Samuel Johnson famously said “no man but a blockhead ever wrote except for money.” Some may disagree about why we choose to write, but for most authors it is true that every book is, on some level, a business venture. And some books—a Dan Brown novel, for example—are actually pretty big businesses, requiring major investments in talent (an advance for the author), and smaller but still substantial amounts of financing for editorial and other creative services, as well as for production, printing, logistics, and marketing.
But here’s a question: does it make sense that today you can invest in Amazon, Barnes & Noble, the Boston Celtics, and orange juice futures, but you can’t invest in Dan Brown’s next book?
The main reason we haven’t been able to invest in individual books, so far, is that it just hasn’t made financial sense. Even a bestselling Dan Brown book is simply too small to justify the overhead of a public offer. That’s why we have publishing houses: to put capital to work in portfolios of books and authors. Publishing houses invest in books, spending money on selection and development, in hopes of turning the small books into big books—and for most of the modern era, only large publishers have had the financial muscle to assemble and operate such businesses. In that regard, book publishing works much the same as venture capital: if most projects lose money, that’s okay, because some yield significant enough returns to more than make up for the losses.
But to extend the analogy, if publishers are like venture capitalists, then an author is like the founder of a startup, bootstrapping a business and looking for financing. And, Dan Brown aside, many books are, of course, fairly modest businesses. Authors put in the most equity—much of it sweat equity—and assume the most risk.
The good news for authors is that the machinery of publishing isn’t nearly as expensive as it used to be, and the editorial, design, and production capacities of big publishing are now accessible to almost everyone. With the changes in technology, it’s gotten easier for entrepreneur-authors to publish. The only thing still missing from the entrepreneur-author’s tool chest is financing, but that too is now changing.
In the digital age, many independent authors have begun turning to crowdfunding for their start-up capital. For example, author Michael J. Sullivan raised $30,857 from 861 backers via Kickstarter for his new novel Hollow World.
England’s Unbound is a book crowdfunding company with a somewhat conventional, yet revolutionary, approach to publishing, and a high-profile stable of authors, such as legendary Monty Python member Terry Jones.
Unbound takes its inspiration from the “subscription-in-advance” model used by Charles Dickens. Thus far, the company has focused on meeting the needs of authors who want to be more connected to their readers. Unbound supplies authors with “sheds” that provide exclusive content and access to communities of people who support the authors’ books.
Since its launch in 2011, Unbound has successfully funded the publication of 27 books. According to CEO Dan Kieran, the company is looking to expand—both internationally and by providing crowdfunding “channels” to other publishers.
PubSlush, based in New York City, focuses on helping new authors find their audiences. Authors post samples of their books to raise money and receive actionable marketing analytics, which help them self-publish their books or release them through traditional publishing houses. Founder Jesse Potash developed the concept as a way to give authors an opportunity to bring their books to life and to introduce data science into the industry.
My own venture, Unglue.it, focuses on funding books to be released with Creative Commons licenses. Recently, we reached an agreement with De Gruyter, the German academic publisher, to run campaigns for 100 books from its backlist. So far, we’ve “unglued” three books: Oral Literature in Africa, an academic classic; The Third Awakening, an erotic thriller; and So You Want to Be a Librarian, a career-exploration book.
And then there is TenPages, a small company in the Netherlands, similar to PubSlush—with one big exception. For as little as €5, a user can invest in “shares” of manuscripts that earn money when a book is successful. TenPages has published 47 books so far, including two Dutch bestsellers: Zo Zuidas and De urenfabriek. This success is partly due to the fact that investors serve as “ambassadors” for the newly published books.
The TenPages business model, however, is not currently legal in the U.S., because, by selling “shares” in manuscripts, the company would be considered to be selling regulated securities, and it is not licensed to do so in the U.S. But the first major overhaul of America’s securities laws in more than 40 years is poised to change that—and the result could be transformative for authors interested in independent book publishing.
Last year, a bipartisan majority in the U.S. Congress passed the Jumpstart Our Business Startups Act—otherwise known as the JOBS Act. President Obama signed the legislation on April 5, 2012. Perhaps the most far-reaching provision of the JOBS Act is the legalization of “equity” crowdfunding.
Thus far, Kickstarter and other American crowdfunding sites have taken great pains to prevent projects on their platforms from offering shares or equity. Instead, these sites offer “rewards-based” projects and products: people become backers on Kickstarter because of the rewards they get if a project reaches its funding goals. With TenPages, on the other hand, a book’s investors might collectively receive 10% of its net sales for the first four years.
Think of what equity crowdfunding might mean for books. Instead of relying on an insider network of literary agents who market book proposals and manuscripts to publishers, publishers could put proposals on a book-funding site. They’d line up teams of freelance editors, illustrators, designers, and developers, and the literary proposal would look like a mini–business plan.
More than likely, a new class of social-media-savvy literary agents/managers specializing in marketing to crowdfunders would emerge to help authors, as well as a cohort of voracious readers hoping to earn a little money from their reading obsession, by working to fund the books they love and that have the best chance of success.
And there’s nothing about crowdfunding that restricts this sort of money raising to independent or midlist books. The JOBS Act does restrict the amount raised from “nonaccredited investors” to $1 million, so the really big-name authors would have to tap the “accredited investor” funding market (an individual with more than a million dollars in assets, excluding home and vehicles, is considered “accredited”). But equity crowdfunding could be a revolutionary new way for authors to finance their work.
The JOBS Act has yet to take effect because the SEC still hasn’t published the rules needed for its implementation. Mary Schapiro, a previous chairman of the SEC, is said to have blocked publication because of concerns about the law. But even when the rules are published under the new chairman, book investment sites will have big hurdles to overcome.
“From a business perspective, I think the business model of crowdfunding book equity is not practical,” said Ash Kalb, a tech lawyer and venture capitalist who founded Singularity & Co., which crowdfunds e-book editions of classic science fiction. “For 99.9% of books, the overhead costs of dealing with a large number of unsophisticated investors are going to be too high, and one lawsuit from a disgruntled investor wipes out the business. But really, it all depends on the bar the SEC raises with the rules, so we shall see.”
In England, where equity crowdfunding is already legal, Web sites such as Seedrs and CrowdCube think they have found ways to address the problems. CrowdCube has raised over £6.7 million from more than 30,000 investors for 46 businesses. Seedrs has funded 21 startups with more than £1 million total.
Figuring out how to churn out small publishing startups on an assembly line won’t be the only barrier to making crowdpublishing work. A bigger obstacle may be the changes in transparency that crowdfunded books require.
“Have you ever seen a 10-K or a securities offering? asks Kalb. “Do you really want to list risk factors at the start of your book? ‘No one may like this book. I may be a bad author. My wife may leave me. Werewolves may not be as popular next year...’ ”
But, hey, why should big publishers have all the fun?