Crowdfunding Acts as a Funding Substitute and a Legitimating Signal for Nonprofit Performing Arts Organizations

Abstract

<jats:p> This research examines the relationship between crowdfunding campaigns by nonprofit performing arts organizations and their overall fundraising portfolio. Using a dataset compiled from the CrowdBerkeley Initiative and the Cultural Data Project, we find an important link between campaign success and organization age. For young organizations, crowdfunding success attracts funding in the subsequent year, while a failed campaign significantly hampers the organization’s ability to raise funds, suggesting that crowdfunding acts as a legitimating signal. In contrast, older organizations appear to be insulated from the negative effects of a failed campaign. In addition, higher amounts raised in the campaign are associated with a substitution or “crowding out” effect for other types of funding for young organizations, but this effect reverses for older organizations. This suggests that crowdfunding should not only be considered a tool for younger organizations, but also holds promise for established organizations. </jats:p>

Strategic Financial Management of Organizers of Classical Music Performances

“…Measuring cultural and creative markets in the EU" by Ernst and Young, a UK-based audit firm, the following can be observed: more than 7m Europeans are directly or indirectly employed in creative and cultural activities -3.3% of the EU's active population. Performing arts (1,234,500), visual arts (1,231,500) and music (1,168,000) employ more than 1m people each (Ernst and Young, 2014). The results are shown in Figure 1 (see p. 93).…”

“…For young organisations, a first successful campaign leads to renewed fundraising the following year, while a first unsuccessful campaign acts as an even stronger signal of delegitimisation and hinders the organisation's ability to fundraise in the future. Therefore, it is argued that crowdfunding is a riskier tool for young non-profit performing arts organisations (Alexiou, 2020).…”

Crowded but not crowded out: Comparing the solicitation strategies and outcomes of nonprofits' and individual's GoFundMe campaigns

“…Both parties that participate in crowdfunding are more willing to take risks with their gifts (Zhou & Ye, 2019). Based on secondary data analysis, organizations that participate in crowdfunding campaigns may face significant challenges in fundraising efforts the following year; additionally, organizations that participate in campaigns with higher amounts often experience the “crowded out” effect from supporters so that gifts can be directed to other recipients (Alexiou et al, 2020). Established organizations may find donor cultivation with these crowdfunding supporters to be an uphill battle given the somewhat fluid nature of their connection to a single organization.…”

The Nonprofit Starvation Cycle: Does Overhead Spending Really Impact Program Outcomes?

“…Kim and Charles (2016) empirically confirmed the reliability of the data set and its usefulness in examining questions related to nonprofit organizational characteristics and outcomes, provided that researchers are cognizant of its limited representativeness. The richness and reliability of the data set have encouraged nonprofit researchers to use it to study various aspects of nonprofit financial and programmatic performance (Liu and Kim, 2021), charitable giving (Krawczyk et al, 2017), entrepreneurship (Alexiou et al, 2020), innovation (Ranucci & Lee, 2019), among others.…”