We urge all musicians to check out this invaluable advice from Sheridans. It can be tough making headway as an emerging artist in the music industry and Crowdfunding is a great tool to help launch your music. However, it is essential that you’re fully aware of your rights when signing up to such platforms. Take 5 minutes to absorb this legal goodness and look out for your fellow musicians and hit share! This information has been kindly passed onto us by our ‘go to’ lawyer and the man we highly recommend, Stephen Luckman.
Crowdfunding in Music
Launching a music career is incredibly expensive and, unless you have the deep pockets of a record label to rely on, it can be very difficult for newly established artists to get a footing in the highly competitive music industry. A large amount of upfront cash is required to start a music career to fund things like studio time, equipment, distribution, venue hire, transport, marketing and advertising. Emerging artists are unlikely to be able to obtain this funding via traditional methods of investment due to the high risk nature of the music business. Consequently, artists who have been unable to obtain a record deal are increasingly turning to alternative methods to raise funds to kick-start their musical careers.
One such method is the use of a crowdfunding campaign and a wide variety of artists have used crowdfunded investments to record and launch albums and provide support to go on tour. Crowdfunding is now an established and well documented form of obtaining investment in the music industry and it is not just up and coming artists who have taken advantage of this direct-to-fan form of marketing as established acts looking to distance themselves from record labels have come to realise that the best investors are their fans.
There are a huge number of crowdfunding platforms available. The most well-known and established ones include Kickstarter, Indiegogo, Rockethub and Crowdcube, while there are a number of crowdfunding sites aimed solely at musicians such as PledgeMusic, ArtisteConnect, SellaBand and TuneFund. A successful campaign run through these sites can help artists raise significant amounts of money and reach out to their fans. Kickstarter alone has raised nearly $2 billion for projects since its launch six years ago, with $136 million of that being used to fund music projects. One notable example of a successful crowdfunding campaign by a musician is Amanda Palmer, the unofficial “queen” of Kickstarter, who managed to raise $1.2 million to fund her new album, which was slightly more than her goal of $100,000.
So, what exactly is crowdfunding?
Crowdfunding is simply raising money directly from a large number of people who all typically put in relatively small amounts of cash. This is often done through online platforms and social media to reach thousands, if not millions, of potential investors.
There are three main types of crowdfunding:
- Investors loan money directly to an individual and (hopefully) receive their money back with interest. Also called peer-to-peer (p2p) lending, it allows for the lending of money while bypassing traditional banks. Returns are financial, but investors also have the benefit of having contributed to the success of an idea they believe in. Examples of debt crowdfunding platforms include SoMoLend and Lending Club.
- Investors buy shares in a company and become part owners. They make a return on their investment either by being paid a dividend or by selling their shares at a later date, when the company value has (hopefully) increased. It is up to the board of the company to decide whether to declare a dividend and how much, and if and when to sell the business, so equity crowdfunding tends to carry a higher risk for investors (but potentially the highest returns). Examples of equity crowdfunding platforms include Crowdcube, Seedrs, EarlyShares and Fundable.
- People pay money to an artist simply because they believe in the cause and/or are fans of the music. Rewards/perks are often offered to the investor (and such rewards tend to be better the more money has been given). Examples of rewards can be: the actual item the project has been set up to fund (i.e a copy of the album), tickets to gigs, regular news updates, free gifts, credits in the project and so on.This is the most popular form of crowdfunding for musicians as the idea is to tap into the generosity of your fans. Often, this type of crowdfunding can be simply seen as a way of pre-selling albums or singles before they are even recorded. Examples of donation crowdfunding platforms include Kickstarter, Indiegogo and RocketHub.
The crowdfunding market is extremely competitive as can be seen by the fact that Kickstarter has had over 40,000 music projects. There are also a number of legal issues that should be considered before trying to raise money through a crowdfunding platform. I have, therefore, set out below some tips that artists should consider to ensure that their crowdfunding campaign is both legal and successful:
- Think carefully about which crowdfunding platform is most suitable to your project. The crowdfunding platform you choose will not only have an impact on your chances of success but also the fees you pay.
- Make sure any crowdfunding proposal complies with financial promotion legislation.
- Try and think out of the box when it comes to offering rewards/perks. Tokyo-based garage metal band Electric Eel Shock gave fans the opportunity to secure “guest list for life” status. The package cost £100 and the band raised £10,000 by selling 100 such packages.
- Conversely, it is important that you don’t give away too much to fans. Artists should always be wary of offering a share of the intellectual property rights in songs to fans as this could prevent the artist from being able to sign a publishing or record deal in the future.
- Don’t overestimate the cost of recording an album and dishonestly solicit more money than you need. Artists should be as transparent as possible with crowdfunding campaigns as it is important to bear in mind that the fans are now investing their hard earned cash in you.
- Consider whether you even need a crowdfunding campaign. Do you really need that rare Moog synthesizer when a plug-in will do or a luxury tour bus when the Transit is still working? Also, there are plenty of artists who continue to self-fund their careers. It is now easier than ever to record a successful album on a tablet or laptop and the costs of digital distribution and marketing via social media are minimal.
Stephen Luckman Partner
William Smith Trainee