Thanks to new securities rules, Hollywood is about to get into the crowdfunding game.
A startup, Junction Investments, plans to open for business on Wednesday, allowing wealthy individuals to invest in movies alongside veteran film financiers.
At the start, the company will offer an online chance to back "A Hologram for the King," an adaptation of the Dave Eggers novel that will star Tom Hanks. Soon after, would-be mini-moguls will be able to invest in "Triple Nine," a thriller featuring Kate Winslet, the "12 Years a Slave" star Chiwetel Ejiofor and Woody Harrelson.
The startup has already drawn a number of prominent backers and investors, including casino billionaire Steve Wynn and Internet entrepreneur Dave Morin.
Junction represents the latest change brought about by the Jumpstart Our Business Startups Act, or JOBS Act, whose passage in 2012 opened up new ways for companies to raise money. The law has already made it easier for companies to go public by eliminating a number of disclosure requirements.
Perhaps its most notable change was that it blessed crowdfunding. Groups of so-called accredited investors - people who either make $200,000 a year or have a net worth of more than $1 million, excluding their home - can band together to buy up to $1 million of a company's equity.
With financing hard to raise, crowdfunding has become a buzzword in the movie business. Filmmakers have used sites like Kickstarter to raise money to start production, giving birth to movies like "Veronica Mars."
But Junction is taking a different tack, its founders say: The films it will back are already fully funded, and will be made regardless of how much the startup raises. Any money raised through the site could be used either as an additional cushion or as a replacement for some of the Hollywood financiers' original investment.
Many in Hollywood worry that crowdfunding will open startups to lawsuits by unhappy investors. But Junction hopes to blunt that concern by giving investors the same terms as the seasoned financiers already involved in a movie. Kickstarter users, by contrast, are essentially donating to projects in return for rewards.
"Investors aren't being asked to put money into projects that more experienced financiers have already passed on," Brian Goldsmith, a Junction co-founder and a former producer for "CBS Evening News," said in a telephone interview. "Experienced investors already have skin in the game."
Prospective investors visiting the company's website, jct.com, can read about coming projects - and wade through lengthy legal disclaimers - before deciding whether to invest. As to whether Junction investors will see their names in the movie credits, that will be up to each film's backers.
Junction took shape in the fall of 2012 when Goldsmith began brainstorming with Adam Kaufman, a friend and a former banker at Goldman Sachs, about new business opportunities. They hit on the idea of crowdfunding, then decided the entertainment industry would be a perfect start.
Last November, the two went to the American Film Market, the conference in Santa Monica, Calif., where filmmakers make their pitches to prospective backers. In a crowded bar overlooking the Pacific Ocean, the two met with Christopher Woodrow and Molly Conners, the heads of the independent film studio Worldview Entertainment.
"While most people were talking about foreign film rights, we were talking about the JOBS Act," said Kaufman, Junction's chief executive.
But the Worldview executives quickly understood the business proposition, and by the end of the half-hour meeting, the two sides shook hands over a partnership, with "Triple Nine" serving as the studio's first test.
Besides Worldview and Silver Reel Entertainment, which is backing the Tom Hanks movie, other partners include Endgame Entertainment, PalmStar and QED International.
Kaufman and Goldsmith soon hired a staff, including a former Google engineer, a onetime technology employee at Goldman and a former lawyer at Cravath, Swaine & Moore. They also began to seek out advisers like Wynn and Logan Green, the chief executive of the car service Lyft.
"They got it," said Goldsmith, now Junction's president. "We didn't have to explain much."
Even though Junction has not yet funded its first movie, Kaufman and Goldsmith are already thinking of how to expand their business model beyond Hollywood. While the two will not discuss future plans, they said that the crowdfunding model could work elsewhere in the entertainment industry.
"Within the film industry, we're looking at a market of several billion dollars a year," Kaufman said. "Outside of that, it's a market of tens of billions of dollars."
© 2013, The New York Times News Service