A year ago, a bipartisan majority in Congress passed the "Jumpstart Our Business Startups" or JOBS Act, and President Obama signed the legislation on April 5, 2012, thus accomplishing the first major overhaul of the nation's securities laws in over forty years. Perhaps the most far-reaching provision of the JOBS Act is the legalization of equity crowd funding. But not quite yet. The SEC has not published the rules that would implement the JOBS Act, and so it's not yet legal to crowd fund a business, unless your crowd is all millionaires.
Kickstarter and businesses like it (Unglue.it, which I run, is one) take great pains to prevent projects on the site from offering any sort of tangible equity. Instead of equity-based crowd funding, these site offer rewards-based projects and products. People become backers on Kickstarter because of the rewards they get if the project a success. In many ways, Kickstarter is just a site where creators pre-sell products that don't exist. A supporter on Unglue.it might get a signed manuscript or some other reward, but it's the intangible equity of making a book free to the world that drives the site.
By contrast, the backers on an equity-based crowd funding platform could receive shares in a business. So on a crowd-funding site for books, the backers might become investors in the individual books, and would make money if the books turned a profit. If you happened to invest in Fifty Shades...
From an author's point of view, this would completely change the game of publishing. Instead of relying on an insider network of literary agents who market book properties to publishers, an author would put proposals on a book-funding site. They'd line up a team of free-lance editors, illustrators, designers and developers, and the literary proposal would look like a mini-business plan. (More likely the author would seek help from a new class of social-media-savvy literary product-manager-agents who specialize in marketing to the crowd funders.) The crowd – probably consisting of voracious readers hoping to earn a little money from their obsession- would fund the books that had the best chance of success. That same crowd would be the marketing vanguard for the book when it's finally published; how can corporate publishing compete with that?
There's nothing intrinsic about crowd-funding that restricts this sort of fund-raising to unknown authors looking for a first advance. The JOBS act restricts the amount raised from "unqualified investors" to $1,000,000, so the really big name authors would have to tap the "qualified investor" funding market. (An individual with more than a million dollars in assets excluding home and vehicles is considered "qualified")
Once equity crowd-funding becomes established for books (and it WILL happen!), incumbent publishing houses will have lost, at a stroke, their oligopoly on books as investment vehicles. Already, publishers are outsourcing their design, editorial, production, distribution and sales functions; providing capital is their last bastion of essential function. They will have to participate in the new markets or they will dissipate into irrelevancy.
The reason the SEC has not issued the new regulations implementing JOBS is apparently because the previous Chairwoman, Mary Schapiro, had reservations about opening the gates to crowd-funding. The SEC's mindset is to protect ordinary investors from being fleeced by Wall Street sharks. One would assume that President Obama's new appointee will be motivated to implement what could be a signature accomplishment of the Obama administration. So Monday's confirmation of Mary Jo White could signal the start of a new era of American investment.
|Tim Draper at SVCrowdFund |
by Return On Change
What's needed to make equity crowd funding for books a reality is a platform that has both crowd funding and publishing functions. Mostly, investors in books need to be protected from the sort of accounting shenanigans that prevent advances from earning out and royalties from amounting to more than a few pennies per copy. They also need some insurance against authors who don't deliver their promised manuscripts. All parties need sound legal agreements, business plan templates and investment entities. But above all, none of it will work without copious transparency and openness.
I've been trying to think some of these things through. It's a pretty big project, needing a variety of expertise. If you'd like to join me and others in some discussion, please let me know, and I'll organize something. Or leave a comment.
Community/Crowd Funding for Books