Monday, December 20, 2010

How not to crowd-fund

There's a lot of buzz out there about crowd-funding, and I'm a big fan of the practice. I think there's a lot of hype, and not everyone can raise funding for their project this way, but it's also more than just the funds received - it's just as much about your connection to your fans. When I've donated to a project, it's about more than the money. I feel a direct connection to the artist and know I am supporting their work. This is also true if I support a micro-lending program for an individual in need, a charity doing good work, etc. It feels good to know that while you may only be giving 10 bucks, you are giving it directly to someone who needs it (for survival or for art) and helping them accomplish something.

I often support such projects through Kickstarter. Kickstarter is a for-profit company. They take a small fee for their service - five percent, plus a small credit card processing fee added on by Amazon's payment service. This is pretty transparent, and it also seems fair and reasonable. I know Kickstarter gets a cut, but it is small and not dissimilar from what most nonprofits charge when they fiscally sponsor an artist, which can run as high as ten percent but is generally 5%. Take IFP for example. If you are fiscally sponsored by them, people can donate to you on and IFP takes a sliding scale fee - anywhere from 3% to 6%.  Kickstarter works pretty well too, so I am fine with them charging for their service, even though they aren't a nonprofit. IndieGoGo is a similar site, and it charges 4% (which raises to 9% if you don't fund your project in its entirety), plus a 3% third party transaction fee.

That's why I am more than a bit perplexed that United States Artists (USA) is charging a 19% fee to those who donate to artists through their site. Wow. Really? Yes, really. That's 1% higher than what was reported in the NYT today, but it's what is quoted in their terms of use. There is no reason that any artist should participate in this scheme.

Now I have to give a little disclaimer before I continue. I have never been a fan of this organization. It's a long story, but when it launched I was one of a group of arts organizations that protested that instead of starting a new nonprofit to distribute grants to artists, the Ford Foundation (who started this) should have given grants to those organizations that were already supporting artists. Like the one I was running at the time (yes, some self-preservation was involved), but also like many other arts organizations. While I still believe this would have been a better path, I finally decided that even if the way it was being done was wrong, I would support the organization because artists were getting more money.  I've recommended artists to them for support (it is a nomination process, not an open call) and I've been thrilled for those artists who receive their grants.

In fact, I recently read (in the Times again) that USA was launching a crowd-funding initiative, and I was very happy for them and the artists. Many artists reported that new donors were finding them, and they were getting more support for their projects. Some, while skeptical at first, were happy to report that donations had exceeded their requests. I planned to write up a blog post this week to highlight this great new initiative, as well as a proposal from Ian David Ross and Daniel Reed for a new way of crowd-funding philanthropy in the 20 Under 40 book that I've been plugging here. That post will have to come next, because I've now learned about the bad part of this initiative.

Look, as I said above, I have no problem with nonprofits taking a cut on donations to individual projects. This is fair. I would even support them adding a check box where I could add an extra gift to the nonprofit. Something like "help us support more artists like this, add an extra gift here." That approach was also mentioned in the Times story. I would even go so far as supporting a nonprofit that just asked for a donation to help support all of their work in support of artists and not single out an individual project (old fashioned donation style). I understand that USA has helped "curate" these artists, and for some people (not me) that might be a symbol of quality. I also see that some of them get matching funds from a donor, that's great, but it isn't worth taking 19% of my donation to the artist. Perhaps you should get matching funds for your organization so you don't have to take it from me!

The NYT story suggests that making a donation to these artists would otherwise be difficult. I'm sorry, but that's just not true. Any of them could sign up with Kickstarter, Indiegogo or any other service and accomplish the same thing. Sure, a nonprofit might be helping an artist get their stuff up online, and many artists aren't good at such tasks, so I can even support a small mark-up, but 19% is insane!

Not to mention....hidden. If the NYT hadn't reported that amount (they said 18%) most people wouldn't know. When you click to support an artist on the USA website, it mentions that you should look at the terms of service, but unless you do so (and they know 99% of people don't do so), you aren't told anywhere else about the 19% fee. There's another golden find in their TOS statement too:

You understand that your contribution is being made to United States Artists, that United States Artists has exclusive legal control over all donations and that United States Artists is under no obligation to use your donation to fund any Projects recommended by you for funding.


While United States Artists intends to take into account donor recommendations with regard to funding recommended Projects, United States Artists shall have exclusive control of your donation and is not obligated to use your donation to fund any particular Project.

Translation - we don't have to give your funds to who you select. We don't have to follow your intent. What, did the City of Philadelphia write this up? Okay, I am sure they will likely give my donation to the artist, and are likely saying this in case the artist breaks their contract, but in my view, that should mean I get a refund not that they keep the dough. (I have a few other problems with their terms (especially as it relates to privacy), but that's the norm these days with website, so I'll stick to this one quibble.)

This goes against the entire spirit of crowdfunding. It goes against the entire nature of what it means for artists to build a direct relationship with their donors. I have no idea if the artist gets my contact info, as perhaps I'd like to fund them again, directly, in the future. I'll likely get hit up by USA again if I make this donation, as they surely keep my email address. I also can't be sure that the artist will definitely get my donation either. But, I can be sure - if I read the NYT, this blog or the TOS - that my donation gets cut 19% if I make it through USA. Really. This is what's astounding - more of my money supports the artist if I make my donation through a for profit company than a nonprofit. Something is wrong here folks.

We need a better system for supporting artists. USA was supposed to be part of that answer. I'd be much more likely to support both them and the artists they have funded if more of my donation went to the artists directly. I'd support their system if the 14% mark-up over most fiscal sponsorship charges was plainly shown, or better yet, if it was optional. Heck, I might even donate more, if it was a choice. I don't like slamming any nonprofit for trying to raise money for artists, but this isn't the way it should be done. Unless something changes, I can't support this program and recommend that you don't either.

1 comment:

Anonymous said...

we need to not confuse tax-status - NPO vs. for-profit with business model. Just beause an organization is an NPO doesn't mean they don't have business friction that needs to be covered - the question is how much. The same goes w/ for-profits - they have friction they need to cover -- the difference is tax-treatment and whether the profit/surplus can be used to benefit shareholders, or ges consummed by expenses.