Crowdfunding: What It Is — And What It’s Not

    by Rodrigo Davies
    July 8, 2014
    Photo by Flickr user Tracy O and used here via the Creative Commons license.

    Recently I came across a fundraising campaign by a consortium of non-profits in the US earlier this year to raise money over a short period of time. Participating organizations were ranked in a public ranking, and competed for prizes based on the amount they raised and the number of donors they attracted. A running total of the overall amount donated was published on the site. The effort was fairly successful, and raised close to a million dollars for over 300 organizations. The most successful organization raised over $25,000, although one-fifth of participating organizations raised zero.

    The initiative was described to me as being similar to crowdfunding, likely because of its gamified flavor. Although the folks behind it weren't using the language of crowdfunding, several observers were. But it wasn't crowdfunding, and there are a number of important reasons why.

    "While it's great to see so many innovative twists on the crowdfunding model emerge, we need to be sure that we're not calling things crowdfunding that are really not worthy of the term."

    Before I get into that, let's be clear: I'm not making a point about the technical definition of the term crowdfunding. My critique is not that this initiative missed many opportunities to create a compelling campaign that crowdfunders and crowdfunding platforms make use of every day. The following criticisms are not specific to this case, either. They're common problems among inexperienced (and reluctant) online fundraisers, particularly in the non-profit space. That's why I'm not going to name the initiative here, instead I'm going to refer to it as Acme Non-Profit Initiative.


    what isn’t crowdfunding

    Here are the biggest problems I observed.

    1. There was no crowd. One of the main distinguishing elements of crowdfunding is the mutual awareness of donors. It's what reminds us that we're not acting alone (breaking down 'pluralistic ignorance'), and gives us a sense of belonging. Acme Non-Profit Initiative's website did not show any identifying information about other donors, simply the numbers. It was not, as far as I can tell, able to interface with donors' Facebook and Twitter accounts directly to enable them to see which of their friends had already donated.

    2. There were no projects. The prompt for donation was a one-paragraph description of the organization, with a selection of links. There was no clear sense of what projects the organizations were raising money for at this particular time, and what stage they were at. It's not true that crowdfunding can never be used to pay for overhead costs. If these costs are given as part of a project budget, backers won't flee. Backers understand that it costs money to keep the lights on, but they're most interested what's happening in the building.

    3. There were no targets. Besides a number of prizes given to the most successful organizations, there was no sense of what the organizations and the crowd should be aiming for. As a result, there were no metrics for success and no sense of achievement, no matter how well the initiative went. Having the courage to set a target and asking the crowd to help you reach it is part of the interaction and engagement that crowdfunding demands. You're asking the crowd to take a risk with you by backing your project, and in return your organization is taking a risk by putting its goals and ideas out in public.

    4. The donation data wasn't transparent. I found that the total fundraising numbers being reported didn't correspond with the itemized data. I presume that's because additional funds were raised during the initiative but given directly, instead of through the platforms. That's not unusual, but it raises red flags with potential donors when organizations provide incomplete data. A simple line that explained that a certain percentage of funds were given directly or in person would be enough. Being loose with the published numbers undermines the credibility of the initiative and doesn't meet the standards of transparency people rightly associate with crowdfunding. We should continue to demand that.

    As crowdfunding increasingly becomes used as a catch-all term for all kinds of online fundraising, we're in danger of missing the point. That danger particularly applies to organizations who already fundraise regularly, and may be under the impression that all they need to do to take advantage of crowdfunding is to digitize, verbatim, their existing processes. The history of technological change has taught us time after time that that won't work. New technologies reshape and restructure processes and organizations, whether they like it or not. And, as Lucy Bernholz put it recently, we're foolish to think that non-profits will be any different.

    While it's great to see so many innovative twists on the crowdfunding model emerge, we need to be sure that we're not calling things crowdfunding that are really not worthy of the term — and then being disappointed when those initiatives don't deliver the engagement their creators are hoping for. When done correctly, crowdfunding is bold, risky and open, and it demands those same qualities from backers and creators alike.


    Rodrigo Davies is a Research Assistant at MIT’s Center for Civic Media and an MS student in the Comparative Media Studies program. His research interests include the impact of social media on political discourse, crowdsourcing and political participation, ICT4D and user-led service design. Rodrigo works with the crisis mapping initiative Standby Task Force and is a policy advisor to the UK-based civic crowdfunding platform Spacehive. Before joining the Center Rodrigo was based Mumbai where he was a co-founding editor of Conde Nast India’s digital editorial business. Previously he was a journalist at the BBC and Bloomberg News. He holds a B.A. in History and Politics from Oxford University.

    This post originally appeared on rodrigodavies.com.

    Tagged: campaign crowdfunding donations fundraising non-profits

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