The Best Fit:

 

Choosing the ‘Right’ Crowdfunding Platform for Nonprofit Projects

Xiaojun Du, Julia Shao, Emily Xiaomeng Jiang

 

The Best Fit: Choosing the ‘Right’ Crowdfunding Platform for Nonprofit Projects

 

More and more founders are setting out to start non-profits. However, for non-profit ventures, funding options are far more limited and there is little grant money available (compared to for-profit startups, for instance). While there are a number of ways for non-profit startups to raise money, we will focus on crowdfunding as one method, as it can be quite a useful tool for small businesses and startups in the sense that it creates  funding opportunities that certain smaller endeavors may not have in the traditional way. Similarly, non-profits can reach much more diverse audiences than they otherwise would and crowdfunding is quite flexible and potentially unlimited in terms of raising funds for one’s organization. If utilized properly, nonprofit startups can use crowdfunding as a powerful tool to create widespread online campaigns that raise awareness, validate ideas, garner support, network, fundraise (without going into debt) and so on.

 

While founders may face a variety of challenges, such as needing to strongly demonstrate the impact and vision of their non-profit and the cost-effectiveness of the impact through a pitch (in these cases, the individuals founders are pitching to must believe even more strongly in the cause as the return will not be the same as in traditional investment), first and foremost, non-profit startups must choose the ‘right’ crowdfunding platform for them—The platform that will best benefit their organization and goals. As making this choice is one of the first steps to ensuring a successful crowdfunding venture, we will focus on this initial part of the crowdfunding process using four platforms for study.

 

General Creator Crowdfunding Journey (varies per platform). ‘Choose Platform’ will be the focus of this report. [*created by Julia Shao]
 

Crowdfunding Types

 

Crowdfunding is by definition, “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.” According to Massolution, there are four categories of crowdfunding platforms (CFPs): Reward-based crowdfunding, donation-based crowdfunding, equity-based crowdfunding, and lending-based crowdfunding.

 

In reward-based crowdfunding, crowds fund projects for a pre-determined reward (i.e. the finished product, recognition, or even a t-shirt). Reward-based crowdfunding is a funding model for both inventors and creatives looking for micro-loans (less than $35,000). Generally speaking, reward-based crowdfunding platforms are the most popular platforms, especially for small investors and creators. Some well-known reward-based crowdfunding platforms include RocketHub, Kickstarter, and IndieGoGo.

 

In donation-based crowdfunding people fund a project by donating money without any incentive of financial return or reward and is typically most suitable for social or political projects looking for $5,000 or less. “The average donation-based crowdfunding project raised $4,076” as of May 2012.

 

Equity-based crowdfunding is a model in which people fund a company and consequently become shareholders in said company. This type of crowdfunding is very appropriate for entrepreneurs who are investor-ready and are generally seeking around $1 million or less and equity-based crowdfunding tends to raise the largest amount of funds per project. As funders become shareholders, they will be actively involved with the company (have shares and voting rights, etc.). In 2012, the average equity-based crowdfunding project raised $84, 597. Examples of such platforms include, but are not limited to Grow VC, Circle Up, and Launcht.

In lending-based crowdfunding, crowds fund a business via loan-making and repayment by the month (interest rates and terms are predetermined) and is usually most ideal for entrepreneurs looking for and capable of repaying loans each month.

 

 

 

Crowdfunding Types Diagram  [*created by Xiaojun Du]

 

More than 1 million successful campaigns were run by CFPs in 2011. The majority of these campaigns were in the donation-based category. However, equity based campaigns were, on average, much larger in size in terms of funds raised.

 

There are several differentiating factors that are crucial in the choice of crowdfunding platforms: Platform reliability, reputation, and the ability to request and accept funds from countries. According to Rocket Hub, another large crowdfunding platform, platforms provide other benefits to creators such as project fundraising pages, social media tools, press outreach, analytics & project monitoring, as well as world-class support staff, among other things.

