According to Startups.com, worldwide crowdfunding raised $2.1 billion USD from 2014 to 2016.
This equates to over $119,000 raised every hour via crowdfunding!
Clearly, leveraging the power of the crowd is a compelling way to raise the capital needed to launch or grow a social enterprise. An added bonus: crowdfunding campaigns also build communities and serve as a rallying point for your loyal customers, allowing you to create awareness and social capital as you raise money.
We recruited Tom Dawkins, CEO and co-founder of social impact crowdfunding platform StartSomeGood, to share his best advice for crowdfunding to raise capital for your social impact project.
TO LEARN MORE ABOUT THE BREADTH OF IMPACT CAPITAL OPTIONS, INCLUDING HOW TO LEVERAGE CROWDFUNDING TO BUILD EARLY-STAGE MOMENTUM, SEE OUR ULTIMATE INTRODUCTORY GUIDE TO FUNDING YOUR SOCIAL ENTERPRISE.
JUMP TO QUESTIONS:
1. AT WHAT STAGE IN MY ORGANIZATION'S GROWTH DOES CROWDFUNDING MAKE THE MOST SENSE?
You can succeed at crowdfunding at any stage so long as you approach it right and execute well. We’ve seen it work for brand new ideas, to support the exploration for great ideas, or even for organizations like NPR and 100 year-old community newspapers.
The sweet spot for crowdfunding is when you have made some progress: you've demonstrated your capacity, validated your idea, and now you’re ready to grow.
For example, if you're launching a food business, the best crowdfunding campaign wouldn't be right at the moment when you first have that idea, "Hey guys, I'm launching a chutney business." Instead, you would want to develop your chutneys, make sure they were delicious, and demonstrate that by having a stall at a market to share your chutneys with the public and get real feedback.
Then you will be able to show all of us, "Hey look, I've made these delicious chutneys. Here's some testimonials from people who tasted and they liked them, and now I want to grow my business beyond my local market and give everyone everywhere the chance to buy my chutney to help me grow."
A couple years ago, we had two very similar campaigns go live at the same time. Both wanted to a build a rooftop garden that supported community groups. But one of the founders had everything in place; they had secured a rooftop and engaged a landscape architect so they had drawings and visuals of what the rooftop was going to look like once it had been transformed into a rooftop garden.
The other person had a dream for a rooftop garden but hadn't really got started. Money was only one of the missing pieces; they needed the owner of a building to give them permission to create the garden on the roof and they needed to get a landscape architect they could afford. Without these elements, their budget was just a guess. Additionally, the community didn't have a clear vision of what they were buying into. You can imagine which campaign got funded.
Another key moment well-suited to crowdfunding is when an organization, of any age, confronts an opportunity or a threat that they can't take advantage of or overcome without the community rallying to support them and providing the funding to help them succeed.
The best crowdfunding campaigns are always where the crowd’s funding, the money, is the last piece needed to move your initiative forward.
2. HOW SHOULD I SELECT MY CAMPAIGN FUNDING GOAL?
Your funding goal is really important. There are two main crowdfunding models, “All or Nothing” and “Keep What You Raise”.
In both cases, you have to select a goal, but the goal matters more in one of these models- and this is to your advantage.
StartSomeGood uses a version of the "All or Nothing” crowdfunding model, what we call the tipping point. When you select a goal you have to reach that goal or else you won't receive any of the funds being pledged. The other option is the "Keep What You Raise" model where, even if you only make partial progress toward that goal, you will receive the pledged funds.
For you as the fundraiser, the second model probably sounds much more enticing. I mean, who doesn't want to keep what they raise? But it's not really a question of keeping what you raise or not keeping what you raise.
The real question is: “Which model is going to make it easier or harder to raise the funds in the first place?”
By being able to give a clear and credible guarantee around a tipping point goal, an “All or Nothing” goal, you're able to provide certainty to your supporters.
You're able to say, "I'll only take your funds if I reach the goal, so that I can follow through and actually do the project that you're trying to fund me for. I won't take your money and then not deliver." And that, of course, is everyone’s great fear.
