Brother, can you spare a dime?

This summer, Martha Ingram saved Nashville’s Schermerhorn Symphony Center from a looming bankruptcy. Now, the symphony that calls the Schermerhorn home is seeking out a new patron to “be a part of the experience” of recording three works by composer Joan Tower. You are that patron. The Symphony is one of many arts organizations that have turned to Kickstarter and other crowdfunding platforms to replace deep pockets with a broad appeal to small donors.

Typically, crowdfunding allows startup projects to solicit donations for worthy projects over the internet and collect relatively small amounts of money from a large pool of donors. In exchange for upfront cash, the project coordinators often promise credit or tangible rewards related to the project. The Nashville Symphony is trying to raise a modest $15,500 with offers ranging from “[h]eartfelt thanks and adoration” to the symphonic equivalent of a backstage pass with “Honorary Producer” credits. Donating $10,000 to the New York City Opera’s $1,000,000 campaign could be your ticket to a walk-on role in their upcoming production of a J.C. Bach opera–unless you’d rather have a 30-minute “opera party” in your home or workplace. Since the New York City Opera and the Nashville Symphony are using Kickstarter, the projects don’t get your money and you don’t get your goodies (or even the good feelings) unless they reach their fundraising goals within the time allowed. Other platforms take different approaches.

The concert-hall crowd isn’t the only crowdfunding game in the arts though. Earlier this week, PayPal inadvertently called attention to another by freezing the funds of several high-dollar crowdfunding campaigns for video games when their donations triggered safeguards intended to help the company stay on the right side of money-laundering regulations.

James Franco asked his fans for a cool half-million dollars to fund a trilogy of films. Six supporters paid $450 to have “James . . . record a 15 second personalized cell phone greeting,” and three paid $700 for the “rare opportunity to own an original Palo Alto inspired painting by James Franco.” Franco came up a little short, but he still walked away with $327,929 (minus Indiegogo’s cut).

Last May, Zach Braff raised $3.1 million to fund a sequel to his film, Garden State. The Braff ask was particularly bold–or at least Franco thought so. Although Braff doesn’t have Oprah Winfrey money, his celebrity income puts him in a dramatically different financial situation from the typical Kickstarter project coordinator and the typical funders. If Braff had invested his own wealth in the film or sought out more traditional financing, the backers who took a risk on Braff’s art would have a chance to be rewarded if the film succeeds financially. As it stands, the $10,000 donor who signed up to “BE A CAST MEMBER” gets just that, no matter how well the film does. There’s no risk because there’s no possibility of reward. Franco took a different path, pledging to donate any profits from his crowdfunded films to charity.

When people start raising millions of dollars through the internet equivalent of passing the hat at church, ethical and legal questions arise. Franco pledged his profits to charity and Braff seems to be splitting them with a traditional film financing company, but should securities law make room for crowdfunders to offer their donors the chance to be investors? If so, what limits might be appropriate?

–Jeffrey W. Sheehan

 

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  • Photo by Jeffrey Sheehan
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2 Responses to Kickstart My Art

  1. Erin Frankrone says:

    When organizations like the Schermerhorn and the NYC Opera enter the crowdfunding platforms, their projects are devoid of some perennial issues in the crowdfunding marketplace. A dominant problem with the crowdfunding model is investor’s inability to reliably vet projects before buying in. When established institutions turn to this model, patrons are already familiar with the nature and quality of the services and products they are supporting. Thus, its reasonable to expect that established funding-seekers will derive more robust funding results than other funding-seekers.

  2. Jacob Schumer says:

    Congress has actually already answered your last question and passed the Crowdfund Act as part of the JOBS act. Once the SEC actually promulgates rules, regular people will be able to invest in these kinds of schemes, given a few limits. In fact, there’s already a crowdfunding site for securities, but it’s for accredited investors only (upstart.com).