 

However, the popularity of crowdfunding today does not mean there is no risk involved. In the first crowdfunding lawsuit in Washington, the federal government went after Ed Nash and his Nashville, Tenn.-based company, Altius Management, who raised $25,146 from 810 backers but failed to keep his promise of sending a board game to his funders. Kickstarter also has some kind of filter when creating a project, however, there still is the possibility that crowdfunding could be unsafe for funders. Interestingly, on the one hand, in the user terms Kickstarter states that creators have the obligation to keep their promise if they reach their funding goal, but on the other hand, it also addresses that the company “does not guarantee projects or investigate a creator’s ability to complete their project”. If the “funders” were treated as “consumers” who purchase the product, Kickstarter should also help to protect consumers’ rights. However, if crowdfunding in essence is a kind of investigation, risk should be understood by investors. Correspondingly, crowdfunding ventures are often not successful (i.e. fund goals are not met, etc.) due to a variety of factors and when choosing a platform, it is essential to clearly understand that platform’s policies and procedures and know what you are really getting into.

 

Furthermore, there are various important and subtle differences between online platforms that nonprofits need to be aware of. For instance, certain platforms are geared more towards creative projects, while others might cater specifically to nonprofits wanting to use crowdfunding to fundraise. Another thing to keep in mind when choosing a platform is that all crowdfunding platforms charge a baseline processing fee. Additionally, most platforms charge fees following the end of fundraising, which tend to vary. While some platforms may not charge anything (these types of platforms, of course, have limitations when it comes to collecting donations), others may charge more if a project does not reach its targeted goal.

 

 

Platform Profiles + Evaluation: Kickstarter, Generosity, AngelList, StartSomeGood

 

There are more than 400 crowdfunding platforms around the world, and most of them are in the North America and Europe. Although most platforms are not specifically geared towards for-profit projects, there are not so many platforms that specifically support non-profits. So how does one choose a platform to launch a new non-profit idea on when there are so many? Some platforms are more supportive than others for non-profits, and while there are a number of platforms out there that nonprofits can use, we have chosen four widely-visited platforms of study for purposes of this report: Kickstarter, Generosity, AngelList, and StartSomeGood.

 

In order to better understand and summarize our findings regarding the above four platforms, we have created the following seven platform evaluation criteria (ranked on a 1-5 scale) and will relay our findings in the form spider map graphs throughout the rest of this paper, along with brief profiles of the platforms:

 

Prefered Project: Type of project (i.e. creative, personal, etc.). Greatest flexibility/inclusivity = 5

 

Policies: How much platform’s policies benefit the creator. Fairest policies/most beneficial overall = 5

 

Procedure: Ease/effectiveness of creator journey. Most seamless process = 5

 

Cost: How much creator must pay if funding goal is met. Lowest cost = 5

 

Traffic: Frequently viewed and likelihood of investor support. Highest traffic and likelihood of support = 5

 

Customer Service: Quality and helpfulness of operations support. Overall more accommodating service = 5

 

Resource Offering: Other resources offered to creators. Greatest # of useful additional services = 5

 

 

 

Kickstarter is one of the first and most well-known global crowdfunding platforms based in the United States. Essentially, the platform’s goal is to help bring creative projects to life through a web service that collects funding from individuals via pledges. Kickstarter has reported receiving over $1.5 billion in total pledges from 7.8 million individuals since its origination, helping to fund over 200,000 projects. Kickstarter is seemingly the platform with the most traffic and although it is not limited to for-profit or non-profit project types, it prefers highly creative projects that encompass fields such as music, film, design and other forms of art. Only projects that fall into such categories can be launched on Kickstarter. In other words, if you are a non-profit organization, what you have done should also be creative in order to succeed on Kickstarter.

 

Kickstarter is a rewards-based platform (rewards tend to be tangible), and projects are heavily curated, meaning creators must follow strict guidelines and are carefully selected by editorial teams to be featured on the site. Furthermore, Kickstarter charges a competitive 5% fee for successfully funded projects and an additional fee that goes to Amazon Payments. This is something significant for nonprofits to keep in mind, especially if their margins are slim.

One of the other biggest differences Kickstarter has compared to other platforms is that it follows a strict “all-or-nothing” policy. When fundraising for an all-or-nothing crowdfunding campaign, you will only receive the pledges that you have accumulated throughout the duration of the campaign if you meet your fundraising goal before the clock winds down.

