions through Regulation Crowdfunding and Regulation A still involve a high degree of risk and speculation. Read more about those risks at the links to SEC.gov, and always make sure you understand all of the risks before investing money. So How do Filmmakers Actually Raise Money for Their Projects Using Crowdfunding? Good question! For Regulation Crowdfunding Offerings, filmmakers have to conduct the offering through a registered Crowdfunding Portal or a registered broker-dealer. These are basically legal terms for specific types of financial firms. Securities regulations require that filmmakers, or any company conducting a Regulation Crowdfunding offering for that matter, go through these types of registered financial firms to help ensure investor protection. Regulation A offerings are little different. Filmmakers who raise money for their projects under Regulation A may conduct their offering through a registered broker-dealer or they can do it themselves without going through a registered financial firm. If you are wondering how the regulators ensure investors are protected if filmmakers relying on Regulation A don’t even have to conduct the offering through a registered financial firm, you are really paying attention! And that’s a great segue into the nitty gritty of how these offerings actually work. Basically, these offerings require quite a bit of paperwork before the filmmaker can accept any funds for a project. Here’s the simple version. First, the filmmaker needs to make sure that they have an entity that owns the rights to the film or TV project they are looking to create or bring to light. Second, the filmmaker needs to identify which type of offerings makes the most sense for their project. To do this, the filmmakers will consult with their lawyers, accountants, and they may “Test the Waters” with potential investors to get a sense of how much interest there is in the investment opportunity. Third, once the filmmaker decides what type of offering to conduct, they have to file extensive paperwork with the United States Securities and Exchange Commission (the SEC). In the case of a Regulation CF offering that paperwork takes the form of a Form C, in the case of a Regulation A offering the paperwork takes the form of a Form 1A. These Forms require the filmmaker to disclose information about the entity raising the money, the terms of the investment, and how the money will be used. In Regulation CF offerings, the filmmaker can start raising money as soon as this form is filed. In Regulation A offerings the SEC actually reviews the Form 1A and has to declare it “qualified” before the issuer can start raising money – which brings us back to why an issuer can raise money themselves instead of through a registered financial firm in a Reg. A. This SEC review process adds a layer of investor protection not present in the Regulation CF deals. But remember – just because a registered financial firm is involved or even if the SEC has reviewed an offering and declared it qualified – this does not mean that the SEC endorses the investment! Investing in Regulation CF and Regulation A offering involves a high degree of risk and filmmakers expect that you will read all of the offering documents carefully and consult with your own legal and tax advisors before you make a decision to invest. So What Happens After People Invest? As mentioned above investing in these offerings involves a high degree of risk and investors may never see any return on their investment. However, if the investment is successful the investors will eventually see a return on their investment. The amount and nature of that return will depend on the terms of the offering. That’s why it’s so important to read all those forms we described above. Below are some examples of returns that investors have received from filmmakers or projects that have been distributed by Angel: His Only Son investors received a 120% return of their original investment in accordance with the terms of the crowdfunding offering. The Angel Studios investors who invested in the Sound of Freedom P&A Campaign received 120% of their original investment in accordance with the terms of the crowdfunding offering. After Death will shortly be paying back its investors. To learn more about the terms of these investments visit invest.angel.com and look at the Form C for each offering. And remember not all investments result in a return to investors. Many investments result in a total loss of the principal amount of investments, and some investments take a really long time to generate any returns. Of the approximately 18 filmmakers who have chosen to conduct crowdfunding offerings in connection with working with Angel Studios, 15 are still in the process of creating or monetizing their projects and have not yet produced any returns for their investors. So is Angel Studios a Registered Financial Firm, is Angel Studios Conducting These Offerings? No, Angel Studios is a movie studio! Angel Funding, however, is a registered Crowdfunding Portal. Angel Funding (whose legal name is VAS Portal, LLC) is registered with the Financial Industry Regulatory Authority (FINRA) and regulated by both FINRA and the SEC. Angel Funding is affiliated with Angel Studios through some common ownership between the two companies, but Angel Funding is independently operated and controlled. Over the years, Angel Studios has conducted several crowdfunding offerings to raise money for its own operations or to fund certain projects, but Angel Studios does not host crowdfunding campaigns for other filmmakers. That has to be done through either a registered crowdfunding (often Angel Funding) or by the filmmaker’s entity itself. Filmmakers working with Angel Studios who decide to conduct a crowdfunding chose between whether to use a crowdfunding portal, broker-dealer, or self-offer Regulation A securities, and get to select which registered financial firm makes the most sense. Angel Studios, in 2016, did its own Reg A crowdfunding model and in 2020 it gave its crowdfund investors the option to sell back their shares at a 296% return. Do All Filmmakers Who Work With Angel Studios Raise Money in Crowdfunding Campaigns? Whew! Thanks for bringing us back around the Angel Studios model, we nearly lost the plot explaining securities laws. The quick answer is no, not all filmmakers who work with Angel Studios raise money in crowdfunding campaigns. The rules surrounding crowdfunding have many limitations so not all projects fit into a situation where crowdfunding makes sense, and certain types of entities cannot conduct crowdfunding offerings (like non-profits for instance). Additionally, not all Angel Studios fans can invest in crowdfunding offerings. But audience participation is central to the Angel Studios model, so creators who do not raise money by selling securities will find other ways to include the audience in the project like a Pay it Forward campaigns with various perks.
