Culture / Economics

Arts venture capitalism – why demand drives better outcomes

Here’s a cross-post of my latest piece at The Conversation, about why demand drives better outcomes and how arts venture capitalism is the future.

The arts economy by-and-large replicates the rest of the economy in its structures, complexity and diversity. There is a craft-based core unchanged for eons and a dynamic middle made up of more or less market-based organisations who – whether they like it or not – are industrial and commodified; many elements are globalised, some undergo rapid technological change, and a leading edge exists only for a wealthy elite.

Furthermore, like the rest of the publicly-funded components of the civilian economy, health and education say, arts budgets are perennially tight and under pressure, never having quite enough to do all that they want, and usually substantially less.

The typical income stream of organisations that receive arts funding, according to the Arts Council England, is characterised by 40% subsidy, 50% earned income (from ticket sales, for instance), and 10% from other contributions, usually philanthropic donations. It is likely that Australian arts organisations have a similar fiscal profile.

There are two possible solutions at this point to the problem of insufficiency.

One is to seek to increase the extant revenue stream by persuading taxpayers to contribute more, or to increase earned income (maybe by increasing ticket prices, or offering a more commercial product), or by tapping harder into voluntary contributions. None of these are easy or welcome prospects. Most have already been tried.

The other possibility is to make the existing funds work harder. Toward this end Nesta, a London-based independent charity that specialises in innovation research, has recently released a new report that proposes three areas where new funding models and approaches might be deployed to leverage additional revenue and create a more sophisticated arts funding ecology.

None of these ideas are particularly new. Indeed, all are standard business practises in much of the rest of the economy. But the arts sector has been uncharacteristically slow to adopt these funding approaches.

The arts should do R&D

First, the report notes that arts organisations don’t do a lot of research and development. To be clear, it is facile to say that arts is already nothing but R&D – that’s not what is meant; rather R&D refers to experimental investments in developing new processes or models that might then be replicated at scale. The publicly funded arts actually do relatively little of this.

In the broader economy, about 2-3% of all spending is on R&D. In some industries, that number exceeds 20%. They suggest that public arts funders commit at least 1% of their total budget to R&D on such matters as expanding audience research, or exploring new business models and missions. Specifically, they argue that some similar fraction be earmarked in all large grants for this purpose.

This doesn’t happen, but it should. There is a genuine public good aspect to this, because success in discovering new ways of adding value, or connecting with audiences, or developing new processes can be replicated across the sector, to the benefit of all. Granting agencies should take the lead on this.


One of the more intriguing suggestions in the report is the use of accelerators. Accelerators first emerged in the tech sector as a complement to venture funding – a famous one is Y Combinator, which developed companies such as Airbnb – but have recently migrated to social investment too.

An accelerator is basically an organisation that specialises in launching and developing new organisations – by concentrating on the problem of new groups trying to do new things by pairing this with highly incentivised and intensive expert and peer feedback.

Accelerators work – and may be one of the great institutional innovations of the early 21st century. But they barely exist in the arts economy. This cannot remain so.

In the tech sector accelerators were a product of demand – young inexperienced new businesses, with venture capital riding on them, desperately needed these “finishing schools” – and the market provided. The situation in social investment was similarly driven by a strong demand to cut through by employing best practice organisational technologies. And again, it worked.

Arts economy accelerators will similarly need to be demand driven. In the tech sector venture capital push and competitive entrepreneurial pull created the pressure. Neither of these forces is strong in the arts economy.

But there are examples. The fashion reality TV show Project Runway, for instance, is in essence an accelerator. Some creative thinking will be required here, but the Nesta report provides some useful illustrations.

Match crowdfunding to public funding

A third proposal builds upon a model that is a rapidly increasing part of the collaborative economy, and is well known to many in the arts economy already – namely the use of crowdfunding. But the Nesta report suggests a particular strategic use for arts organisations, namely to tie it to matched public funding.

This is a way of seeking pure leverage, so that public funding would be conditional upon a particular quantum of crowdfunding. But it is also a way of aligning incentives to ensure that lobbying efforts skew more toward potential audiences and less toward funding agencies. Everyone wins from that outcome, except those with soft and cosy relations with funding agencies.

The new art of finance

The arts economy needs to adapt to the latest institutional developments in venture finance and organisational technologies. While these innovations originated in other sectors, there are many reasons to expect that they will work similarly well in the arts economy.

But they need to be driven by demand, which in practice means they will need to be pushed by arts funding agencies in the first place, which in philosophy means they will need to behave more like venture finance.

In the long run, public funding agencies have much to gain by such a move. They will get better experiments, better learning and development, better matches to public demand, and a more robust ecology for the arts economy. Friends of the publicly-funded arts should support the adoption of these new institutional technologies.


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