Written by Digital Social Innovation
Crowdfunding: why charities, social entrepreneurs and community groups should get on board
7th June 2016
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Nesta's Peter Baeck and Jonathan Bone look at how crowdfunding can be harnessed to support good causes. This blog originally appeared on the Nesta website.
This week we launched our new study exploring the opportunities and challenges in crowdfunding for good causes.
Crowdfunding is rapidly transforming how we fund everything from personal loans to investments in startups. It also presents a significant untapped potential for charities, social entrepreneurs and community groups to raise more money, experiment with new ways of addressing social challenges and get more people involved in campaigning and volunteering.
While crowdfunding isn’t a panacea, and isn’t without its challenges as a fundraising method, increased funding needs and criticism of some current fundraising methods mean that those looking to raise funds for a good cause can’t afford to ignore crowdfunding. However, despite being one of the most philanthropic nations in the world, the UK has been slow to catch on to the advantages of using crowdfunding to raise money for good causes, with crowdfunding only representing around 0.5% of all giving in the UK.
This is surprising since many of the attributes of crowdfunding - the direct engagement with funders, ability to select projects and beneficiaries, and the importance of creating a community - play to the strengths of the sector, and could bring real benefits, financial as well as non-financial.
Crowdfunding is constantly pushing the boundaries of what can be funded. From grassroots campaigns to keep UK city streets open for informal art and music performances which raised £3,285 from 133 backers to a campaign enabling the PortPatrick Community Benefit Society to sell £103,395 worth of community shares to save their local harbour - donation, rewards and community share based platforms are opening up new sources of funds for social projects.
The challenge, as we identify in our new study is to increase the awareness and knowledge of crowdfunding, build the skills and capacity required to run a crowdfunding campaign, and to better connect the crowdfunding industry and its multitude of offers with the organisations and projects with a social mission they could potentially help.
More than 65% of charities, social entrepreneurs and community groups reported that the main reasons why they hadn’t used crowdfunding was not knowing enough about how the different models work and not having the skills to set up and run a crowdfunding campaign. As we highlight in our study, overcoming these challenges is likely to result in a significant increase in the usage of crowdfunding, as there were strong similarities between many of the factors that organisations that haven’t used crowdfunding report would make them more likely to try it, and the benefits listed by those that have used it.
Traditional funders need to get involved
While the obvious first step to increasing the use of crowdfunding for good causes, is for charities, social entrepreneurs and community groups to take the plunge and try it out, there are a number of things traditional funders and supporters of the sector could do to stimulate this, by integrating crowdfunding into existing funding schemes and programmes.
By setting up match funding programmes, which combine social investment or grants with funds raised from the crowd, funders could encourage more of the organisations and activities they normally support to try crowdfunding. This could also help funders develop new ways of identifying and funding projects.
Given that 44% of organisations reported that an opportunity to combine crowdfunding with other sources of funding would be a very important factor in convincing them to use crowdfunding, this could have a significant impact on its wider uptake.
Following on from this, funders could set up referral schemes where unsuccessful applicants are referred to a crowdfunding platform, or a third-party directory of platforms. This could help direct more organisations towards these platforms and increase the general awareness of crowdfunding as a potential alternative route to funding.
It will be interesting to observe how the market for crowdfunding good causes evolves over the coming years, and if it will be able to disrupt giving and social investment in the same way it has transformed other parts of the economy.
With more than 40% of organisations we surveyed reporting that they would be likely to use at least one form of crowdfunding in the next year, there are indications that a change is on the horizon.