Committing to a goal is more important than the specific goal you choose. Really committing to that “All or Nothing” approach and making that promise to your donors is the best route to success.
This is why “All or Nothing” platforms have success rates up to 400% of keep-what-you-raise platforms. No one wants their money to go to someone who can’t follow through.
On StartSomeGood, you get to choose two goals: a lower, “All or Nothing” goal we call the Tipping Point, and a more aspirational, “Keep What You Raise” goal that we call your Stretch Goal.
The easiest way to think about this is that your Tipping Point should be the minimum viable amount of funding you can raise and still promise an exciting outcome. Then, your Stretch Goal can be more optimistic - something more like the optimal amount of funding you could use (but without risking it all on getting to that point or not).
3. WHAT RESOURCES DO I NEED TO PLAN AND EXECUTE A SUCCESSFUL CROWDFUNDING CAMPAIGN?
The key resource is time: time to plan and prepare as well as time to execute.
Many people rush into crowdfunding campaigns, often without having done enough research or planning, especially in terms of outreach strategy.
An outreach strategy is only as good as your ability to identify your target community.
If you don't know who you're trying to reach, you can't possibly create an effective plan to reach them.
Be thoughtful about the community you're trying to build. Then put the time into researching and identifying key channels and opportunities to communicate your story to them. Once you launch, you can do the hard work of getting your story out there and sharing it with people.
The key “job” of crowdfunding is not creating the page itself - it's doing the outreach and community building around your idea.
A lot of people misunderstand that and think that so long as they have a beautiful page and a good idea the crowd will take care of itself. The classic “if you build it they will come” delusion.
You really need to invest the time and effort upfront to get the support you need: the coaching, training, advice or assistance to develop and implement a really effective plan.
You should do all the planning before you launch. A lot of people rush into campaigns and then begin to scramble when it's not performing. But once you've launched, it’s probably too late to be asking this question. You're already on the clock.
I strongly advise that you focus on planning pre-launch. You want a rock-solid plan that outlines what you're doing every single day of your campaign. Then, when your campaign launches you have everything you need to execute efficiently.
4. WHAT'S THE MOST COMMON CROWDFUNDING MISTAKE AND HOW CAN I AVOID IT?
Not planning! A lot of people race into crowdfunding in an optimistic, naïve way, without doing the research to understand how crowdfunding works or getting the support to figure out how can they best take advantage of it.
Another mistake is not researching which platform can provide the most support or has the highest success rate. Many people simply use whatever platform their friends used, even if it’s not right for their project. A lot of people have launched campaigns without knowing the difference between “All or Nothing” or “Keep What You Raise” approaches. Some do not make a strategic decision around which model is best for them, not realizing how much harder “Keep What You Raise” (also called “flexible funding”) approaches can make it - especially when you’re introducing a new idea or product.
If you take it seriously and you invest time and effort in planning, then you're already halfway to success.
You still need to execute well, but you can't execute a plan that doesn’t exist. You need to clearly define the goals that support your overall funding goal.
Planning is a must for running a successful crowdfunding campaign! Bre DiGiammarino, Senior Director Social Innovation at Indiegogo, echoes Tom's advice and shares how strategies like building an email list ahead of time can make all the difference.
5. ARE VARIOUS CAMPAIGN REWARDS TYPICALLY MORE OR LESS SUCCESSFUL?
There's no one perfect reward that works for everyone but campaigns with rewards are much more successful than those without.
The best rewards are contextual and unique to a particular project.
The power of rewards is to activate another fundamental human instinct: our very natural desire to acquire unique experiences and products (especially when linked to our personal values through an interesting story).
Good rewards activate what we call "the shopping instinct." Rewards make people say, "oh, that's cool. I like that; I want that." If you succeed, this will help convert more people into supporters, and get people who were going to support you anyway to give more than they otherwise would have.
The sweet spot for crowdfunding campaigns is at the intersection of the shopping instinct and the philanthropy instinct, so right where social enterprise naturally sits.
The very best rewards do what we call "double duty". They make your supporters feel rewarded but they also help you achieve your wider goals.
