About Crowd Funding

Posting #2 in a series on Resource Development
See # 1, Five Elements of Strategic Resource Development

First, a definition from the Oxford Dictionary: Crowdfunding (a form of crowdsourcing) is the practice of funding a project or venture by raising monetary contributions from a large number of people, today often performed via Internet-mediated registries, but the concept can also be executed through mail-order subscriptions, benefit events, and other methods. i

Wikipedia adds this: Crowdfunding is a form of alternative finance, which has emerged outside of the traditional financial system. ii

This latter definition is sometimes called “Equity Crowd Funding” and investors receive equity in the business or venture they are contributing to. This posting is not about this type of Crowd Funding. Rather I am writing about the most common type of Crowd Funding today which allows anyone to donate their money to anything that gets posted on an Internet-based Crowd Funding website. Recipients of funding can be individuals in need, informal groups, performance artists, individual schools, clubs, inventors, product developers, techno- projects, as well as conventional charities and businesses.

Donors to such initiatives do not, as a general rule, get anything in return. Some may get a charitable receipt, but equity is not particularly part of the arrangement. Actually for many, if not most, of the asks being made on sites like Kickstarter or Go Fund Me, there is no equity to be had. Witness two of the appeals below from Go Fund Me, Canada’s largest Crowd Funding website.

crowdfunding1.png

crowdfunding2.png

The first one is about saving a single mother and her four children from losing their place and becoming homeless as of September 3, 2016. I am writing this on September 4th, perhaps too soon to see if the money raised stopped her eviction. I sure hope so. The other one is about Pebbles, a dog with liver problems and other illnesses who needs interventions that Darlene cannot afford.

I am not saying these are not causes to donate to. I use these two examples only to highlight that Crowd Funding is changing the how fundraising is done, about why it is needed, and who does it. There are the more standard types of appeals on these sites from charities and relief funds. For them Crowd Funding may very well be but one more way to generate support.

Unlike Go Fund Me, Kickstarter does provide some accountability on its site by reporting on fundraising results in a variety of ways, although neither site offers any accountability reports or information on impact, other than showcasing “success stories.”

Kickstarter tells us the following about its funding activity iii:

  • Since its inception in 2006, Kickstarter as generated pledges of $2.58 billion and successfully funded 111,500 projects.
  • Kickstarter is an “all or nothing” venture. If you do not raise all of the goal, you get zero. Unsuccessful initiatives were greater than successful; there are 200,000 of them reported by Kickstarter.
  • Most successful fundraising appeals were small ones, just shy of 75% of them. Just over 14 raised between $10,000 and $19,999. The dollar range categories are much wider than the smaller ones. Those raising $20,000 to $99,999 make up about 13.2% of the total successes. Less than 3% generate funds in the $100,000 and up category. If you are wondering if anyone has raised $1 million or more, the answer is yes. Of the 111,500 projects, 189 of them hit the million dollar mark (.0017%).
  • Those appeals that have the highest success rate are by category: Dance, Theatre, Comics, Music, and Art. Of the 15 categories listed, Food is in the bottom five. There is no category listed for Social Service, Human Services, Community Work, and so on.

In the United States there is another site that caught my attention: DonorsChoose.org, which exists solely to raise money from citizens for class room projects in schools around the country. Most of these requests appear to come from teachers looking for money to support something in their classroom that the public school system doesn’t fund. Most requests seem to be in the hundreds of dollars. Of three I dug into, the highest request was for $296.75 to support teaching 15 kids about cosmetic surgery. Other requests seem to be about getting money for things that one could argue should be paid for by the school system. I will stay silent on that topic, at least for this posting.

Whether or not Crowd Funding is a good thing for the market place has no right answer. It depends on how it impacts the community and community systems. In other words, its value is contextual. For the mother and children saved from eviction, the impact is substantive for her family. But as a business – Kick Starter is a business – its implications include diluting overall giving patterns of donors which may – and perhaps are – hurting other more traditional appeals from organizations who are trying to help thousands of single mothers and their children. Perhaps more importantly, sites like Kickstarter and GoFundMe are redefining what help and impact look like; they speak to those who are disillusioned with formal charities or with banks and so on.

For your organization or group, the questions you likely face if you are thinking of including Crowd Funding in your fundraising program include the follow:

  • Will raising money this way impact other revenue sources, whether support from your donors or from more traditional funders, who might see success as Crowd Funding as an indication of your lack of need for their support?
  • Given that, by far, the majority of projects that meet their fundraising goal receive $10,000 or less in funding, will entering this market place suit your needs and will the effort and the exposure be worth it, especially if you are not successful? Remember, at Kickstarter and other similar sites, it’s all or nothing.
  • Ten thousand dollars is a good amount of money and for some small groups it is big money. The key will be putting an ask out there for something that is compelling and likely to motivate a large number of small gifts that more likely or not speak to each donor’s emotions. While I could find no evidence to support this next point, my sense is that these types of appeals must be of a kind that generate impulse giving.

I will leave it to you to form your own judgements on Crowd Funding and to decide if and when it has a role to play in your resource development activities. My intent here is to provide information that may be of help.

Stay tuned for the next blog posting, About Social Impact Bonds.

i Retrieved from http://www.oxforddictionaries.com/us/definition/american_english/crowdfunding, September 4, 2016

ii Retrieved from https://en.wikipedia.org/wiki/Crowdfunding#cite_note-1, September 4, 2016

iii See https://www.kickstarter.com/help/stats?ref=about_subnav

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