Mozart, Musician Crowdfunding, and Securities Laws

In the 17th and 18th centuries, professional musicians often relied on payment by wealthy patrons. In the 1780s, Wolfgang Amadeus Mozart tried something a little different. He turned to what now would be known as crowdfunding to finance three public performances. In exchange for funding, 176 supporters received manuscripts of Mozart’s concertos.

While Mozart’s approach may have been unconventional at the time, with the Internet, musicians are increasingly turning to crowdfunding. As a result, the intersection of musician fundraising activities and U.S. securities laws has grown increasingly relevant.

Understanding how federal regulations may apply—especially when fans are offered more than just T-shirts or shoutouts—is essential to avoiding legal trouble. This article explores how securities laws affect musician fundraising, with a focus on Regulation Crowdfunding (Reg CF), popular platforms like Kickstarter and GoFundMe, and alternative investment-based methods.

Musicians should remember that even though they are artists, the music business is subject to the same laws as other businesses when raising funds. This article discusses how securities laws may apply to various forms of fundraising in the music industry. Anyone who is raising funds also must consider how tax, intellectual property, and fair trade laws might impact their fundraising strategy.

Types of Crowdfunding

Crowdfunding usually involves one of four models: rewards-based, donation-based, royalty/revenue-sharing, and equity-based. Offered by sites such as Kickstarter and Indiegogo, rewards-based crowdfunding projects usually offer contributors merchandise, digital downloads, or experiences in exchange for contributing to a project.

Donation-based crowdfunding, offered by sites such as GoFundMe, seeks contributions to a project from donors with no expectation of providing anything in return. GoFundMe is associated with altruistic needs, so the platform is most suitable for urgent needs, such as medical bills or other hardship situations.

Equity crowdfunding is a way to raise funds while promising contributors a percentage of revenues or income from a specific project, such as ticket sales from a concert or royalties from music streaming.  

Equity-based crowdfunding involves selling equity (ownership) interests in a company to investors, who share in the company's profits. Equity crowdfunding often is done pursuant to Regulation CF through SEC-regulated platforms like StartEngine. Since individuals cannot sell ownership interests in themselves, equity-based crowdfunding works best for companies that support musicians, such as Sound Legends, which gives musicians a one-stop shop for copyright, licensing, and distribution of their music, which raised money on StartEngine in 2022.

Musicians have used crowdfunding for years. GoFundMe has been used to raise money for a music student to attend a summer music program, travel to an audition, or buy a new instrument. Musicians also frequently use Kickstarter to raise money to produce an album or pay for a tour.  

More recently, musicians have moved into equity crowdfunding, where they sell ownership of their royalties. For example, in the UK, Hipgnosis Songs Fund treated hit songs as financial assets capable of generating long-term, stable income while also giving more equitable royalty payments to artists. Investors bought interests in the fund, which then used the money raised to buy song catalogs from musicians, with the royalties then being passed through to the fund’s investors. 

Why Equity Crowdfunding Involves the Sale of Securities (and Backer-Based and Donor-Based Crowdfunding Usually Doesn’t)

Royalty equity crowdfunding is more heavily regulated than backer-based or donor-based crowdfunding. That’s because equity crowdfunding is subject to regulation by the Securities and Exchange Commission (SEC).

The Securities Act of 1933 (Securities Act) defines “security” broadly. All notes, stock, bonds, evidences of indebtedness, profit-sharing arrangements, investment contract, and many other listed items are defined in the Securities Act to be “securities” and are subject to SEC regulation.

Equity crowdfunding involves the sale of stock or other equity. So, it falls squarely into the definition of “security” in the Securities Act.

Even when crowdfunding doesn’t fall neatly into one stated category, it can still be a security if it is an investment contract. An investment contract is (1) an investment of money, (2) in a common enterprise or pooling of assets, (3) with the expectation of a profit, where (4) the profit comes from the effort of a promoter or third party.

With both backer-backed and donor-backed crowdfunding, people “invest” cash in a common enterprise. But they don’t expect a profit. In donor-backed crowdfunding, donors expect nothing in return for their contributions. Had Mozart instead collected donations and given contributors nothing in return, his plan would have been donor-based crowdfunding.

Mozart's approach most closely resembled backer-backed crowdfunding because his "investors" received a product (manuscript) in exchange for their contribution. Backers in backer-backed crowdfunding expect to receive a product or service in exchange for their contribution, but they don't expect a profit.  

With backer-backed crowdfunding, increased donation amounts may result in a higher-priced product or service for the backer. But there's no opportunity for a "profit” or gain beyond the expected product. So, most backer-backed crowdfunding, like Kickstarter or Indiegogo, looks more like a purchase of a product or service and generally isn’t subject to SEC regulation.