For example, if you're launching an ethical food business, providing tote bags to your supporters is great because when they take the bags to the farmer's market, they're advertising your business to your perfect target audience. If you're doing an activist campaign or a social change movement, providing t-shirts with slogans is great. People love t-shirts so they will be more likely to contribute. They're now promoting your message more broadly when they wear them.
Getting your supporters together at exclusive events is wonderful because it makes people feel rewarded, involved, and connected while helping you deepen that relationship with your supporters. This makes them more likely to stick around and support you again in the future.
Ask yourself: What are the rewards that will help your supporters spread your message, get more involved, experience the good you’re creating, or feel more deeply connected?
6. I'M PART OF A NONPROFIT THAT CURRENTLY RELIES ON CORPORATE FUNDRAISING BUT WE WOULD LIKE TO DIVERSIFY. IS CROWDFUNDING A GOOD STARTING POINT FOR NONPROFITS?
Crowdfunding for your nonprofit is an excellent starting point because it's become a well-understood and accepted model of doing community-focused fundraising.
You don't have to worry about getting all the right plug-ins and tools setup on your own website. A good crowdfunding platform will provide you with a crowdfunding page that works out of the box. It will allow you to try out this new muscle of community fundraising and to give it a go in a relatively low-risk environment.
Organizing a gala or making 100 t-shirts to sell has huge upfront expenses. While you need to invest in the effort of planning, creating and running it, a crowdfunding campaign doesn't necessarily need to cost anything up-front.
My advise for nonprofits looking to diversify funding sources: start relatively small.
Pick a specific project rather than fundraising for the organization. Pick a project that you're having trouble funding at the moment or that your traditional funders are not willing to fund. Once you build up your experience and confidence then you can go for larger amounts and fund bigger projects. You need to build up those skills, and your community of supporters, over time.
7. HOW CAN CROWDFUNDING HELP ME TO BUILD COMMUNITY AROUND MY ORGANIZATION?
You'll do much better at crowdfunding if you think about community that you are building - not just the funding you need.
The funds you raise are an output of the community you've built. People go wrong with crowdfunding when they think of it purely in transaction terms.
Crowdfunding is relational: its building a tribe around your idea, startup, organization, or project.
What's really powerful is the incredible social capital that this creates. The crowdfunding campaign is a communal challenge that no one person can overcome.
It's going to take a community of supporters pooling their resources. When people succeed at a communal challenge, they really feel part of something. They realize they're part of a community of people who care about similar things. They feel a real connection with your project or organization – which is a wonderful thing!
There's nothing better than crowdfunding for building social capital and financial capital at the same time. Ultimately social capital is the more enduring and powerful of the two.
You wouldn't crowdfund if you didn't need the money, but the long-term asset, which is still there long after the money’s gone, is an empowered community with a sense of ownership around what you do. That's ultimately what can carry you forward and help you achieve great impact.
8. HOW MUCH RELATIONSHIP BUILDING DO I NEED TO DO BEFORE I START CROWDFUNDING?
Crowdfunding is all about relationships. Every transaction represents a relationship, new or old.
The best way to acquire new supporters is through existing supporters and peer-to-peer sharing.
You have to have a set of peers with you from the start, who are willing to get the ball rolling in terms of sharing. That would normally be relationships and supporters that you've built up at some point prior to your crowdfunding campaign.
No matter how great your idea is or how compelling your presentation, it's very unlikely that a stranger off the internet is going to be your first supporter.
It's a little bit like turning up to a restaurant when no one's there. You begin to second guess yourself and wonder whether you really want to eat at that restaurant. You think that if this restaurant was delicious, other people would be eating here already. It's a bit like that with crowdfunding. Strangers don't like to be first. They want to see that there's already a group of supporters who are validating that campaign for them, and endorsing it with their pledge.
Your existing relationships – whether personal relationships or organizational relationships, such as previous donors or customers – don't need the extra endorsement to get across the line because they already know and trust you. This pre-campaign relationship building is absolutely critical.
9. HOW IS CROWDFUNDING CONNECTED TO CREDIT DEVELOPMENT?
This kind of thing is really exciting and is just starting to happen. We're beginning to see some specialized social enterprise intermediaries and funders begin to explore how crowdfunding could serve as a loan qualifying tool.
