Last year, the Securities and Exchange Commission passed Title IV of the JOBS Act, allowing non-accredited investors (i.e., people who don’t call Wall St. their home) to invest in small businesses, which, specifically, is changing the landscape for crowdfunded ventures.
Under Title IV, equity crowdfunding has opened a new lane for startups: Instead of merely putting up money to back a project on, say, Kickstarter, regular people can hold stock in the company—and Paul Scanlan and Jeff Annison are broadening the scope even further with their new entertainment studio Legion M.
High-profile content creators across film, TV, animation, and comics post projects that they working on to the Legion M site and fan can choose to back the company, not only gaining a financial stake in the projects once they go to market, but a voice in the creative process, as well.
"They’re more than just a financial investor—we’re opening the gates of Hollywood to allow them in," says Scanlan, CEO and co-founder of Legion M. "And when we bring [projects] to market, our goal is that we have a fanbase that’s already financially and emotionally invested in [them]—that can help us make sure that [they're] successful."
Legion M’s current roster of creatives includes Seth Green and Stoopid Buddy Stoodios (creators of Robot Chicken), Meltdown Comic’s Gaston Dominguez-Letelier, and alternative reality gaming company 42 Entertainment. Fans can make a non-binding reservation now to invest in Legion M when its slate is announced—tentatively, sometime this summer. In opening up the creative process to fans, Scanlan stresses that Legion M’s approach isn’t to wrest creative control from the artists—it’s meant to close the gap between them and their fans, but it may be a balance that’s trickier to strike than expected.
Legion M is billing itself as "the world’s first fan-owned entertainment company," but it remains to be determined exactly how much the fans will actually own in the creative sense. Jeff Annison, president and co-founder of Legion M, says that Legion M’s purpose isn’t to "create art by committee," but to make fans feel a bit more involved in a company compared to typical stockholders. An engagement platform is currently in development to help manage Legion M’s user base, which Scanlan is dubbing "investor relations on steroids."
"There will be an authenticated app and web interface where we will be providing ongoing details and insights on the projects, including behind-the-scenes looks, live streams from the set, conference calls/WebEx meetings with celebrity talent, advance looks at upcoming content, polling on topics related to the company, invitations to shareholder events, and much more," Scanlan says.
A great plan in theory, but opening a portal for suggestions could release a torrent of opinions too varied to accommodate sufficiently. However, as Scanlan goes on to mention, he wants Legion M to be just that: a legion, comprised of dedicated fans with feedback at the ready.
"If you’re Apple or some other normal trading stock, the idea of facilitating a massive legion of shareholders sounds like a nightmare. For us, it’s nirvana—that’s what we want," he says. "And if you think of our shareholders, we don’t want Wall Street robots investing in Legion M—we want fans. And we want fans that are engaged and ready to enjoy being part of Legion and also willing to add value to Legion M."
Per SEC ruling, non-accredited investors in Legion M’s category under Title IV of the JOBS Act can invest a maximum of 10% of their income or net worth per year. The SEC defines an accredited investor as someone who earns more than $200,000 per year or has a net worth of more than $1 million, which is far outside Legion M’s ideal demographic.
"We don’t want anyone investing a massive amount of money because our goal is to have as broad a fan base as possible," Scanlan says. "So we’ll have minimum investment when it comes time to reserve the shares, but it’ll be as low as we can make it. And then we’ll also probably have a maximum to avoid Wall Street analysts buying up shares before the fans get a chance to participate."
Targeting loyal fan bases of Legion M’s expanding list of creatives is as much about fostering involvement as it is a baked-in marketing boon. An investment in Legion M becomes what Annison calls "activated money"—money with the added value of an attached audience that could be the risk-averse selling point for distributors like Netflix or Amazon.
"When these projects come out, we’ve got an audience that we can activate," Annison says. "We can send an email to a million people and say, hey guys, our movie is coming out this weekend—let’s get all your friends and blow it up. In a very competitive industry like Hollywood, like content production, having that legion really becomes the competitive advantage that helps us succeed as a company."
The allowances made in the JOBS Act for crowdfunding equity are chipping away at the barriers separating entrepreneurs from realizing their businesses, and, in turn, is forging a stronger alliance between those businesses and consumers.
"We’re making a connection that is, for the most part, overdue in the industry—partly because these rules didn’t exist before," Scanlan says. "But now with the JOBS Act, we can make that connection and do something remarkable."