Moving Past Kickstarter: Equity Crowdfunding & The JOBS Act
Crowdfunding is this decade's new tool for helping Artists raise money to reach their goals – and it just got better. Kickstarter, IndieGoGo, RocketHub, and other Crowdfunding service companies are being used successfully by Artists to raise money for projects, but the average Kickstarter campaign raises about $4,500. (Hey, we can't all be Amanda Palmer and raise $1M+) For the Artist with more serious aspirations – and a need for more serious funds – the new JOBS Act signed by the President has a provision that can help.
Kickstarter and other Crowdfunding services require "rewards" for donations, but don't allow you to offer a share of your profits as a reward for your successful project. That's called "equity", and only wealthy people were considered smart enough to invest in businesses – and Artists ARE businesses – where the risk of losing money was high but the potential for making money was significant.
That's what changed in the JOBS Act. Small businesses – again, that's you – can now incorporate and sell ownership in their business venture, to the general public, exchanging a portion of your subsequent profits for an initial investment of capital. Equity Based Crowdfunding could become a disruptive force in the music industry, providing capital for the kind of marketing, production and touring support previously provided only by major labels to large Acts. This level of capital – up to $1 million (and there are restrictions on individual investment levels) is now available to small businesses, including those small businesses known as "Artists".
If you COULD provide equity, and profits, to people who gave you money, instead of house concerts, more Artists WOULD raise the kind of money that Amanda Palmer is raising.
Touring Bands and Recording Artists should watch the early efforts of Artists who attempt Equity Based Crowdfunding projects very carefully. Crowdfunding without equity through campaigns with KickStarter and IndieGoGo are still available to the Artist, so Equity Based Crowdfunding represents an alternative when more significant capital is needed. Successful raises of capital- and especially successful returns to the investors – will establish the terms, guidelines and ROI expectations for this new Artist fundraising tool.
The "crowd" also provides benefits beyond capital to Artist businesses. For example, a touring band that raises money via Equity Crowdfunding may now have 150 new passionate fans as shareholders, who can serve as a great sounding board for new ideas and as brand evangelists — a critical asset in Artist promotion.
For Artists that want to get involved in shaping some of the early regulations, the public comment period for the JOBS Act is still open. You can submit comments on the web and you can read comments that have already been submitted. There's more information about Crowdfunding in Jenny Kassan's Huffington Post article.
Equity Crowdfunding will go a long way towards alleviating Artists' capital access needs, and benefit investors in the process. The capital markets have finally entered the 21st Century and the future for Artists looks bright.
You can email author Jack Kelly, CEO of Adva Mobile at jackk(at)advamobile(dot)com.