Sometimes referred to as fanfunding, hyper funding, micropatronage, or other such terms, crowdfunding could be defined as the experience of raising money from the public through individual contributions which can be facilitated by a fundraising campaign hosted on one or another Internet website. A number of third-party fundraising platforms have garnered all the attention today, like Kickstarter and Indiegogo, but there are now estimated to be over 500 crowdfunding platforms around the world servicing individuals and organizations of almost every stripe.
At its root, the crowdfunding concept is very simple. You post your project idea on a website that is initiated to just accept contributions, spread the phrase about this in whatever way you are able to, and hope people become interested enough inside to contribute. There are several general forms of crowdfunding models, but only three that seem at all relevant for the independent artist--the donation model, the investment model, and the micro-rights model. The donation model runs on the premise that contributors share with a project without expecting any financial return, although some other kind of incentive to donate is generally offered (a perk such as a personal letter of thanks from the creator, updates, previews, or whatever). Indeed, bigger incentives are often provided to induce larger donations.
This model commonly involves many money flowing from many donors providing relatively small contributions. For the music artist, donations would usually be towards an audio or video recording project, or perhaps a tour, or something the artist needs to obtain to be able to pursue their career, such as for instance an item of equipment. While no two crowdfunding services of this ilk operate in exactly the same way, they typically allow for the project creators to keep all money raised over the lifespan of the campaign, minus a relatively small commission. The investment model is one by which money is provided in return for a guarantee of something of equivalent or greater value in return. These can take several forms, the most typical being lending arrangements and advance purchases of the item, but can also including a share of ownership.
The micro rights model allows artists with a music product (or tour) in the works to raise money by selling single-purpose rights (a "micro" licence) to individuals or organizations willing to promote the item (or upcoming performance) within their locality in return for a share of the income on eventual sale of product (or tickets) that they pre-order. These may be entrepreneurial types who are trying to earn money for themselves, or non-profits wanting to raise funds for his or her organization or perhaps a cause, and they might be inclined to go as far as to truly organize an efficiency event for the artist.
Currently, the donation model is the most popular approach in crowdfunding, with above fifty per cent of a billion dollars being raised in this way in 2011. For the artist it is just a significant innovation, in that it is a genuine departure from the standard patronage model of earlier instances when it had been almost exclusively the wealthy who supported creators of artistic works. Another models are arguably less innovative than adaptive, pretty much fitting pre-existing financing concepts to the networking environment of the Websphere. A variety of variations on, and even combinations of, the above mentioned models exist; and policies, procedures and features vary from site to site. For example, some do not release the funds for your requirements unless a designated monetary target is reached, and will refund everyone's money if it isn't; others permit you to keep whatever is raised. Some offer both options.
Thus, before committing to a certain site, you must assess both your own personal particular needs and the merits of the website to be able to decide which model, and which of the multitude of third-party platforms out there, is the best fit for you. In this regard, it will help to know and evaluate specific things like the site's background of success, what other complementary services they might offer, their system's functionality, the artist's obligations, their privacy policy, their protocol and terms of agreement, whether safeguards have been in place to guard contributions from misappropriation while under their administration, and so on.
Interestingly, you can find artists who've chosen to bypass these crowdfunding "middlemen" altogether and deal directly with the public, relying by themselves website, social media, and whatever other means they can to drum up support. In such case, an extra amount of trust must form involving the artist and potential contributors than would be the case if they were sourcing through an established third-party site Is StartEngine Legit. The upside is there are no commissions to cover and you set your own personal rules of engagement; plus, all the time and effort you may spend marketing your project is going to be drawing visitors to your website, not that of some third-party. Crowd sourcing in this way has worked quite nicely for some acts.
Many people carry the misconception that raising money through crowdfunding sites is pretty much a slam-dunk, just like the rather naïve "just build it and they'll come" attitude some have about their own website. Truth is, you must have a sound strategy around raising money in this way and be diligent about implementing it to be able to ensure it is work for you. In this respect, crowdfunding is no distinctive from other methods of fundraising-it takes effort and having something about you or your music that attracts. I've one final thought with this whole subject, which includes to do with the potential legal implications of facilitating financial transactions via a third-party crowdfunding site.
Ideally, due diligence ought to be undertaken by the artist to ensure that he or she is protected against (and indemnified from) any misrepresentation, negligence, misappropriation of funds, and copyright/patent infringement by the site. For example, consider the possible consequences if a crowdfunding site an artist was using were to be sued by another site over a patent infringement issue. If the defending site were to reduce, or perhaps a cease and desist order issued by the court, that may put the website out of action for quite a while and the artist's funding efforts in limbo. It could even jeopardize already contributed funds still held by that site. To my point, during the time of this writing, Kickstarter just is embroiled in a significant legal dispute with ArtistShare over the possible infringement of ArtistShare's crowdfunding patent. It is going to be interesting to observe how that plays out.