Art crowdfunding: how to raise money for your business

Let's start from the beginning. When we want to start our own business, we are usually held back by one significant obstacle - money. Similarly, an artist who is just starting his career thinks not only about the money he will earn in the future but also about the resources that need to be invested in his business at the beginning. Crowdfunding appeared as an answer to this challenge. In the West, it has long been fashionable. If we talk about the complex in simple words, then crowdfunding is a system of collective financing of projects. Let's look at this phenomenon in more detail.

📌 Crowdfunding is a way of raising money for the implementation and support of scientific, social, creative, etc. ideas.

As you can see, creative ideas are one of the most popular areas for crowdfunding. But how does it work? There are special platforms where you can present your project. People who want to support you and your endeavors invest their resources in your cause and attract sponsors or other patrons. For sponsors, supporting promising projects can be attractive because they expect to make a profit from it in the future. As for patrons, they invest money on an altruistic basis. By the way, where did the term "crowdfunding" come from? It arose not so long ago - in 2006. Its author, the American journalist, and editor of "Wired" magazine Jeff Howe, calls crowdfunding a "collective business tool", "public financing" of projects. Today, crowdfunding is the search for resources through specialized virtual platforms.

Resources through online platforms can be collected for a wide variety of purposes. Among the most popular are artistic, technical and educational projects. Sites specially created for crowdfunding help to collect funds, involving social networks and mass media, among others. People can transfer money both directly and via SMS. The funds go to the fund, which redistributes them according to the financed projects. Crowdfunding is closely related to another term - fundraising. It is a voluntary donation without the expectation of profit or compensation. Very often, with the help of these strategies, charitable and social initiatives are financed.

There are clear steps on how to apply for crowdfunding:

🔎 Formulation of the project goal. For example, selling your works.

🔎 Choice of project financing method. There are several ways to do this:

a) crowdlending: from this name we already understand that we are talking about loans; that is, there are special investment platforms that provide you with loan money for your project;

b) crowdinvesting: if you decide to open your gallery, this method of financing may suit you, as you will have something to offer your investors; this way assumes that the investor invests money in your project if it is interesting from the point of view of profit;

c) crowdfunding with non-financial rewards: this option is best suited for creative projects, and ideas related to art; it is assumed that the investor receives not money or interest from you in return for his investment, but the product of your work (in this case, a work of art);

e) charitable crowdfunding: this is also a good option for creativity since in this case we are not dealing with investors, but with patrons who do not ask for remuneration for their contributions.

🔎 Choosing a platform. At this stage, you should analyze the existing investment platforms for crowdfunding and choose the one that best suits your project.

🔎 Formation of an investment offer.

🔎 Start of resource collection.

🔎 Settlement with investors and payment of taxes.

However, there are nuances. In the case of crowdlending, money is issued not just like that, but at rather high-interest rates (approximately 25% per annum). You can ask: what are the advantages of crowdlending? There is one advantage of this method of financing: speed. Usually, on such platforms, if you leave an application in the morning, you already receive money in the evening. As for crowdinvesting, this path is usually chosen by companies that can offer their securities or bonds to investors in exchange for investment.

Let's look at these steps in more detail.

One of the most common questions that beginners ask themselves is which platform to choose. The investment platform is a special intermediary site where people are looking for investors for their projects, and vice versa - investors are looking for attractive offers for financing. It should be borne in mind that every investor has an interest in investing in projects. If we are talking about crowdlending, crowdinvestment or crowdfunding with non-financial rewards, then such sites must be listed in the state register. This is what you need to check. You need to go to the website of the registry of the central bank of the country in which you live and check whether the platform you have chosen is registered there. What will be indicated in the register? First, the name of the platform. Second, the website address. Always check the correct website address to avoid criminals. In addition, try to find for yourself the following information about the chosen platform:

1. How long has this platform been around?

2. How many projects have been completed there?

3. How many people are raising money right now?

4. What are the reviews about this site?

As a rule, you will need to enter into a contract with the site, so you should carefully study all the documents you sign. If in doubt, consult a lawyer. If the platform is reliable, clarify the following details for yourself:

1. What documents do you need to provide for cooperation?

2. Does the site help with the registration of an investment proposal?

3. What percentage of contributions does the platform take for its services?

4. Do you have to pay interest for withdrawing money from the site?

To start raising money for your project, you need:

1. Sign a contract with the chosen platform.

2. Register on the site (create an account) and complete your profile.

3. Create an investment proposal for your future investors.

Your investment proposal must look professional. For this, you must specify the following data:

 

🔎 The validity period of your offer.

