Sam Yam was the college roommate of Jack Conte, half of the indie band Pomplamoose. Together, they founded Patreon to help artists like Conte raise funds from fans online.
Yam, who attended Stanford with Conte, also worked at startups such as AdWhirl, a mobile advertising company. "That's where I picked up the domain knowledge. Now I'm taking that knowledge to payments," he says.
His co-founder Conte uses Patreon's system to accept funding in increments of $1, $3, $5, $10 or $100 to create a music video, and he typically posts one video per month. For each patronage level, Conte offers incrementally more access to viewing priority, phone calls, concert ticket sales, discussions of the creative process, and other perks.
The model resembles that of Kickstarter, the popular crowdfunding site that companies use to test the market appeal of new products by asking potential customers to fund the products up-front.
"There are a lot of fans that are willing to buy t-shirts and other things but … we want to provide a way for people to directly fund the work of an artist that they like," Yam says.
Patreon used Stripe's application programming interface to build the payments acceptance engine that enables variable monthly payments instead of a static recurring payment. Patreon charges 5% per transaction, plus Stripe's fee of 2.9%.
To use Patreon, an artist or content creator signs up for an account and sets up a creator profile. When planning new content, the artist clicks a "new content" button and posts a description of the artwork. This process notifies fans that they offer funds to the artist in a manner designed to resemble "liking" or "following" on a social network.
Patrons get charged at the end of the month based on whether the artist has created the content they pledged to support. Patrons can edit or cancel pledges before the end-of-month charge. Patrons can also set a limit on how much they will be charged.
Patreon aggregates the pledges, and provides a dashboard for creators to view their accounts and track payments and followers.
"The payments part was hard. It's not easy to do unknown variable subscription payments," Yam says, noting that Amazon, for example, requires more information up front on expected volume than Patreon would have been able to provide. "They want to know how much the patrons' cards would be charged. We don't know that because we don't know how much content the artists will create."
Patreon has received requests for PayPal support and uses PayPal for international payments, Yam says.
"This model provides flexibility and it can change the way people solicit income for performances," says Andy Schmidt, research director at CEB TowerGroup. "It's a great solution for when you don't want to toss a twenty dollar bill into a hat."
But unlike the metaphor of offering cash to a performer on the street, Patreon creates a paper trail. "The interesting element is this revenue is now visible by taxing authorities," he says.
Patreon's model seems to be the reverse of Flattr, which allows users to make donations to artists for content they have already created.