Budgeting for Crowdfunding Rewards

Luiz Augusto Buff
University of California Los Angeles School of Law

Peter Alhadeff
Berklee College of Music

Abstract

Musicians, artists, and music business entrepreneurs need cash to start a project and nurture it to fruition. They are hardly unique in this respect and face many of the considerations the general public does, i.e., is the need for money for the short term or for the long term? Is there a small or a large amount of risk involved? Today, fortunately, there is more flexibility in the marketplace. Resources can be marshaled on a piecemeal basis as needed by entrepreneurs or musicians to achieve a particular and often tactical goal. Crowdfunding and venture capital are two examples of a new type of milestone or ad hoc financing that both blurs the distinction between short and long money and helps defray risk. The implication for artists, musicians, and music business entrepreneurs could be momentous. This paper focuses on crowdfunding only. It suggests a simple methodology for a musician or music entrepreneur to budget his or her own project. The costs of rewards for fans are variable and depend on the number and category of fan pledges. Knowing ahead of time what the possible distribution of such rewards may be is key, and so is the understanding of the average pledge per contributor gathered from historical data. The authors argue that raising funds online in return for rewards is based on too much guessing, when it should be more informed. Starting from recent Kickstarter data, they show, step by step and with a spreadsheet, how to prepare a professional crowdfunding budget that includes taxes, service fees, and contingency arrears. This type of budgeting is not as obvious as it seems, and the paper fills a gap in the current music business literature.

Keywords: crowdfunding, fanfunding, music business, entrepreneurship, Kickstarter

Buff, Luis Augusto and Peter Alhadeff. “Budgeting for Crowdfunding Rewards.” Journal of the Music and Entertainment Industry Educators Association 13, no. 1 (2013): 27-44. https://doi.org/10.25101/13.2

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