 

A new study, from Toronto's York University and Universite Lille Nord de France in Lille, France, compares the results of those two different types of crowdfunding campaigns. The results suggest that if you are really serious about getting your project or product funded, you should probably grit your teeth and do an all-or-nothing fundraise. "Overall, [all-or-nothing] fundraising campaigns involved substantially larger capital goals, and were much more likely to be successful at achieving their goals," write the researchers.

On the whole, it would appear that while Kickstarter certainly has some of the highest success rates among crowdfunding platforms, it might be a bit of a gamble for nonprofits. For instance, unless your nonprofit has a very compelling project that has already garnered a great deal of interest, one might not want to invest in a Kickstarter campaign. On the other hand, due to Kickstarter’s immense popularity, your nonprofit may, at the very least, be able to garner a great deal of press or attention if executed properly.

 

 

Kickstarter Platform Evaluation [*created by Emily Xiaomeng Jiang]

 

 

In October 2015, IndieGoGo introduced its new global crowdfunding platform, Generosity, that aims to give its users a new community “for showing and sharing their compassion through personal fundraising.” The recently founded platform focuses on social and personal causes (in other words, people who need help), and is a donation-based crowdfunding platform. The new platform is quite simple and thus, is user-friendly, both for those trying to raise funds and those donating. Furthermore, its inclusive policies are proving to be a great option for project creators searching for more flexibility, as the site also allows campaigns to run indefinitely, unlike other platforms that may have a 90-day funding period. Ventures on Generosity begin at $1,000 +

and another unique aspect of the platform is that it does not charge a platform fee, thus enabling “...nonprofits and grassroots campaigns to raise money without having to pay any platform fees.” However, while less than other platforms like Kickstarter, Generosity does charge a processing fee of 3 percent plus 30 cents on each donation to cover fees with third parties, like credit card companies. In essence, the platform makes an effort to help charities keep more of the money they raise.

 

According to IndieGoGo co-founder and CEO Slava Rubin, “We’ve seen the impact that a group of people coming together to support an important social cause can have and our commitment to support nonprofit and personal funding has literally changed lives for the better. We’re now making that easier with Generosity.” “Whether it’s in response to a natural disaster, humanitarian crisis or for an important charitable cause, fundraising on Generosity by Indiegogo is literally changing lives for the better.”

 

 

 

Generosity Platform Evaluation [*created by Emily Xiaomeng Jiang]

 

 

 

Founded in 2010, AngelList is an equity-based platform for startup companies (often high tech) to find potential investors through something similar to a targeted social networking approach to crowdfunding. AngelList has a network of investors called syndicates, who cover all setup costs and carried interest so that startups pay nothing to raise funds. Any startup incorporated in the United States or the United Kingdom can apply for funding by creating an AngelList profile, but syndicates (allow investors to partner on funds, while AngelList takes a 5% cut) typically look for companies with a credible founding team, demonstrable post-launch traction or a reputable offline investor already involved with the company. Essentially, companies that already have some well-known investor works better than the totally new company.

 

If deciding to use AngelList, entrepreneurs must build a solid profile and be committed to researching companies, investors, and how they are connected. Startups can view the profile pages of investors that reveal their interests and other projects they have invested in. Companies can also list their fundraising accomplishments for accredited investors affiliated on the site to see. With similar features to LinkedIn, AngelList’s features have been developed to connect people either working for or with startups, and consequently, exhibits a wealth of company information.

 

 

 

AngelList Platform Evaluation [*created by Emily Xiaomeng Jiang]

 

 

 

StartSomeGood provides a global crowdfunding platform exclusively for social good initiatives, regardless of whether one’s organization is nonprofit, for-profit or unincorporated. Essentially, the platform provides opportunities for new approaches to addressing well-understood, yet diverse, social challenges. ‘Ventures’ must be approved by the platform before ‘projects’ can begin and will then also need to be approved (this is a multi-step process and may take some time and patience) and similarly, all campaigns need to meet their so-called tipping point (tipping point allows organizations to set a funding goal and a lower “tipping point” at which one’s project can minimally proceed and where you will collect the money you raise) in order to receive the funds, however, are not required to reach their listed ultimate goal. StartSomeGood charges the standard 5% fee and also requires that projects offer backers rewards, but it can simply be an acknowledgement or a thank-you note.

