Funds from Crowd-Funding Sites Such as Kickstarter Cannot Entirely Replace Government Grants
The crowd-funding website Kickstarter is estimated to dole out at least $150 million in money to entrepreneurs this year. That is $4 million more than the entire National Endowment of the Arts 2012 grant budget. However since it is only a one-time donation, crowd-funding can only complement federal grant funding which can pay for yearly salaries and other recurring expenses.
The uncertain economy has heightened the competitiveness for grants.
That’s a void that Peerbackers, a crowd-funding site focused on inventors and entrepreneurs, hopes to fill. When it started, five to 10 business would post each day; now, more than 25 are posting, co-founder Andrew Rachmell said.
And even more people — with disposable incomes — are cruising the website to fund the hottest new inventions.
“We’re probably getting several thousand hits a day from backers,” Rachmell said. “If an entrepreneur goes to get a loan, they’re sort of at the mercy of the bank. You have to have a certain credit score, you have to have a certain amount of assets the bank can collect if you default … now your success or your failure is in your own hands.”
Crowd-funding websites typically set a time limit to raise funds, and most charge a platform fee to post the project.
Kickstarter stresses “rewarding” backers in lieu of returns on investments. A backer earns a reward that the entrepreneurs deem equal to the donation each makes from a tiered scale. For example, a $10 donation for Joey Z’s meatballs gets those backers a free sandwich and fries.
Kickstarter only sends the money if the goal is met; others like Peerbackers will send the entrepreneur whatever is raised during the allotted time.
But meeting funding goals is easier said than done.
Only about half of the projects posted to Kickstarter reach their goals. Peerbackers’ success rate hovers around 20 percent.
In order to be successful, Rachmell said he encourages entrepreneurs to send out social media blasts to connect with friends and complete strangers.
“An entrepreneur must be proactive,” he said. “A lot of entrepreneurs think they can post on a crowd funding site, sit back and collect the money — that’s not the case.”
Artists, inventors and entrepreneurs don’t seem to be intimidated by the odds. Kickstarter alone is on track to distribute more than $150 million to projects this year — $4 million more than the National Endowment of the Arts.
It’s an admirable accomplishment, but can’t entirely replace government grants, said David Seals, spokesman for the Pittsburgh Arts Council. For starters, one-time cash donations can’t keep up with regular salaries or lease payments, he said.
Instead, Seals said he is seeing artists using Kickstarter to complement funding they receive in addition to grants and other donations. The council awarded $203,000 to 99 recipients last year, he said.
“The one weakness I see is, there’s no one looking out for people who don’t have money,” he said. “If people are voting with their money, (then) people who don’t have money don’t have a way to make sure art is happening in their communities. That’s where state art funding comes in.”
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