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An Introduction to Crowdfunding

Posted: November 15, 2014 at 8:56 pm   /   by   /   comments (0)

The decentralized nature of the internet and the rise of social media have revolutionized and democratized the way citizens around the world are fundraising. These online fundraising efforts are often happening outside the constraints and rigid hierarchy of institutions and traditional donors. And by using the power of local and global networks to get financial support for projects and ideas.

Crowdfunding, defined as the collection of small and individual donations from the “crowd” via online platforms, is historically an old practice, rooted in collective action and the need to belong to a community. 

Crowdfunding, defined as the collection of small and individual donations from the “crowd” via online platforms, is historically an old practice, rooted in collective action and the need to belong to a community. Hence, crowdfunding exists as a traditional offline practice in many cultures from Africa to Latin America. However, it’s only since 2008/2009 that it has become a global phenomena and an industry that was worth $5 billion in 2013 (according to the Crowdfunding Industry Report). This is thanks to the unparalleled popularity of companies like Kickstarter, an online crowdfunding platform that specifically caters to crowdfunding for creative projects and whose three founders all came from creative arts backgrounds.

In the case of non-profit organizations and non-institutional civic initiatives, the advantages of utilizing online crowdfunding platforms include:

1) allowing a diversification of the donor pool;

2) permitting fundraising that is based on locally identified needs, and not led by donor agendas or priorities;

3) reducing administrative paperwork linked to reporting back to donors, which often drains the resources of small local civic organizations;

4) increasing the potential of engaging diaspora communities from the global south in participating in civic or citizen-led initiatives in their countries of origin; that they would not have easily heard or known about otherwise (see the case study below from Sudan on the Nafeer campaign);

5) increasing the agency of citizens organizing collectively at a community or grassroots level and outside the boundaries of institutions, by giving citizens access to funds while retaining ownership over their projects; and

6) Institutionalizing the fundraising process by providing a platform that is centralized, transparent and permits multiple actors such as: businesses, government municipalities, non-profits, citizens and donors/supporters to participate simultaneously.

Kickstarter

Since its founding, Kickstarter raised more than $1 billion that successfully funded over 60,000 projects globally. This included more than $200 million raised for film and video projects alone. Some of those films went on to win awards and Oscar nominations, such as the short documentary Inocente.

Table: Kickstarter statistics 2012 and 2013. Source: kickstarter.com/year/2012 and kickstarter.com/year/2013    

Kickstarter in 2012 Kickstarter in 2013
2.2 million people pledged $319 million to kickstarter projects 3 million people pledged $480 million to kickstarter projects
$606.76 were pledged per minute to projects in 2012 $915 was pledged per minute in 2013
Projects from 177 countries were supported Projects from 214 countries were supported
18,109 projects were funded successfully in 2012 19,911 projects were funded successfully in 2013 and thousands more came to life

Indiegogo and other crowdfunding platforms

There is also the all-encompassing and very popular and international crowd fundraising platform, Indiegogo, which caters to anything from creative and artistic projects to technological innovations and humanitarian causes. It offers more flexible fundraising requirements than Kickstarter.

Indiegogo and Kickstarter have similar funding models, which involve charging project creators a 4 to 5 percent platform fee, and an additional 2 to 3 percent for electronic payment processing. This funding model is common to many crowdfunding platforms around the world.

Since Indiegogo and Kickstarter were founded many crowdfunding platforms have come into existence catering to a plethora of interests and needs. Some are very specific and geographically localized, such as Donorschoose; an online platform where ordinary citizens can directly choose to fund school projects (in the United States) initiated by public school teachers. It has included crowdfunding for field trips, books, and school supplies amongst other things. Donorschoose was founded by a school teacher in 2000, and is considered one of the earliest examples of online crowdfunding.

“For projects that are unable to find a suitable home on existing platforms, there is the possibility to host an online crowd fundraiser on a personalized platform such as the open source crowdfunding platform, Selfstarter. “

For projects that are unable to find a suitable home on existing platforms, there is the possibility to host an online crowd fundraiser on a personalized platform such as the open source crowdfunding platform, Selfstarter. However, to use this you will need to have web design and programing skills. As well as an existing support network, that is usually an advantage for small to medium-sized projects, and that is readily found in the more accomplished crowdfunding platforms that have communities of followers and a high level of trust attached to them. Some of the advantages that go with a customized crowdfunding platform or website include:

1. no fees linked to using the platform;

2. the focus is on your project and not the platform that you’re using;

3. you get to control the user experience by controlling the design and layout of your website; and

4. you can get access to a larger array of metrics or analytical data linked to your fundraising campaign than what the traditional crowdfunding platforms give you access to.

 

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