Equity Crowdfunding for Investors. Matthew R. Nutting

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СКАЧАТЬ private concerts, attendance at rehearsals and recording sessions, getting your picture taken with the artist, being named as a producer, and other perks, in addition to the basic (legal) digital download. When Schneider won another Grammy in 2008, for her work on the Sky Blue album, one of her biggest ArtistShare contributors was named executive producer and attended the Grammy Award ceremony with her.

      When Schneider embarked on her groundbreaking crowdfunding campaign, before the fan-funding concept had been tested, much less proven, “a lot of other musicians and people in the recording industry told me I was crazy to abandon the traditional model of production and distribution,” she says. The key to her success on ArtistShare was her devoted fan base, on which she knew she could rely. The funding platform allows connection and communication between artist and fans that the traditional business model could not. The success of crowdfunding for Schneider went beyond dollars to “long-term relationships with my fans,” she says.

      In all ArtistShare campaigns, the artists keep 85 percent of the funds generated and retain full ownership of their copyrights and master tapes – a significant departure from the traditional music industry. The funding platform keeps 15 percent. The platform also earns revenue on sales of music-related merchandise.

      By the end of 2013, ArtistShare had funded music projects that resulted in four more Grammy Awards in addition to Schneider's two.

      Rewards Crowdfunding Blasts Off

      ArtistShare is an example of what we call rewards-based crowdfunding. U.S. – based Indiegogo, launched in 2008, and Kickstarter, launched a year later, are now the biggest rewards-based crowdfunding sites in the world, in terms of visitor traffic.13 In addition to the arts (including fine art, comics, dance, design, fashion, film and video, music, photography, creative writing, theater), these sites host funding campaigns for social causes (animals, community, education, environment, health, politics, religion) and entrepreneurs and small businesses (food, sports, gaming, publishing, technology).

      From its launch in 2009 to September 2014, Kickstarter hosted more than 180,000 funding campaigns, of which about 40 percent were successful. The 70,923 campaigns that succeeded raised a total of $1.335 billion from more than 7.1 million backers. That's about 100 backers for each successful campaign. About 27 percent of the campaigns raised more than $10,000, and about 2 percent raised more than $100,000. The business category with the most successfully funded projects on Kickstarter is – no surprise – music, followed closely by film/video, followed at a distance by art, publishing, theater, games, and nine other categories.14 Kickstarter charges a fee of 5 percent of the funds collected in a fully funded campaign.

      Not all projects are funded, of course. In an all-or-nothing funding model, roughly 44 percent are fully funded based on their stated goals, while the majority walk away with nothing. All-or-nothing means that if a project does not reach its stated funding goal within a stated campaign period, the campaign fails and the funders' credit cards are not charged – and the platform earns nothing. (Indiegogo allows both all-or-nothing and keep-it-all campaigns. In the latter, the project may keep all the funds it raises even if the goal is not reached.)

      Rewards for funders of Kickstarter projects, like those on ArtistShare and most other crowdfunding sites, are usually tiered according to the size of the contribution. The Chipolo campaign is a good example, although the reward schemes vary so widely that it's hard to say what's typical.

      The Chipolo is a small, colorful, battery-powered Bluetooth chip that you can fasten to valuable belongings such as mobile phones, laptops, backpacks, cameras, car keys, or even a pet collar, so that you can locate them if lost. The Slovenian-American inventors call it a “virtual leash.” The chip connects wirelessly to a smartphone via the Chipolo app (for iPhone and Android), which you can use to locate the item with a beep within 60 meters, or on a GPS-based map anywhere. In fact, anyone with the app, not just the owner of the item, can use it (with the owner's consent) to find the lost item on behalf of its owner – making it a “crowdfinding” device. The Chipolo team established a goal of raising $15,000 in 25 days on Kickstarter, starting October 21, 2013, so they could manufacture and market a pilot production run. The team promised to reward backers as follows (not a complete list):15

      • Those who contributed $19 or more would receive a first-run Chipolo (estimated retail price $35), free shipping worldwide, with a projected delivery date in December 2013. This slot was limited to 200 backers, and indeed 200 people pledged $19 or more within two days.

      • Those who pledged $34 or more would receive a Chipolo chip and T-shirt.

      • Those who pledged $99 or more would receive four Chipolos in their choice of colors, with their names imprinted on them.

      • Those who pledged $2,999 or more would receive nine Chipolos with their names imprinted and nine Chipolo T-shirts, personally delivered by one of the Chipolo team members to any major city in the world.

      It is important to note that more than 20 backers pledged amounts less than $19, which means they did not receive a tangible reward – they simply wanted to support the Chipolo team and its product. To run a successful crowdfunding campaign, said another entrepreneur who did just that, “You don't want to merely sell people a product, you want to sell them a dream.”16

      A week after the Chipolo Kickstarter campaign began, the pledges already amounted to $100,000, which is more than six times their goal (“6x” in the vernacular of venture capital) – although nobody had yet signed up for personalized delivery. Backers suggested additional applications for the chip, some of which the team incorporated into the design.

      Campaigners whose contributions exceed their goals get to keep it all (minus Kickstarter's 5 percent), under the assumption that they will use those funds to keep the promises they made to their contributors.

      One of the most outrageously successful, and subsequently famous, Kickstarter campaigns thus far was the Pebble watch. A group of entrepreneurs in Palo Alto, California, created a digital, customizable “smart watch” that runs downloadable sports and fitness apps and connects wirelessly to an iPhone or Android smartphone. The innovative high-tech features of this product are too numerous to mention here. The team sought $100,000 during the funding period spanning April and May 2012. With a pledge of $99 or more, backers could preorder the Pebble, the retail price of which was estimated at $150. Pledges of $220 or more were rewarded with two Pebble watches, and so on. The campaign raised a whopping $10,266,845 from 68,929 backers (average pledge $149).17

      The most successful Kickstarter campaign to date has been the Coolest Cooler, which raised $13,285,000 from 62,000 backers in 2014. The company's funding goal was $50,000. Notably, that company failed in its previous Kickstarter campaign.

      Significantly, all rewards-based crowdfunding campaigners retain their intellectual property (IP) rights: patents, trademarks, copyrights. In other words, Kickstarter (based in New York City) is not a producer or publisher or marketer but a sophisticated intermediary that connects campaigners with backers and enables backers to communicate among themselves in order to assess the merits and prospects of the campaign.

      New rewards-based crowdfunding sites are emerging that focus on a narrow product category or niche market. Experiment (originally Microryza), for example, is a crowdfunding site for hard-science research projects; funders are rewarded with “insight behind the science.” Teespring is a Kickstarter-inspired site for designers of custom T-shirts.

      An entrepreneur who wants to raise money does not have to use an established platform like ArtistShare, Kickstarter, or GoFundMe to mount a crowdfunding campaign. СКАЧАТЬ