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Why the JOBS Act has not caught on with Broadway producers

Broadway producers have the ability to reach out to a large, untapped pool of investors, but few have taken up the option.

"Godspell" was the first crowdfunded Broadway shows. (Photo by Wendell Teodoro/WireImage)

Broadway producers have the ability to reach out to a large, untapped pool of investors, but few have taken up the option.

Under the Jumpstart Our Business Startups Act, known as the JOBS Act, producers could raise up to $50 million for their shows from average Americans, rather than wealthy individuals, and separately have the ability to publicly advertise and solicit investments for their shows.

But despite the easing of rules, experts say producers have held off using these fundraising methods because of still burdensome regulations, and the fact that they do not want it to seem like they need the help.

“The JOBS Act, as far as Broadway producers are concerned, has basically been a big yawn,” said Daniel Wasser, partner at the law firm Franklin, Weinrib, Rudell & Vassallo.

The act, which was signed into law in 2012, is meant to promote the funding of small businesses. It has two tiers that could be applicable to Broadway investing: the ability to raise up to $50 million from unaccredited investors under Regulation A+, which became effective in June 2015, and the ability to solicit and advertise for investments, which became effective in September 2013.

Wasser said he initially thought the ability to be able to send emails, take out advertisements and otherwise reach out to prospective investors would “revolutionize Broadway.” Instead he found that Broadway has remained a “very traditional fundraising milieu.”

“The Broadway producers increasingly are raising their money from the same circle of investors,” he said.

The provision allows producers to raise an unlimited amount of money, but all investors must still be accredited investors, meaning that the individual has a net worth of at least $1 million, excluding the value of their primary home.

Producers Howard and Janet Kagan took advantage of this rule, as they launched an equity crowdfunding site in 2014, offering equity investments in their revival of “On the Town,” with a $10,000 minimum.

Howard Kagan declined to comment for the article, but in 2015 he told Bloomberg that they had raised $500,000 of the show’s $8.5 million initial capitalization on the platform.

The site does not have any current shows listed for investment.

One reason why more producers may not have jumped on this opportunity is due to fear of negative perception from the industry, said producer Ken Davenport.

“They’re afraid that it seems like they can’t raise the money,” Davenport said.

Additionally, producers that gain investors after advertising have to take extra steps to verify that the investors are accredited, requiring proof such as tax returns or contracting out to third party for the verification. Outside of the JOBS Act, the accreditation process relies on a kind of honor system in which the investor checks off a box saying they meet the requirements.

Davenport was an early adopter of idea of crowdfunding on Broadway, as he raised money for his 2011 revival “Godspell” from unaccredited investors, which he called “The People of Godspell.” He launched his campagin under Regulation A, even before the JOBS Act was enacted, which meant that he could only raise up to $5 million.

Because of their early adoption, Davenport also had to get the offering cleared under laws regulating the sale of securities in every state that he was hoping to bring in investors from.

Now, one tier of Regulation A+ eliminated the requirement to clear every state’s securities laws and raised the fundraising $50 million maximum, but Davenport said he still does not see the practice catching on due to the regulatory work involved.

“It’s just too complicated,” Davenport said. “The amount of work and hurdles required to jump over don’t make it worth it.”

He added that he saw his crowdfunding effort as more of a marketing campaigning, creating a built-in fan base around the show, rather than a means of fundraising.

Outside of the JOBS Act, some companies and individuals have used donation-based crowdfunding, in which money is donated in exchange for gifts or another form of acknowledgment, rather than equity, to raise money for causes related to shows.

For example, Deaf West Theatre, one of the producers of the “Spring Awakening” revival, took to Kickstarter to defray the cost of the cast performing during the 2016 Tony Awards.

But overall, Wasser believes there are enough passionate and wealthy theater fans to keep Broadway entrenched in its ways.

“As long as Broadway producers have access to a sufficient number of accredited investors they’re not going to look to expand their horizon,” Wasser said.