Pledge now, pay later

By Felix Salmon
October 12, 2009
urging) isn't going to significantly increase its arts funding, creative types are naturally going to look online for alternative sources of funds. And a new model is springing up across the web which I like a lot.

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Given that the government (despite my urging) isn’t going to significantly increase its arts funding, creative types are naturally going to look online for alternative sources of funds. And a new model is springing up across the web which I like a lot.

The way it works is that projects get posted on a website, and individual funders can pledge money towards them. Once a certain total amount is pledged, the money is released; often the funders get some kind of material recompense as well, like a print or a CD or even a share of the eventual proceeds.

So far Kickstarter, Funding the Arts, and Trust Art all seem to have adopted more or less this model, although in the case of Trust Art the creatives have to be invited to participate, which makes it less democratic. I’m sure there are others out there too.

The key difference between this model and fundraising 1.0 is that funders pay nothing unless and until a certain total is reached. In that sense, it’s a bit like Lending Club: if someone’s asking to borrow $5,000 and I offer to lend that person $50 of the total, that money won’t be lent out until other people club together to raise the other $4,950.* The result is that the people asking for money have an incentive to keep their asks and their budgets low, and that individuals offering a small amount know that they get to keep that money until the project is genuinely going to get off the ground.

I’m not particularly familiar with any of these websites, but it would make a certain amount of sense for one such site to be the clear leader in the field, with many more fundraisers and funders than the others. Everybody’s better off with one eBay than with a thousand smaller, competing auction sites. But I have no idea how any one of these sites might be able to set itself off from the rest and become the default place to donate and raise money for the arts.

*Update: Turns out this isn’t actually true: if you don’t “raise” the full amount you ask for, you have the option of taking only the amount that you did raise, or alternatively of trying again from scratch a second time. About 85% of qualified Lending Club loans are fully funded, 8-10% are partially funded, and the last 5-10% either don’t take the partial funding or relist.

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