Is crowdfunding really for businesses?

Crowdfunding campaigns have raised billions in recent years, mostly for individuals (e.g. sportspeople), start-up equity investments or business loans. At the same time, quite a lot has been said about how this fundraising technique can be translated into the charity world, but without anything like the same scale of uptake or success. Does this mean that crowdfunding doesn't work for charities? Or are there other factors at play?

At this early stage of the use of crowdfunding in the third sector there is precious objective evidence on this subject. However, I have observed a number of issues that can help you decide if crowdfunding could work for your charity or project.

Why charities should consider crowdfunding?

If done well, crowdfunding can have a number of benefits for charities including:

• Attracting new supporters who wouldn't generally give philanthropically.
• Raising awareness of your cause, particularly through social media.
• Transparency about what funding will be used for (which increasingly matters to donors).
• Making your campaign distinctive and stand out from the myriad of traditional appeals.

Crowdfunding can also be argued to to take some of the financial risk out of innovation; if your idea has legs, you'll reach your target and be able to go ahead with a fully funded project and if not, you won't (although not all crowdfunding needs to adopt an all or nothing approach)!

How is crowdfunding different?

In the private sector there are two forms of crowdfunding: with and without rewards (the former is sometimes called reward crowdfunding).

Campaigns without rewards need to have a very attractive cause that donors have a strong social or personal motivation to support without receiving anything in return. But we are used to doing that in the charity sector; it's called a fundraising appeal!

In my experience charities often just rebadge their traditional online appeal as "crowdfunding" in the hope they will attract new donors. In most cases it doesn't work any better and it discredits the idea of crowdfunding for future fundraising. Worse still, using a crowdfunding platform without offering rewards generally foregoes the opportunity to collect Gift Aid on the donations; you are better off using a traditional online fundraising site that will reclaim the Gift Aid for you.

In my view, therefore, crowdfunding in the charity sector needs to be transactional; offering rewards for donations, rather than just a mass appeal for philanthropy. That way crowdfunding is clearly differentiated from traditional appeals and has a better chance of attracting new donors (although, of course, you can't then reclaim any Gift Aid on the donations).

So, if your idea has a strong chance of succeeding without offering rewards (because it is a highly attractive idea that people will want to support), stick to a traditional fundraising appeal and enjoy the Gift Aid. If that approach is unlikely to work for you, crowdfunding may be worth a go.

Hallmarks of successful crowdfunding

Successful crowdfunding appeals typically have the following characteristics:

• An attractive project that people will want to fund if they have the right incentives.
• A realistic target and a realistic timescale to reach it.
• A well presented pitch (often including a good video) and a strong plan to promote the campaign to a large and relevant audience (lots of visits are no use unless people actually give). Take the time to plan these properly, work hard at it and use your professional and personal networks mercilessly.
• An easy to use online platform (there are many out there so shop around).
• An enticing menu of rewards to offer in return for different sizes of donation. Rewards work best when they are linked to your project/charity, such as free membership, an invitation to the launch party, branded merchandise, a copy of the product (if there is one), a chance to participate in the project, a high profile acknowledgement etc. Each tier of reward needs to be "priced" appropriately; neither giving away the reward too cheaply (you have to make a surplus!) nor making it unattractive to the donors who would want it.
• Regular progress updates for those who make pledges.

You also need to take care to target the right donor segments. If you overuse crowdfunding with donors who would anyway give philanthropically, you may find that you see a reduction in regular and/or philanthropic giving. It may even be worth setting a lower crowdfunding target than you need and looking to top up the difference through a carefully targeted traditional fundraising appeal (aimed at your existing donors who may be more likely to give a one-off philanthropic donation to the right project).

Overall, I think that crowdfunding definitely has a place in charity sector fundraising but it needs to be used appropriately and must be done well. It certainly isn't free money (you need to work hard at it) and, in my view, it isn't a solution to increased competition for core/unrestricted funding (if you are open about it, you can earmark a proportion of crowdfunding proceeds to go towards your core costs/overheads but that will increase the overall target and it is not a sustainable source of core funding).

If you would like to discuss whether and how crowdfunding could be used by your charity or causes we'd be delighted to hear from you. Simply contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion