Nelly Ishbulatova

121677009
CAM 521: Issues in Cultural Management and Entrepreneurship

Crowdfunding (Theoretical Part)

Crowdfunding has become popular with the coming of Internet. Some researchers specify crowdfunding
as a branch line of crowdsourcing. Crowdsourcing’s key function is completing specific tasks, such as
market survey and product trial. The concepts of crowdsourcing and crowdfunding (which will be
explained below) have one of the basic elements in common: achieving a goal with a power of
individuals. (Guan, 2016).
Crowdfunding started in 2001 with the website ArtistShare which was supposed to raise money for
musicians. Since 2001 crowdfunding has evolved into various forms. Scholars categorize four of them
(Belleflamme et al. 2015):
o Equity-based crowdfunding: where shares of certain projects can be owned by investing
supporters. Here supporters count on the artist performing well in the distant future.
o Lending-based crowdfunding (another term for it is P2P lending): the distinctive features of
which are interest rates that investing supporters earn and a quite high level of risk as borrowers
may pass from sight with money.
o Reward-based crowdfunding, where the initiator of a campaign is more of an entrepreneur who
needs money to bring a project out, and to get it gives physical rewards to supporters
o Donation-based crowdfunding: donations are made without any assumption on profit. An
example could be raising money for local community projects like new parks or gardens or
paying for health care costs.
Reward-based system deserves our closer attention for a few reasons. The first is the speed with which
the reward-based has evolved. If we compare reward-based crowdfunding to the other types of
crowdfunding, we’ll see that it has taken the greater proportion. This happened because equity-based
crowdfunding and lending-based crowdfunding need to be performed under a supervision, as they are
considered specific financial instruments and the level of development is limited from the very beginning.
(Guan, 2016).
The second reason for which reward-based system needs our attention is that as it deals with physical
products and collects money for start-ups, it’s close to the operations management. As a result, it faces the
same problems because the reward-based crowdfunding, similarly with the operations management, needs
to decide on product price and plan production. So, numerous problems related to the operations
management need to be solved. (Guan, 2016).
It’s noteworthy to say that a reward-based crowdfunding platforms Kickstarter has been recognized as the
best crowdfunding platform for creative projects (such as making films, comics, video games) and
musicians in 2022. (Armas, 2022), (Nguen, 2022). It works according to the principle: “all or nothing”
with a service fee of 5%, along with 3% + $0.20 per transaction for payment processing, (Armas, 2022).
“All or nothing” principle means that the authors of the projects can withdraw the accumulated funds only
when all 100% of the initially declared amount is collected. If the project has not collected the declared
amount of money within a limited time frame, all funds are returned to the sponsors, and the customer is
left with nothing. It is worth paying attention to the fact that Kickstarter are not contenders for the
ownership of the projects that they publish on their website, but at the same time they have the right to
use the received
intellectual property for any purpose, not exclusively, but with reference to the authors of a particular
idea. (Shveikina, 2020).
As for the literature review of the reward-based crowdfunding, it could be categorized into three
branches:
conceptual research, empirical research, and modelling research. (Guan, 2016).

Contextual research

In the light of contextual research some scientists had started their work earlier than others and were able
to bring some helpful insights. (Guan, 2016). Prof. Belleflamme was one of them and analyzed the actual
results on crowdfunding, highlighted four key forms of crowdfunding, the current conditions, and typical
cases. Later he provided a summary of the possible paths of academic research. (Belleflamme & Lambert,
2014), (Belleflamme et al. 2015).
Prof. Agrawal also studies crowdfunding. With the colleagues, the researcher analyzed the evolution of
crowdfunding and its aspects, such as the geography of crowdfunding, herding effect in crowdfunding.
They also highlighted the key moments that can motivate and prevent creators, supporters, and platforms
to attend crowdfunding along with the issues in crowdfunding (Agrawal et al, 2014).
Other researchers also studied crowdfunding from various angles, such as Schwienbacher & Larralde who
look at crowdfunding as a tool for financing small and medium enterprises (2010); they also debated on
the incentives, features, and types of crowdfunding. Key problems were outlined in their research with a
help of case study. (Guan, 2016).
Another work by Gerber & Hui (2013) was able to collect information on motivating and discouraging
factors affecting supporters and creators with the help of interview. As a result, this work provided
advantageous insights for comprehending the concept of crowdfunding. (Guan, 2016).
Beaulieu et al. (2015) set up a structure for researching the concept and participants of crowdfunding. In
their research crowdfunding was divided into six categories; the authors also debated on the basic features
and IT applications of each of six crowdfunding categories. (Guan, 2016).
Some researchers, as Bruntje & Gajda (2016) provided the summary of the concept of crowdfunding and
the profitable business examples. (Guan, 2016).

Empirical Research
Works on the empirical research take the largest part of the literature on crowdfunding. The focal points
of most of the researchers are the issues of success factors, supporters' behaviors, money collecting
mechanisms, etc. (Guan, 2016).
Prof. Belleflamme and Prof. Agrawal that were mentioned above have made an advancement in this area
of research as well. The focus of Prof. Belleflamme was a specific type of crowdfunding - individual
crowdfunding- where initiators of a campaign didn’t use online platforms for gathering money. The
researchers came to conclusion that nonprofit organizations had a higher chance to get to their financial
goals than other types of organizations (Belleflamme et al, 2013). Prof. Agrawal debated on the topic of
interrelation of artists and supporters, to be exact - on the aspect of distance. As the arrival of the Internet
made the influence of distance weaker, the authors investigated the differences between the local
supporters. Information played a key role for the supporters who are far away. Whereas the opinion of the
close circle of people turned out to be deciding factor for the local supporters. (Agrawal et al, 2015).
Prof. Mollick has researched reward-based crowdfunding which resulted in a few empirical works. He
examined the key features of reward-based crowdfunding using the massive amount of data from
Kickstarter and concluded that “the social relations of creators and the quality of projects had direct
impacts on the success of crowdfunding” (Guan, 2016, p.2), (Mollick, 2014). A paper that was written
later by Mollick and Nanda (2015) made art projects its focal point to contrast supporting decisions that
were taken by mere supporters and art experts. (Guan, 2016).
Other scientists have completed a massive amount of research on reward-based crowdfunding with the
help of empirical methods. Li & Duan (2014), for example, made the dynamics of the behavior of
supporters the focal point of their research. They revealed that the decisions of creators could be
influenced by the current funding status and time progress. Using the data from Kickstarter Kim et al.
(2015) revealed that the quantity of supporters and the quality of a project have no crucial correlation.
(Guan, 2016).
 Modelling Research
As the number of modelling researchers on reward-based crowdfunding is limited, only a few papers will
be presented.
Belleflamme et al. (2014) created a model from the angle of microeconomics and juxtaposed the
decisions of creators under two procedures: pre-order and profit sharing. The authors came to conclusion
that if the cost of campaign wasn’t big, choosing pre-order mechanism was recommended; if not -
creators are recommended to choose profit sharing mechanism. (Guan, 2016).
Strausz (2015) utilized mechanism design method to solve an issue of some creators not being able to
provide rewards for their supporters. (Guan, 2016).
 Crowdfunding (Practical Part)

A decoded interview with Oleg Kuvaev, an artist, a designer, an animator, and a creator of
Masyanya animated series.

1. What obstacles did you use to face being in the sponsorship system of financing?

This system of financing is terrible and crooked, as you constantly had to look for new sponsors.
There have been cases where one episode was funded by one sponsor and an another one was
funded by another sponsor. All sponsors had a different idea about the series, in addition, the
relationship with the sponsor has such an aspect as the sponsor's expectation from the artist of
some kind of "counter action". That is purely commercial relations. There is an advertiser or a
sponsor, and there is an artist who does something for this money and then reports on the work
done, since these are purely commercial relations that do not consider that the product is
inherently artistic and, in theory, in its best form will be done independently, and not under the
pressure of monetary circumstances. But the modern economics of culture somehow gives the
artist the right to create independently and independently and have some kind of financial model,
where not some sponsor expects me to provide some feedback or advertising for their product,
but a viewer who just wants to watch the series. And it's very convenient. It is strange that this
has just appeared recently, well, thanks to the Internet. In general, this is a completely logical
crowdfunding model: there is a viewer who does not want to watch what is being forced on him,
but what he wants himself - then it is quite logical that a person votes for what he likes with his
own financial means. And the artist who does what is in demand, respectively, has financial
support. There is nothing more logical, and in fact, this is how it should have formed naturally.
Therefore, I am very glad that a crowdfunding system has appeared: it allows you to choose the
most talented people, and not those who have a “commercial flair”. It used to happen that the
one who had a “commercial streak” (who knew how to find a sponsor, managed to put
advertising, etc.) won the competition, and not a talented artist (a creator of music, paintings,
movies, cartoons in this case). Now, thanks to crowdfunding, the focus has shifted to talented
artists creating interesting content that really impacts people. So, it's very cool.
2. How has the creative process changed qualitatively with the transition to a reward-based
crowdfunding system?
I, actually, provided lots of information to this question while answering the first one. I can say
that the quality has changed a lot. Even now, when you are looking for some tutorials on
teaching a program, some kind of technology - very often there are many people who teach
people animation, how to draw and there are many supporters who pay them 1-5 dollars a month
and they, the animators, create a series of videos teaching something without the mediation of
any commercial organization. Direct contact is being established between those who create
content and those who consume it - the model couldn't be easier. The most direct and immediate
contact, where the viewer supports the manufacturer, helps the artist to work further. If audience
don’t like it - everyone will disappear, and the artist will have no financial support. Great natural
selection without the involvement of commercial third parties that, for example, sell dog soap,
which has nothing to do with it my product (laughter). And now you don’t need to think about it,
now more talented people come out.

3. To what extent can patrons influence the creative process?

Basically, the main problem of the sponsorship system was the influence on the artist (the
creator) from the side of financial structures: they always expect something from him, even if
they do not directly demand it - they still wait for some kind of reaction from the public. If there
is direct advertising, be sure to put direct advertising for a dog soap. And there is indirect
pressure: a sponsor who has his own concept of seeing the world, and he expects you to
broadcast it, because he pays you. With crowdfunding, it’s different, although there is also a
small element, but this, in general, depends on the artist himself, on how much he wants to be
influenced – because, for example, sometimes I want to be influenced. I organize some kind of
voting, or just discussions (for example, some topic that should not be touched, but some other
topic could be extended for another episode). I mean, I'm just studying the reaction of the public -
what's the impact? It's less of an influence, but more of my desire to find out what the viewers
would be happy to see. This is completely normal and does not oblige me to anything. Sometimes
I arrange voting among, for example, five plots to choose what the next plot will be. The majority
may vote for a certain story, and I may come up with a new idea, which I will choose in the end.
 Nobody has anything against it: there is 100% no pressure here. The influence is regulated by
the artist himself if he wants to receive it. To me, it’s a great situation.

4. What is, in your opinion, motivates audience to become patrons?

The motivation is quite common, the patrons want me to continue drawing my cartoons series:
they believe that it is necessary, that it should exist in the world, which, of course, I am very
happy about. Because there are many other animators, and the viewer may watch a cartoon
once, but never invest in it to exist further (saying that "it's okay to watch it once"). And many
films created in the 20th and early 21st centuries would not have existed if the system of such
patronage hadn’t existed. There are different social niches that just want content that fits them,
and crowdfunding is a great mechanism for that to become true, where metal fans don't have to
listen to pop. He will pay a little extra, as he pays for Netflix, for Spotify, and pay extra for the
content he watches to please him. Simple and clear, again.

5. Are you experiencing difficulties working in the current crowdfunding system?

I experience only one difficulty: crowdfunding is a system that has not yet been developed for
serial production, there are many one-time crowdfunding campaigns, where projects are funded,
and when a project ends, the financing ends as well. And my product is a series, I work all the
time. And I'm not the only one: musicians work all the time, release albums, an artist draws
pictures all the time, programmers improve their program all the time. It is the system of constant
crowdfunding that is still undeveloped in the sense that there are almost no alternatives to
Patreon and very few systems on the market ... Probably, to a certain degree, due to the fact that
Patreon works well - there is no need for an alternative. But secondly, this is only the beginning
of the system and it started just a few years ago, and naturally, it will develop, as it is the most
convenient for the creators and for their audience. What is also true that it is not very suitable for
commercial structures that would like to see the artist as their face, the face of their products,
their services. But for the audience, to be honest, advertising is an unnecessary thing. This is the
basis of my confidence that kind of new financing system will continue to develop to the delight of
everyone.
Interview analysis:

Current analysis set the purpose to draw the artist’s route from the sponsorship financial system
to crowdfunding system with the examples provided from Oleg Kuvaev’s animated series.

As the artist has mentioned above, the sponsorship system he had worked in before turning to
crowdfunding worked terribly and the artist was in the constant search of sponsors, where one
episode could be sponsored by one company and another episode – by a completely different
sponsor. (Kuvaev, 2022). It also worth mentioning that for a while (the second season of the
series, year 2002) these animated series were broadcasted on an independent TV channel in prime
time. (Kuvaev, 2012). Returning back to sponsorship, the main sponsor of the series was Media
Markt: during this period the whole season of the series was released. (Media Markt, n.d.).
However, as one can notice watching the season created with the sponsorship of Media Markt
(which is a company selling consumer electronics (Media Markt, n.d), that here and there through
the season different types of electronic appliances are “flashed” in each episode. This is quite
predictable, as the artist mentions himself in the interview that the sponsor will expect either
direct advertising (which is putting a product into an episode, in our case) or some kind of
indirect influence on the artist. (Kuvaev, 2022). The artist has also mentioned in the interview
that mostly the sponsors were random, informal, and once he was asked to advertise dog soap in
his series (Kuvaev, 2022); another time the sponsor financed two episodes in exchange for
sharing the link to his product in the channel’s description – however, later, after financing, the
sponsor did not share a product link with the artist and mysteriously disappeared (Masyanya,
2019). Further in that Facebook post the artist is asking his followers if he should start a
crowdfunding campaign. (Masyanya, 2019).