We have a partnership with SEFA (Social Enterprise Finance Australia) here in Australia and they're using crowdfunding in exactly this way. Traditionally, they would want a capital asset - like a building or stock - to use as collateral against their loans, but many early social enterprises don't have anything like this.
Because SEFA wants to support the sector, they're willing to experiment and be innovative. What we've come up with is exactly what you're describing - using reward-based crowdfunding in our platform as a qualifying instrument for debt investment from them. We hope to see more of this in the future; often there's a lot of power when we combine different types of fundraising, or assets, in order to find the best mix to support the growth of the sector.
10. WHAT ROLE DOES CROWDFUNDING PLAY IN THE DISRUPTION OF THE CURRENT ECONOMIC STRUCTURE?
That's a big and interesting question. I think it would be a shame if five or ten years from now we ended up with all of our crowdfunding platforms and new-age financial infrastructure being owned by the same old players (the old school financial infrastructure managers). I also think it's very advantageous for banks and financial institutions to engage in this space to partner, invest and explore because it helps us learn and scale solutions more quickly to more people.
I want there to always be strong community-controlled players and I hope that the disruption currently happening in the banking sector makes that more possible but it could always go the other way, so it's worth keeping an eye on. I think it's better when we have independent players - smaller, more nimble, players than just the big banks - and particularly having impact-focused entities.
Equally, we don't want to remain separate and siloed from traditional banking because of the possibilities of partnering. Banking is an important tool for financial independence, empowerment, and getting services to those currently unbanked is an important social challenge.
Our biggest corporate partner is ING, with whom we run Dreamstarter, Australia's most successful and impactful social enterprise go-to-market accelerator. In partnership with them, we've raised $1.5 Million dollars for 50 early-stage social enterprises over the last five years. So we really appreciate this partnership and the impact it has allowed us to create. They have two million customers in Australia so they bring reach and resources that we don't have; together we can create amazing social outcomes in a way that achieves their commercial purposes as well. They’ve measured the impact of this program on their brand building, customer engagement and staff morale, and that evidence helps get more corporates supporting early-stage innovation, which is what we need!
11. WHAT'S THE DIFFERENCE BETWEEN A TRADITIONAL CROWDFUNDING AND EQUITY CROWDFUNDING?
Equity crowdfunding is when you buy a share in the company through the crowdfunding campaign.
Rather than pre-purchasing products or donating to good work, you invest in the company in the way of an early-stage angel investor.
What's really exciting about equity platforms is they open this opportunity to everyone. That said, I don't think they open it up as far as they sometimes claim that they do. While theoretically anyone can put funds into an equity crowdfunding campaign, most of us probably can’t in practice. Really you shouldn't invest any money in early-stage equity that you can't afford to lose forever. Many of us don't have that kind of capital lying around which is why we're currently exploring crowd-lending as a lower entry option for people.
Many social enterprises are structured as non-profits, which means they can't use equity crowdfunding because they can't sell shares. However, both nonprofit and for-profit social enterprises can borrow money under reasonable terms.
The rise of crowdfunding platforms that offer real stakes in businesses and financial instruments, both equity and debt, is really exciting, particularly for the social enterprise sector.
This is where there's a market failure at the moment. Most mainstream investors, even those calling themselves impact investors, haven't really grappled with the intersection of profit and purpose yet. Most of them are simply wanting social impact as an additional criteria, or outcome, along with the standard traditional financial metrics return that they want. What we need is thinking how we would trade those off. Would we accept lower rates of return or slower rates of return in return for real social impact?
While mainstream institutional investors are having trouble with that, I think individually many people are more able, with their own money, of coming up with more interesting ways of balancing those considerations. I think it will open up deals and opportunities that aren't getting through to the mainstream impact investment markets at the moment. So, I'm looking forward to that.
Tom Dawkins is the Co-Founder and CEO and of social impact crowdfunding platform StartSomeGood. Since launching in 2011, StartSomeGood has helped over 850 projects raise the capital they need to start good.