There was quite a bit of talk of Crowdfunding in some of the sessions at this week’s IFC Online eConference and that reminded me of an article I was asked to write a while back for Professional Fundraising, the Monthly trade magazine for the sector in the UK, specifically about how online fundraisers might learn from commercial crowdfunding initiatives.

It was a timely reminder, because the article has just been published online as well as in this month’s printed edition.

Update – the article is now ‘subscriber only’ – so I’ve included a full copy here so you can read it:

Crowdfunding: just a Web 2.0 twist on what we’ve always done or the future of online fundraising?

Over the last few years, the development and mass adoption of new web-based services which specifically support collaboration and sharing between users – known as Web 2.0 – has transformed the way in which we can engage with each other, and with brands, online. It has also resulted in the proliferation of a whole new generation of collaboration-related buzzwords, which is great if you like that sort of thing. Personally, as someone who spends a lot of their time working to demystify the complexities of digital marketing to help people do it more effectively, I try not to throw jargon around too much. However, there is one particular Web 2.0 buzzword that I think all fundraisers should know about and understand, because the initiatives that it encompasses offer some very useful learnings for online fundraising.

That buzzword is Crowdfunding. Best defined as The collective attention, trust, and co-operation of a network of people who pool their money together via the internet in order to support efforts initiated by other people or organisations. But best understood through some real world examples…

Interested in football? Think you can do better than the manager of your favourite team but don’t have an oil rich Sheik’s budget available to help prove it? Never fear, your time for touchline glory has arrived thanks to MyFootballClub.co.uk. This is an online community of football fans who, through over 32,000 individual contributions of £35 per year, have purchased their own football team and now make every major decision concerning their club, from team selection to choosing sponsorship deals, through online voting. Admittedly their club isn’t Manchester City. It’s actually Ebbsfleet United from the non-professional Blue Square Premier League. But, they did win the FA Trophy in 2008, just a few months after being purchased by the MyFootballClub crowdfunding community.

Perhaps music is more your thing? In that case you can help take on the big music brands through a range of crowdfunding initiatives like Sellaband.com. There, fans, or “believers” as they are called, contribute in $10 increments to raise the $50k required for their band to record a first album. If successful, they can earn their investment back through subsequent music revenues.

Or, if you prefer movies, you can now become an online mini-mogul through crowdfunding sites like ArtemisEternal.com. Or perhaps you’re a closet fashionista, and would prefer to buy a share in a new designer through crowdfunded fashion initiative catwalkgenius.com?

Hopefully by now you’ll get the picture. The ease of online collaboration brought about by Web 2.0 enables businesses like these to harness the enthusiasm of individuals from all around the world, attracted by the opportunity to cut-out the middleman and get personally involved with other like-minded folk in funding a specific initiative or project.

The crowdfunding business model should also ring a bell amongst fundraisers. As these examples of crowdfunding are essentially online commercial versions of community fundraising, albeit with some interesting extra participant benefits such as involvement in decision-making and a potential financial return on your investment. And, of course, there are a number of nonprofits who are also establishing and fundraising from online donor communities in similar ways.

Of these, probably the most successful and perhaps the closest to the commercial crowdfunding model is the nonprofit microfinance organisation Kiva.org. Its innovative approach of offering donors the opportunity to help finance micro-loans to small business entrepreneurs throughout the developing world, and then to re-use their donation once their loan has been paid back, has proven immensely popular with online donors looking for an alternative to traditional charity asks. From raising $1m in its first year, Kiva hit $10m in year two and an amazing $40m by the end of its third year in October 2008.

Another fairly recent online nonprofit start-up, which follows a more traditional community fundraising model to crowdfund educational projects in the US, is Donorschoose.org. In the 9 years since they launched, over 115,000 donors have used their site to choose and fund projects and last year they raised over $10m.
In addition to such specialist, single cause nonprofit crowdfunding sites, there are also a growing number of what might be called online charity crowdfunding supermarkets where donors can browse and select from projects being undertaken by a wide range of different organisations. One of the best known examples of these is Globalgiving.com which launched in 2001, since when it has raised over $12m and now offers grassroots development projects for funding from over 50 different nonprofits. Other such sites include the recently launched Pifworld.com.

If you take a look at any of these sites, specific or supermarket, you’ll see that they all have certain things in common beyond the fact that they are making pretty good use of the online medium.

Most importantly, they are not just online fundraising portals providing secure donation handling for Credit Card or Direct Debit donations. Rather, they have invested significant effort in successfully migrating the best aspects of traditional community fundraising from the windy church hall to the web.

They don’t make use of the mass direct marketing that has grown to dominate the income sources of most nonprofits over the last couple of decades. Instead they equip existing supporters to recruit more like-minded people from their personal networks of friends, and colleagues. They don’t expect these donors to go out to their contacts with non-specific fundraising asks aiming to add donations to a generic income pot. They identify specific projects, with specific funding needs – and once the needs of a project are met it is no longer available to be funded. They don’t send updates containing information about parts of the organisation or projects of which the donors have no knowledge or interest. They send project-specific updates, in the case of PifWorld in the form of videos from the fieldworkers responsible for using the money you’ve given.

While all of this ‘focused giving’ talk may sound like old hat, it is really very surprising just how few traditional charities are as yet taking advantage of the ways in which you can use the internet to develop such authentic online community fundraising initiatives. Some are beginning to offer project-specific funding opportunities on their main websites, but all too often when you take a close look you realise that what appears to be project-specific is actually still just an example of where your money ‘might’ go. Most charities have yet to evolve their online offering much beyond a web-based version of their usual Credit Card or Direct Debit donation form.

Perhaps it is because they have yet to overcome the internal challenges of designated funding. Or perhaps they’re just so focused on the traditional direct marketing techniques that have driven their past income growth that they haven’t noticed what some of the most successful new online fundraising organisations are doing.

Wherever your online fundraising is at right now, and whatever the reason, I’d recommend you take a close look at those succeeding in commercial and charity crowdfunding to see what you might be able to apply to your own future initiatives. To help focus the mind, you might also want to consider just what competition the growth of this type of activity might represent. If the most enthusiastic of online donors become used to knowing just which projects they are helping fund – will they be less likely to support charities unable to offer such transparency? If a tiny specialist charity can promote its projects through a charity crowdfunding supermarket using all the technical wizardry that was once only available to big charities – then where does this leave the big brands? Might even a share in a crowdfunded movie or football club replace the charity goat or other ‘virtual gift’ as the ‘must have’ low-cost online novelty gift next Christmas?