  🔎 The minimum amount of money you expect to raise (this should, accordingly, correlate with the goal of your project). This position is very important, because it may happen that if the minimum amount is not collected, the platform will consider your offer as a failure and you will not receive anything at all.

🔎 Maximum amount for your project: When you reach this mark, the collection will automatically close.

🔎 Terms of change and termination of digital rights (only if digital rights are provided for in your offer).

📌 Digital rights are the rights to access, use, create and publish digital works, access and use computers and other electronic devices, as well as communication networks, in particular, the Internet.

After the funds are collected, the platform will conclude an investment agreement between you and your investors and, accordingly, finance your project. Where and how exactly does the platform make money transactions? This is another question that may interest you as a site user. Each investment platform has a so-called nominal account, which is created to accept payments from investors. It is from this account that the following payments are transferred:

 

1. To you, as a person who collects funding for the project.

2. To investors, if the minimum amount is not collected or they change their mind about investing in your project.

Commissions are also paid from the same account if any. Banks monitor the fulfilment of all conditions and exclusively monitor the targeted use of money.

Since this is the most common type of crowdfunding for creative projects, let's look at it in more detail. This is where you will need to know what digital rights are. The fact is that as a reward in this type of crowdfunding, the investor does not receive money, but a product. Therefore, you need to document your obligations to investors. For this purpose, utilitarian digital rights are used - digital certificates, which indicate exactly what investors will receive if they invest money in your project. It can be not only a material object (for example, a painting or a sculpture) but also digital works, as well as intellectual rights to use your works or other fruits of activity.

Here are collected the most interesting and most reliable investment platforms for crowdfunding - in our opinion:

1. Kickstarter: is considered the largest and most popular service for collecting money. There is, however, one inconvenient nuance associated with this platform: it works on the principle of "all or nothing". This means that you only get paid if you collect the full amount specified in your offer. If the amount is even one dollar less, all the money will go back to the investors. However, this does not reduce the popularity of this platform in the world. It is through it that most scientific, creative and social initiatives are implemented. 

2. Patreon: if you are a content creator, this is the perfect place for you. This is where artists, writers, musicians, bloggers and other figures of culture and art "live". Most often, the investment format on Patreon is monthly fixed payments. You offer your project to people for financing, and you are chosen by a patron who wants to promote your creativity and support you. 

3. IndieGoGo: this international investment platform has one advantage that qualitatively distinguishes it from, for example, Kickstarter. All funds collected by you before the deadline will be transferred to your project. It doesn't matter if you raise more or less, your ideas will still be funded. The only thing that depends on whether you collect the full amount or not is the site commission. If your project successfully collects all the declared funds, you pay a commission of 4%, if not - 9%. In addition, your project receives a rating. However, if on Kickstarter it is done manually, here it is done automatically. 

4. RocketHub: the same principle applies on this site as on IndieGoGo - how much money is collected, all of it is yours. It is from this resource that people who are just starting to understand crowdfunding start. Therefore, here are the simplest and most loyal terms for project financing. 

4. Booomerang: money is usually collected here for small projects. The platform allows you to collect no more than 10 thousand dollars. In addition, you have to pay a commission of 5%. Booomerang does not put forward any other restrictions. 

It is worth noting that the platforms mentioned above are international. But each country has its own local crowdfunding sites. And if you want to limit yourself to the domestic market, you can search for popular platforms for a specific country. 

People are often afraid to try new things. Such words as "crowdfunding" seem scary and incomprehensible to them. But really, you don't lose anything. You are only gaining new and valuable experience in the modern world. Here are some tips that will make your first steps in crowdfunding more comfortable:

1. Look at your project from the side. Think about your audience and who might be interested in your ideas.

2. Consider whether you can handle your project on your own, or whether you need helpers. Today, it is very important for artists to keep their blogs, and to have developed social networks, which should also be paid attention to. Because your online profiles are, in a way, your face.

3. Calculate your expenses. This could be funded for paid advertising if you use it, or other arts promotion or marketing services.

4. Make your business plan. You can learn how to write a business plan for an artist in the article "Business plans for artists".

5. Choose the type of crowdfunding and come up with an attractive reward for your investors.

6. Tell your story to investors. You can emphasize your biography as an artist and the specifics of your creativity and ideas.

7. Communicate with potential investors and clients.

💡 Bonus: if you are a beginner in the field of collective fundraising for projects, it is better to start with small investments. Study the platforms, and the mechanisms of their work, and also develop your image as an artist. This will help you attract more resources to implement your ideas in the future.