Are Australian NFPs Ready for Crowdfunding?

The concept of crowdfunding has been around since the late 1990s - only recently has it taken off thanks to the advancement of technologies that enable greater social connectedness on the internet.

Former Young Victorian of the Year and ‘veteran’ Not for Profit worker Wesa Chau explores how Australia’s Not for Profit sector might tap into this emerging form of fundraising.

Not for Profit organisations are moving away from their reliance on government funding. Through philanthropy, social investment, and individual and joint fundraising efforts, Not for Profits are attempting to diversify their funding sources.

With more and more people connecting to each other on social media, technology is enabling us to start new companies at a lower cost and with lower risk; thereby opening up opportunities - especially for the Not for Profit sector.

‘Crowdfunding’ is one such emerging opportunity for Not for Profits to raise money, but are organisations ready to utilise it?

What is crowdfunding?

The concept of crowdfunding has been around since the late 1990s, though only recently has it taken off thanks to the advancement of technologies that enable social connectedness on the internet.

Crowdfunding - also known as ‘crowd financing’ or ‘equity crowdfunding’ - allows people (organisation or individuals) to raise money to support an initiative or project. In short, you develop an idea, set an amount you need to raise, post it up on a crowdfunding online platform. You will also set a time limit to raise the funds, set rewards for those who invest in your idea and spread the word to as many potential investors as possible. If the target amount is not raised within the time limit then the project does not go ahead.

Crowdfunding has been used to raise funds for a variety of different purposes, ranging from artistic projects, citizen journalism, disaster relief to startup companies and political campaigns. The ‘crowdfunding sector’ is growing and more people are using it as a way to raise seed funding if traditional methods exclude them.

What is a crowdfunding platform?

A crowdfunding platform, essentially, is a website that allows you to post up a project to seek funds. It is similar to eBay; however eBay is a platform for retailers and individuals wishing to sell products, where a crowdfunding platform is a ‘space’ where organisations and individuals can initiate a project.

Pozible’ is the biggest crowdfunding platform in Australia. Since its launch in 2010, it has already supported over 1,300 creative projects, raising over $2.5 million dollars in funding. The types of projects that are funded vary: it might be $60 for a university assignment pitch or $30,000 for a feature film.

For some time Not for Profits in other countries have been using crowdfunding as a way to finance projects. Platforms such as Kiva and Global Giving have been very successful in raising money from developed countries (such as the United States) to fund initiatives in developing countries that help improve lives; the most successful are micro-financing initiatives to support entrepreneurs in developing countries.

Differences between traditional fundraising and crowdfunding?

There are some differences between traditional fundraising (including online fundraising) and crowdfunding, including:

  • Fundraising raises money for organisations (occasionally for projects) whereas crowdfunding raises money purely for projects
  • With fundraising, people give to a charity or cause based on the past achievements of an organisation. With crowdfunding, individuals give based on the expected outcome of a project - the project may or may not be attached to an organisation
  • Individuals who donate to a charity are not always provided frequent progress of the project. Individuals investing in a crowdfunding project expect frequent updates on the project and throughout the entire process.

There are pros and cons for both traditional fundraising and crowdfunding, and targeted investors and donors expect different things from their giving. The benefit of using crowdfunding, in addition to traditional fundraising, is that the investors giving money to crowdfunding are not necessarily the same as those who donate money through traditional means. Using both methods simultaneously to fund different operations or projects can open organisations up to additional funding sources.

Are you ready to launch into crowdfunding?

To fully utilise the potentials of crowdfunding, organisations must meet the prerequisites, otherwise it would be a waste of time and effort without any returns.

The prerequisites include:

  • Innovative project idea – a dull project is unlikely to attract investors, therefore organisations need to think outside the square
  • Marketing – you need to have developed good marketing materials to place on a crowdfunding platform, this includes a well written introduction about what the project is about and what the funds will be used for, and any photos, sketches, prototypes, videos about the project you would like to undertake
  • Effective use of the internet – ideally, have a website or blog that explains the project in more details than what you put on the crowdfunding platform
  • Social media – social media is essential for crowdfunding as a way to spread the word to as many people as possible. Without the effective use of social media, it is unlikely for the projects to get traction and therefore unlikely to raise enough funds within the time limit
  • Effective mailing list – the alternate to social media is an effective mailing list with responsive email recipients. If your social media strategy has not been effective to date but you have a good email strategy, then crowdfunding could also be successful
  • A crowd – you need to a group of people to champion your initiative and get as many people to talk about the initiative as possible. This could be your volunteers, your employees, yourself and any other advocates of your project or organisation

If you do not meet the prerequisites but would like to explore crowdfunding as a funding source further, it will require time to develop a more comprehensive marketing strategy that incorporates social media and technology.

Crowdfunding certainly opens up new opportunities for Not for Profits wishing to pilot new ideas that traditional funding sources do not fund. The key to success is to understand technology and social media for any Not For Profits wishing to launch into crowdfunding.

The opportunity awaits, the platform is maturing and the trend is on the rise, the question is whether your organisation has the knowledge, resources and expertise to maximise the outcome.

Wesa Chau was inducted into the Victorian Honour Roll of Women in 2012 and was Young Victorian of the Year in 2010. She has worked in the disability sector and is currently Director at Cultural Intelligence. Twitter: @wesachau 

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Comments

Thanks!

Well written overview of the possibilities of crowdfunding. Thanks Wesa!

Crowdfunding for nonprofits

I'm really glad you are covering this area, more Australian non-profits should be taking advantage of the helpful dynamics offered by crowdfunding. I with, though, that you had mentioned StartSomeGood.com, as it's a (half) Australia-founded platform specifically for non-profits and social benefit initiatives.

RiAus recently used StartSomeGood to raise funds and wrote a great blog post sharing their tips: "5 Crowdfunding Lessons Every Nonprofit Should Know", check it out: http://www.connectingup.org/resources/learning-centre/5-crowdfunding-les....

Cheers!

Tom

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