Is Crowdfunding Working? Here’s What We Know

Crowdfunding’s growing up.

On one such site, 13,512 people recently raised nearly $1 million for a Chicago designer. And fan-funding sites are now bankrolling albums from established music acts, not just dodgy indie bands.

But just how much are these services making for members, and for themselves?

I’ve spent the last few weeks collecting data on the sector, by talking with all the main crowdfunding platforms…

My conclusion: an estimated $80 million has been pledged through these sites, by fewer than a million supporters. But not everyone gets funded, and returns for the sites themselves appear modest.

» See our data table here

Leader of the pack

New York’s Kickstarter is kicking it amongst the head of the pack. Since it started, it’s taken pledges worth $35 million for over 12,000 hopeful projects.

Such sites typically make their money by taking a commission of the amounts they pay projects – but most sites only pay money if projects’ pledges meet a pre-specified target amount.

In the case of Kickstarter, which takes five percent, about 45 percent of submitted projects hit their target – so the amount Kickstarter has made for itself is five percent of something far less than $30 million, and probably of about $8 million.

Growing scale

Still, the overheads required by such sites are low – essentially, web hosting and growing notoriety within creative communities.

Kickstarter is now on a perpetual growth curve – the nearly $1 million its users raised last month for the designer of an iPod Nano wrist-watch strap is one of its biggest hits to date.

It may be the birth of a new kind of funding, a more direct relationship between producer and consumer, without the need for major backers like investors or record labels.

Fixing the system?

In music, which has long been enamoured with the fan-funding model, recognisable names like Cornershop, The Subways, Gang Of Four and Funeral For A Friend are amongst the big acts employing the model through PledgeMusic. Marillion and Idlewild have done it themselves independently. Public Enemy financed its last effort through Sellaband.

It may be no coincidence that, as the incumbent entertainment industry contracts and breaks down, out-of-contract major-label artists are increasingly turning to such platforms

“We’ve been witnessing first hand the struggles of the independent artist,” says Jamie Lokoff of FeedTheMuse.net, an artist-funding site started out of Lokoff’s Philadelphia recording studio, itself bootstrapped using borrowed cash in May 2009. “The music industry is in such a state of disarray, with no real concrete answer, that we felt it important to at least get our hat in the ring, to be part of the solution.”

After years of engaging with fans through social media and gathering their email addresses, artists are increasingly betting they have a readymade constituency of potential financiers.

Says SonicAngel founder Bart Becks: “Our goal is to launch three artists per quarter per country. We will continue to involve fans in every step.”

New entrants are still coming

Though the market is headed by these popular platforms, that’s not stopping smaller crowdfunding sites from emerging to offer their own spin, nor expanding in to new countries.

One such site, 8bitfunding, launched in January, to fund independent game developers specifically. Ulule, which launched from Paris in October, is already planning a Portuguese launch, despite not yet taking any commission.

But newcomers should be warned. The popularity of the likes of Kickstarter and IndieGoGo may suggest room in the space for smaller niche platforms, which may well go on to support many more small creatives – but it’s not yet clear that even crowdfunding’s biggest exponents are yet successful businesses in their own right.

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