How to Invest in Indie Films

The SEC limits the investors who can put money into independent films.

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Investing in independent film can be difficult for ordinary investors because of the costs and complexities of financing a movie. In most cases, only U.S. Securities and Exchange Commission-approved investors can put money into an independent film production, but there are some opportunities for everyday investors through stocks and funds. Because most films aren't financial successes, investing in a movie production is risky and many investors do it because of their interest in the art or the excitement of movie premiers and film festivals.

SEC Film Financing Rules

According to entertainment law firm BFGR&S, most films are financed using SEC Rule 506 that lets ventures, like films, offer investments without having to meet other rules set for corporations that hold Initial Public Offerings and sell stock. Because films are projects that don't publicly issue financial data and that investors themselves can't manage, the SEC generally lets only certified "accredited" investors put their own money into film productions. Rule 506 limits the number of non-accredited investors to 35, but it still requires these investors to demonstrate some level of sophistication in finance; film directors and producers usually seek accredited investors.

Accredited Investors

The SEC considers accredited investors savvy enough to weigh the risks of uncertain projects such as independent films. Investors become accredited by meeting certain criteria such as being worth $1 million beyond the value of the investor's primary home or having made $200,000 in salary individually -- $300,000 as a couple -- in each of the past two consecutive years. Investors who meet these criteria usually find potential directors and producers of independent films through networking. Film festivals, such as Tribeca or Sundance, provide some of the best networking opportunities.

Risks and Completion Bonds

Successful independent films can produce tremendous returns, but such hit movies are exceptional and rare. Films often don't make a profit and financiers of films risk losing all of their money if the production isn't finished. To discourage this, some investors require film directors to take out a "completion bond," which acts as an insurance policy to ensure that the film is finished on time and within budget.

Other Film Investments

Instead of putting money into individual films, investors can use other investment vehicles as a way to get a piece of the independent film industry, while diversifying their investments. As an example, Get Real USA specializes in financing independent film productions and sells stock on the over-the-counter markets. The Wall Street Journal reports that angel investors, including the Silicon Valley-based FilmAngels, are funding independent films. Private equity funds, such as the ARA-MovieArb Equity Strategy, research film productions for quality and potential box-office success, including independent productions, according to the website FIN Alternatives. A similar service, IndieVest, seeks to match accredited investors with independent film makers seeking funding.