In 2013 Oleg Kuvaev turned to a Russian crowdfunding platform Planeta.Ru. Nowadays, it’s the
biggest crowdfunding platform in Russia which supports campaigns in different categories, such
as: business, charity, design and photography, food, games, cinematography and video, literature
and journalism, music, science and education, various public initiatives, travelling, events, social
entrepreneurship, sport, theatre, technology and innovation, ecology and nature. (Planeta.ru, n.d.).
He announced starting his crowdfunding campaign on YouTube (Planeta.ru, 2013) and put
another announcement at the beginning of the first crowdfunded episode saying that this episode
was created with the means of crowdfunding (Kuvaev, 2013).
After being sponsored by Media Markt, approximately 10 episodes were created on Planeta.ru
(n.d). All the episode campaigns turned out to be successful: the amount of money collected
exceeded the financial goal. (Planeta.ru, n.d). Parallel to that the artist kept announcing his
campaign on second crowdfunding platform, Patreon (n.d), (he usually did that in the description
of a video on YouTube).
Staring from 2019, Oleg Kuvaev has been releasing the episodes with the help of his supporters
on Patreon where they can provide various financial support to the artist, starting from 5 dollars
and ending with a contribution of 200 dollars (Kuvaev, 2019).
After getting rid of financial mediation from the side of the third parties, the artist was not
influenced by anyone’s authoritative opinion that directly or indirectly implied what kind of
content he needs to create. This, in the artist’s opinion, creates a healthy competition among
talented artists where they need to create content which will attract audience, make it stay and
create a positive impact. Audience wins as well, as it has freedom to choose content. (Kuvaev,
2022).
The artist states that in the reward-based system of crowdfunding he feels absolutely no pressure
of forced influence from the audience side; he admitted that, on the contrary, he sometimes would
like to be influenced by his supporters and creates discussion, polls to choose a direction of a plot.
Kuvaev says that his working process with supporters includes observing and analyzing their
reaction on different ideas (2022). The moment that the artist appreciates in comparison with an
old, sponsorship system is that after presenting audience plots to vote for, he can go in a totally
different direction without experiencing any pressure from his patrons. In this model the artist is
free to regulate the level of influence on himself. (Kuvaev, 2022).
Patrons, in Kuvaev’s opinion, are driven by a simple reason to support this long-term project:
they like watching it and they want it to exist in the future perspective (2022). The artist says that
society has various social niches, and the fans of the series is one of them, in which the supporters
are ready to pay to see the content that they would enjoy. (Kuvaev, 2022).
Finally, the artist admits that he does not experience any problems with crowdfunding on Patreon,
except for one. The platform is mainly created for one-off campaigns, while animators, such as
him, musicians, have to work continuously and there is no alternative for the long-term projects.
On the other hand, the fact that Patreon works very well may explain the absence of an alternative
platform on the market. The current financial model, in Kuvaev’s opinion, is both beneficial for
an artist and audience and it will be developing further and leave both sides satisfied. (Kuvaev,
2022).

Success factors of the campaign:

As for the success factors of this long-term campaign, the strongest factor in this situation is the
cartoon character Masyanya has been widely recognized in Russia since 2001 when the series
started. Facebook page of the character has 70 974 followers (Masyanya, n.d.), and YouTube
page of the cartoon character at the moment has 1.25M subscribers (Kuvaeva, n.d.). The fan base
of the character has grown up since 2001 when the character was born and would like the series
to continue; moreover, being adults and having a financial capability enables them to support
the character and the series. Very importantly: the number of friends in social networks affects
the quality of the project. According to Riedl: “A startup with ten Facebook friends has a ten
percent chance of success, while a founder with a thousand friends has a forty percent chance”
(2013). According to Levin & Kazakova maintaining constant feedback and being in touch with
investors (in our case, patrons) is also essential (2015). In case of Masyanya’s community the
artist keeps regular communication with his patrons on Patreon and creates special posts that
only crowdfunding supporters can see (Patreon, n.d). The final success factor in my opinion is the
variety of choice for financial contribution: someone can afford 5 dollars, and someone can
contribute 200. (Kuvaev, 2019) (Levin & Kazakova, 2015).
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