Equity Crowdfunding for Investors. Matthew R. Nutting

cities of Baltimore, Boston, San Francisco, and Philadelphia offered to finance construction of the pedestal if the statue would be relocated. Pulitzer, the Hungarian-born publisher of the New York World newspaper, dearly wanted the statue to remain in his city, so he used the power of the press to urge New Yorkers to help fund the project. He wrote in the World, with a fair measure of accuracy, that construction of the statue itself had been paid for by many small donations from “the masses of the French people – by the working men, the tradesmen, the shop girls, the artisans – by all, irrespective of class or condition.” He made a dramatic appeal in his newspaper to the masses on this side of the Atlantic:

       Let us not wait for the millionaires to give us this money. It is not a gift from the millionaires of France to the millionaires of America, but a gift of the whole people of France to the whole people of America. 11

      Fund-raising activities sponsored by Pulitzer included boxing matches, art exhibitions, theater productions, and the sale of small statuettes of liberty for $1 (6 inches tall) and $5 (12 inches tall). The largest donors received commemorative gold coins.

      Within five months, the World collected $102,000 in donations (roughly $2.3 million in today's dollars), from 125,000 people, all of which it forwarded to the American Committee, and the pedestal project was revived. Most of the donations were in amounts of $1 or less.

      As a reward to donors, the World published their names, regardless of the dollar amount (which had the fortunate result of increasing the paper's circulation).

      The Statue of Liberty was assembled, mounted, and dedicated to America on October 28, 1886, in a ceremony presided over by President Grover Cleveland – who, ironically, as governor of New York, a year earlier had vetoed a plan to fund the pedestal project.

      The Internet Doesn't Change Everything

      That was the nineteenth-century version of crowdfunding, although the word didn't yet exist in the English language. The twenty-first-century version relies on the power of the Internet, of course – specifically, e-commerce and social networks merged into online funding platforms and portals.

      Although the technology is vastly different, in many ways Pulitzer's version of crowdfunding is strikingly similar to today's version. Both versions involve issuing emotional appeals via the most advanced mass dissemination tools of the time to crowds of ordinary (rather than just wealthy) supporters, most of whom contribute small amounts and receive rewards commensurate with their level of contribution. For some of those contributors, simply the satisfaction of helping a worthy project succeed is a significant benefit.

      But the Internet Changes Some Things

      You have probably heard of Joseph Pulitzer, more likely because of the Pulitzer Prize than his 1885 civic crowdfunding project. You have probably not heard of Brian Camelio, one of the pioneers of modern crowdfunding. A Boston musician and computer programmer, Camelio attended a West African dance show in 2000 and was amazed (and inspired) when people in the audience got up out of their seats, ran up to the stage, and literally threw money at the dancers.

      It occurred to Camelio that this method of funding artists provided a solution to the growing problem of piracy in the music industry. That is, once a digital version of a recording is published on the Internet, it's too easy for pirates to download it illegally, depriving the composer, recording artist, and/or producer of revenue that they deserve. Throwing money at a performing artist on stage certainly solves the problem on a very small scale, but what about the thousands of recording artists who haven't yet performed in public?

      Camelio developed a website where fans of a musician can figuratively throw money at the artist, in effect prepurchasing the recording (or other reward), before their digital recording was released. He named the site ArtistShare. Launched in 2003, ArtistShare's first crowdfunding project (which the ArtistShare team called “fan-funding” then) was Maria Schneider's jazz album Concert in the Garden. Through the funding platform, Schneider's fans could contribute money in specified amounts to help her compose and produce the album. Fans who contributed $9.95, for example, got to be among the first customers to download the album legally upon its release in 2004. Fans who contributed $250 or more (in addition to receiving an album download) were listed, in the booklet that accompanied the album, as Bronze Participants who “helped to make this recording possible.” One fan, who contributed $10,000, was (as specified in the ArtistShare campaign) listed as an executive producer and invited to dine with the artist at a New York restaurant; another, who contributed $18,000, went bird-watching with Schneider in Central Park, among other rewards.

      Schneider's ArtistShare campaign raised about $130,000, although neither Schneider nor Camelio is willing to disclose the number of contributors.12 That funding enabled the artist to compose the music, pay her musicians, rent a large recording studio, and produce and market the album (it was sold exclusively through the ArtistShare website), which won a 2005 Grammy Award for best large jazz ensemble album.

      ArtistShare still supports many musicians and composers in various genres, and also a small number of photographers and filmmakers, each of whom must submit an application and be selected before they can appear on the platform – in other words, the site is curated. The site enables artists to “share” their creative process with fans through innovative content management tools. Artists typically offer, in exchange for funding, such rewards as advance copies of CDs, “VIP access” to performances (e.g., front-row seats or backstage passes), 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

11

Joseph Pulitzer, New York World, March 16, 1885, as reported by the National Park Service, U.S. Department of the Interior, at www.nps.gov/stli/historyculture/joseph-pulitzer.htm, accessed October 2013.

12

Based on e-mail correspondence with Maria Schneider and the ArtistShare publicity team, October 2013.

13

“Top 1 °Crowdfunding Websites by Traffic,” GoFundMe, October 16, 2013. Ranking by Alexa.com.

14

Source: www.kickstarter.com/help/stats?ref=footer.