However, as filmmaker Hal Hartley learned, backer-backed crowdfunding can become subject to SEC regulation if the backer receives something with an “expectation of a product” in exchange for their donation. After Hartley failed to reach his fundraising goal from backers who were promised products like DVDs and movie premiere invitations, he decided to add additional backer levels offering distribution rights as rewards. Since distribution rights included the expectation (possibility) of a profit, they were an investment contract. 

As a result, Kickstarter cancelled those investments, which resulted in negative publicity for Hartley. In addition to the PR issues, Hartley placed himself at risk of SEC enforcement action.

Hartley’s experience shows that while crowdfunding websites make the process seem simple, in actuality, the law behind crowdfunding is complex. While most musicians won’t bring an attorney on board before pursuing crowdfunding, what seems like a small change to a campaign can quickly lead to a significant legal problem that costs far more to address than hiring an attorney at the outset.

Equity Crowdfunding under Reg CF

Reg CF was designed to provide an easy way for anyone to invest relatively small amounts through equity crowdfunding. However, Reg CF imposes limitations on how funds can be raised and used, so it won’t work for everyone.

Reg CF offerings must be sold online through an SEC-registered intermediary. The issuer must have been organized in the United States and had operations for at least six months to use Reg CF, so a non-US band or company won’t be able to use Reg CF.

A Reg CF issuer also can’t be a reporting company under the Securities Exchange Act of 1934, a blank check company, or have previously failed to comply with Reg CF reporting requirements. So, to raise money under Reg CF, the issuer must have a company or product that’s defined. Reg CF can’t be used to raise money first, with the issuer deciding later how it will use the money.

Reg CF also requires the issuer to file Form C with the SEC and disclose specified information about the issuer, its principals, the offering, the issuer's business, and investment risks to investors. Depending on the size of the offering, the issuer must provide financial statements, which, depending on the size of the offering, must either be certified, reviewed, or audited by a CPA. The issuer also has to file updates to Form C at specific points in the offering and must file annual reports with the SEC on Form C-AR for three years (or less under certain circumstances).

Regulation CF requires significant upfront expense and fees. SEC-registered intermediaries charge substantial fees for their services. Depending on the intermediary and the offering, those fees can range from 9% to 12% of the equity raised. 

Issuers should have their own attorney and accountant involved in any securities offering, which costs money. While the intermediaries offer some services (often for an additional fee) that the issuer's attorney or accountant might otherwise perform, the intermediaries are looking out for their own interests – not the issuer's. Since the attorney and accountants must be paid up front, there’s a temptation for a musician or other issuer to forego the expense – at their peril.

Pros and Cons of Crowdfunding Options

Donor-based, backer-based, and equity crowdfunding all provide musicians with an opportunity to raise money. Each also offers musicians the chance to expand their fanbases by helping fans to feel invested in a musician’s career, whether through a charitable donation, a promised reward, or even an ownership interest.

However, crowdfunding also comes with drawbacks that musicians should carefully consider. Further, a musician must be clear on their objective and how to accomplish it before engaging in crowdfunding. Changes in focus or scope or using funds differently than advertised can result in reputational damage and fan distrust, as well as legal consequences.

While donor-based crowdfunding doesn’t require ongoing reporting or expectation of a future product, that might not be in the best interest of a musician seeking an ongoing reason to engage with their fans. Backer-based crowdfunding allows for increased engagement through project updates and behind-the-scenes content. However, with backer-based projects, musicians must meet backer expectations and deliver the promised product.

While equity crowdfunding can create a greater connection with fans by making them true stakeholders, it also creates more ongoing obligations. Unlike donor- or backer-based models, Reg CF equity crowdfunding effectively transforms a musician into a small business with reporting duties to regulators and investors. This can detract from the creative focus and impose administrative burdens requiring a more robust infrastructure than the musician has.

Crowdfunding can help musicians successfully raise funds while also building their fanbase, but it’s not easy money. Before launching a crowdfunding project, musicians should be cautious about the legal, financial, and practical commitments they are making and ensure they can deliver as expected.

© 2025 by Elizabeth A. Whitman

Any references to clients and their legal situations have been modified to protect client confidentiality.

DISCLAIMER: The content of this blog is for informational purposes only and does not provide legal advice to any person. No one should take any action regarding the information in this blog without first seeking the advice of an attorney. Neither reading this blog nor communication with Whitman Legal Solutions, LLC or Elizabeth A. Whitman creates an attorney-client relationship. No attorney-client relationship will exist with Whitman Legal Solutions, LLC or any attorney affiliated with it unless a written contract is signed by all parties.