Issue 246,  published February 18, 2020

Patreon Capital: An Alternative to Podcast Financing

I was tempted to kick this story off with a platitude along the lines of: “Starting something is the hardest part.” Then I thought the better of it, because that’s not strictly true. Keeping something going can be much harder, as in the case of a conversation, relationship, or even this newsletter, because with starting something, at least you get the energy-sparking juice of novelty. Hell, you could even apply that argument to this very column. Seventy-six words in, and I’m barely keeping the energy up.

But wait! Don’t go, because I think this is a really interesting one, especially if you like stories about financing for creative projects. The peg here involves the fine folks over at Multitude, the Brooklyn-based podcast collective and production studio that we’ve written about a couple of times now. To recap: Multitude is an independent outfit built around a handful of warm-hearted shows, mostly but not always of the relaxed conversational variety. They’ve consistently piqued our interest for the shrewdness of their operation; since launching in 2017, Multitude has nimbly pushed to diversify their revenue beyond the classic ad-support model, including a spirited adoption of direct support, primarily facilitated via Patreon and Memberful, as well as cultivating a tertiary business renting out studio space.

We can now add one more notch to the interesting-ness of their financial life: the Multitude crew are now among the earliest patrons of Patreon Capital, a new alternative financing service by the membership platform. The service provides cash advances to creators in exchange for a slightly greater sum of their future income generated on Patreon. It’s a relatively speedy financing option, one that could come in handy if you need a quick burst of funds to finance a new project requiring higher-than-usual upstart capital.

Which is precisely what Multitude needed. The crew had been developing a somewhat experimental audio sitcom series called Next Stop, and because they were planning to build that series as a SAG-AFTRA production — and thus, needing to pay SAG-AFTRA rates — they were faced with requiring more upfront money to get things off the ground.

As a smaller business, the issue was an acute expression of their on-going resource managing reality. “We were running into this problem where we have a ton of great ideas, but because we’re a small business, we constantly have to decide between putting money towards paying our people and getting more equipment versus saving it up for a bigger project,” said Amanda McLoughlin, Multitude’s CEO. So, instead of struggling with that balancing act and waiting for a longer period of time to save up the funds, they turned to Patreon Capital when the opportunity came up.

Patreon provided the team with a cash advance of around $75,000 to cover the production budget for the series, with the expectation for Multitude to pay back a slightly greater sum from Next Stop’s Patreon earnings over the next two years. (Neither party disclosed the exact figure that Multitude needed to funnel back.) As a matter of risk mitigation, the Patreon revenues of another Multitude show, Join the Party, will be taken as collateral if Next Stop isn’t able to generate enough return to fully pay Patreon back after the two year period.

About a dozen of these Patreon Capital cash advances have been given out so far, and Patreon hopes to expand the program to cover more creators in the year to come. And as the collateral stipulation in the Next Stop arrangement suggests, Patreon will generally be focused on creators who have a track record in developing solid followings on its platform. “This arrangement is directly tied to the fact that we have successful podcasts making money on Patreon, and that we’ve already invested in the Patreon system to pay this stuff back,” said Eric Silver, Multitude’s Head of Creative.

I’m told that Patreon Capital is generally modeled after Shopify Capital. The Canadian e-commerce platform originally rolled out their version of the service in 2016, but it appears to have really vaulted forward in prominence over the past year. According to the latest earnings report, Shopify Capital cash advances were up to $115.9 million in cash last quarter, about a 61% increase from the same period in the previous year. Stripe, the online payments processing giant, has also launched its own “flexible financing” service for businesses using its platform, called Stripe Capital, last September.

Patreon Capital, then, is kind of an adaptation of those services for the creative class, which is increasingly being made to understand themselves as business entities in a classic sense and thus progressively require the kinds of services that contribute to the support of conventional businesses. And given their history and positioning as a creator support platform, Patreon believes they’re in a better position than banks to provide creators with the business support they need. “After all, Patreon has access to all the data about a creator’s earnings history, what they offer as benefits, how much they engage with their patrons…everything needed to forecast their earnings and retention, without a creator even needing to submit an application,” said Carlos Cabrero, the company’s VP of Finance. “This would be essentially impossible for a bank to replicate.”

I suppose it’s also worth noting that Patreon Capital is part of Patreon’s broader efforts to build a more sustainable future for itself. Around this time last year, Patreon’s CEO Jack Conte told CNBC that it needed to “build new businesses and new services and new revenue lines in order to build a sustainable business,” as its core membership platform product, which at that time practiced a one-size-fits-all pricing tier that paid out 90% to creators, was likely to eventually become unsustainable. The company has since switched to a three-tier pricing offering and changed payment processing fees.

Anyway, I figured that context might be useful to know if you’re finding yourself in Multitude’s position, and are interested in taking advantage of Patreon Capital. This service is an undoubtedly useful one, and it has the capacity to help substantially more creators manage the risk of standing up a new projects, but these things don’t exist in a vacuum, you know?

Next Stop is due to roll out in April, and I’m told that Multitude plans to publish a blog post breaking down the full budget for that production, so look out for that.

I run this thing.