 

 

 

StartSomeGood Platform Evaluation [*created by Emily Xiaomeng Jiang]

 

 

4 Platform Comparison

 

 

Platform Evaluation Comparison: Here you can see the differences and various strengths/weaknesses between the platforms. [*created by Emily Xiaomeng Jiang]

 

Framework for Choosing the ‘Right’ Platform

 

In order to better help nonprofits choose the ‘right’ crowdfunding platform for them, we have created a simple platform navigation framework according to type of non-profit, type of crowdfunding platform (i.e. rewards-based, etc.), project target area, scope of project, strength of creator/organization network, creativity of project, and confidence or creator/organization.

 

 

 

Platform Selection Diagram [*created by Emily Xiaomeng Jiang, Julia Shao, Xiaojun Du]

 

Brief Case Study + Diagram Flow Example: Energy for Old Fadama

 

Energy for Old Fadama is a social-enterprise organisation that was founded by a group of students in 2012 and is “dedicated to providing safe, sustainable power to Ghana’s largest urban slum.” As of 2013, there were approximately 100,000 people living in Old Fadama with limited access to some of the most basic human needs: running water, legal electricity, sanitation, education and legal representation. As this large community lacks safe access to legal electricity, it has no choice but to pay for illegal connections to the national grid that are dangerous and have caused fires and other life-threatening situations.

 

Energy for Old Fadama’s long-term goal is to not only provide solar energy to key community buildings, but also to create employment and empower women throughout the slum. They have used StartSomeGood as their crowdfunding platform and have  already made headway in their venture to provide solar energy to community buildings in Accra. While their funding campaign on StartSomeGood has ended, they surpassed their tipping point goal of £15,650 and nearly made it to their total funding goal of £17,500 with 59 backers. Additionally, the small organization has garnered both financial and guiding support of some major companies, government advisors and technical professionals,

 

Please see the highlighted platform-choosing framework here as an example in order to understand why Energy for Old Fadama chose StartSomeGood as its crowdfunding platform.

 

Platform Selection: StartSomeGood [*created by Emily Xiaomeng Jiang, Julia Shao, Xiaojun Du]

 

Summarizing Thoughts

 

Overall, it is necessary to point out that while choosing the ‘right’ crowdfunding platform for one’s project is very important and can influence the outcome (positive or negative), the success of a crowdfunding campaign is not solely dependent on which platform one chooses. Factors such as the scope of the project (narrow often seems to work best), duration of the project/funding phase (a short, fixed duration seems to be effective), target audience (the more specific/focused it can be is better), pre-existing network, demonstrable impact, and strong/resonating story/pitch all influence the the success of a crowdfunding project. However, this does not diminish the importance of choosing a platform that best supports one’s nonprofit’s unique requirements, goals and available resources.

 

It is quite clear that crowdfunding is not a quick fix for funding issues in the social sector, however it is an increasingly critical component of the fundraising toolkit. While crowdfunding platforms can act as extremely useful tools for helping nonprofit startups to raise funds, they are also great tools for general exposure and support--Often to much more diverse audiences and investors that creators or smaller organizations would otherwise have access to.

 

Throughout this paper it has become apparent that crowdfunding platforms have various strengths and weaknesses: Some platforms may have simple, effective procedures and low costs, while others may have a greater number of resource offerings, and so on. One things we began to ask throughout our study of the four platforms was, even if start-ups receive the funding they need to get going, what is to say or ensure they will be successful? Similarly, while a few platforms offer supplementary resources, should platforms go beyond their traditional role of helping start-ups fundraise to also assisting them develop and grow to the greatest extent possible post-fundraising? While there are some traditional startup accelerators that are taking in nonprofits, there are far fewer programs dedicated solely to the development and growth of nonprofits. Funding and/or an accelerator programs allow a founder to create the infrastructure necessary to grow more quickly than they otherwise would. Just something to think about.

 

On the whole, by creating and using evaluation criteria to assess the four platforms we chose for study and then providing a higher-level framework for choosing the ‘right’ platform for one’s nonprofit startup based on organization type, etc., we hope to have provided you with some useful tools for both understanding and decision-making.