Crowdfunding is actually an act where you collect money from the crowd– as the word says. So you try to attract funding not from one bank or a grant from public government. But you try to raise money with a large group of individuals. That’s the idea of crowdfunding. It’s nothing new. So already Mozart at the time did actually a crowdfunding campaign to organise a concerto. What of course makes crowdfunding nowadays a more hot topic and a much more used instrument is of course the fact that now you have online platforms to organise crowdfunding campaign, which makes it on the one hand much easier to do it.
And also the scale is much larger than the capabilities that Mozart at the time had to crowdfund he his concerts.
How it’s being used in cultural and creative sectors? That is in many, many different ways.
Maybe before I go into that, it’s important to say that’s when we talk about crowdfunding there are different models behind that one word, “crowdfunding.” And they are very different in nature. When we look at the models, there are four basic models that one can talk about. There is donation-based crowdfunding, which actually means that backers give money and they don’t expect anything in return. A second model is the reward-based crowdfunding where people donate but in return they get a reward. It’s often a symbolic reward. Could be you get a postcard with a thank you and a signature of the artist, you get whatever. So this is reward-based crowdfunding. Within this category of reward-based crowdfunding, you also have another type of reward.
Instead of the symbolic reward, it’s more the pre-sales type of crowdfunding where people provide finance for a specific project– for instance, the release of a new welcome. And when the artist is capable of collecting sufficient money and producing the new album and the album comes out, all the backers get a copy of the album. So in that sense it’s more a pre-sales action than it is a symbolic reward.
So you have those two types of crowdfunding where there is actually no real financial return expected by the backers. Then you have two other types of crowdfunding, being the peer-to-peer lending type of crowdfunding and the equity-based crowdfunding where backers provide finance but in return they do expect a financial return on investment. So it’s lending as if a bank lends money. The only difference is that you do not repay the loan to one bank but you have to repay it to many different backers. And backers can lend money as much as five euros. So it depends. So that’s something that you have to take into account when you talk about crowdfunding.
Now when we look at the use of crowdfunding in cultural and creative sectors, the dominant model that is being used there is reward-based crowdfunding. A recent study that we did on behalf of the European Commission to map the use of crowdfunding in cultural and creative sectors, there we found that almost 90% of all crowdfunding campaigns that have been run by cultural and creative organisations in the period between 2013 and October 2016 were actually reward-based crowdfunding campaigns. Nearly I think 8% of the campaigns were donation-based crowdfunding campaigns. And a minority– 1%, 2%– were actually equity and peer-to-peer lending crowdfunding campaigns.
The average amount that are being raised by cultural and creative organisations when they run a crowdfunding campaign was in 2016 approximately 7,200 euros per campaign. And when we look at the success rate of running a crowdfunding campaign– because it’s not easy money– about half of the campaigns that have been run were successful. Crowdfunding, as I mentioned, it’s not easy money. It’s not like when the bank decides to provide you the money– you have the money and you can do with the money what you want as long as you repay it.
The money that you collect through crowdfunding is money that you have to earn in a different way than you have to earn it from public government or from a bank. But at the same time, the creative part– or the nice thing about crowdfunding– is that apart from being a source to collect money, it provides you also with a tool to go much beyond collecting finance from your backers in the sense that cultural and creative organisations, when they do a crowdfunding campaign, mostly it also generates many other effects either wanted or not wanted beforehand– so, unexpected effects. And these are, for instance, audience development. You attract a new type of audience with running a crowdfunding campaign.
A marketing tool– because a crowdfunding campaign goes along with a strong communication campaign. And so it can be a powerful marketing tool to highlight your project, your organisation, the things that you work on. So in that sense, it can be a good tool. Also for market this thing. I was mentioning that’s reward-based crowdfunding campaigns are also used in a pre-sales setting. So people can use a crowdfunding campaign to actually test whether there is an audience for their music, or the movie that they have in mind, or the product that they have prototyped and want to sell. They run the crowdfunding campaign. And when they see that they have sufficient backers, that’s the moment to start production.
And they are sure that they have sufficient audience or customers that are interested in the products that they will produce. So crowdfunding is a tool that goes much beyond finance and can be used in many different ways to actually strengthen an organisation, to enlarge their audience. But also to create a movement it’s also an interesting tool. So crowdfunding is definitely an interesting instrument to explore for cultural and creative organisations.