Tuesday, May 27, 2014

Is crowdfunding the new new?

Crowdfunding is quickly becoming the new shiny object in the world of social change. 
(This blog is by Nell Edgington one of my favorite thinkers and writers on financing nonprofits and reproduced with her permission)


From Giving Days, to new giving platforms, to lots of articles and studies (here and here to start), it seems that crowdfunding is everywhere lately.

I’m all for innovations in the funding of social change, but I’m not convinced that crowdfunding is really creating anything fundamentally new.

Under “crowdfunding” I include efforts like Kickstarter [or Pozible in Australia] where a creative effort (a film, art exhibit, library) can garner small investments from a large number of people. And I’m also including Giving Days, at the city and national level, where nonprofits try to raise as much money as possible in a 24-hour online “event”. What these efforts all have in common is they raise money, from a large group of people, over a short period of time.

I earned my fundraising chops working public television pledge drives, one of the earliest “crowdfunding” efforts. The technology was different (TV screens and telephones, instead of CRM systems and social media), but I’m not sure much else is.

So I would like to see us separate what is potentially exciting about crowdfunding from what is just hype. To help in that effort, I offer some questions:

How much is truly new money?
It’s unclear to me how much new money crowdfunding brings to social change organizations. For example, nonprofits participating in Giving Days encourage their annual donors to give on that specific day so that Giving Day dollars are higher. But that’s not new money. True innovation in social change funding comes from efforts to grow the 2% pie  [giving as a share of America’s GDP has stayed at 2% for the last 40+ years]. I’m not convinced that crowdfunding uncovers money that would not have otherwise ended up somewhere in the nonprofit sector.

How many new donors are being retained? 
The point of crowdfunding is that it’s a one time deal. There is a message of urgency that encourages donors to give NOW. So the numbers on a specific Giving Day or with a crowdfunding campaign may be good, but is the funding sustainable? Are nonprofits or social change organizations actually growing their donor base? Are they able to go back to these investors later and encourage them to give again? And if the funding isn’t sustainable, is it really worth the effort it took to get it?

Is crowdfunding reinforcing the “Overhead Myth”?
The destructive idea that donors shouldn’t support nonprofit “overhead“, or administrative costs, is slowly dying, but crowdfunding might just be bringing it back to life. Nonprofit crowdfunding darling charity:water has been taken to task for reinforcing the idea that 100% of the dollars they raise go “directly to the field”. And crowdfunding projects are often specific and “sexy,” which means that the money is not being raised for boring things like the staffing, technology, and infrastructure that most organizations desperately need. Are we perpetuating the overhead myth by encouraging donors to give to specific projects, instead of to overall issues, organizations or teams?

What’s the return on investment?
A lot of time and effort can go into crowdfunding campaigns. If the benefits are shortlived, donors aren’t retained, and the majority of the funding is not new dollars, while the costs (staff and board time, technology investments) are high, then what is the true return on investment? I’m not arguing that it can’t be positive, but I would like to see more critical analysis about it, both at the aggregate and the individual organization levels.

I hate to be a Debbie Downer, but I’d like us to dig a bit deeper to understand what the real effects of crowdfunding are so far and what it’s true promise is. If there is already research out there that can answer some of these questions, please let me know in the comments below.

About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.

Saturday, May 17, 2014

Philanthropy repackaged for bankers


I have just attended the Asia Venture Philanthropy Network 2014 Conference (AVPN2014).  AVPN began in 2012 as an extension to the European Venture Philanthropy Association.  I blogged on the inaugural conference last year and pronounced myself an enthusiast.


What has happened since then and how is my enthusiasm faring? Without wanting to seem a Pollyanna-ish, I confess my enthusiasm remains. Who could not fail to be enthused by a forum where speakers made comments such as these:
  • "The word can't means we haven't thought hard enough"
  • "Can't means opportunity"
  • "Philanthropy is about good people who won't take no for an answer"
The energy and commitment of 380+ attendees from 30 countries (the official count said 29 but I had been counted as from Australia which I'm not! I attended from New Zealand) was palpable.

Last year, I reported a comment that venture philanthropy has been around for aeons. I reckon that still is an accurate statement. A friend who was also attending made the apt comment that "venture philanthropy is philanthropy repackaged for bankers". I don't want to suggest that's a negative. Far from it. But I think that it is a reminder that philanthropy has existed for millennium and in all cultures of the world. The keynote speaker, an Indian banker, spoke of the influence on his personal philanthropy of America, of Islam, of Buddhist meditation. Through these influences he reached a final conclusion, "the only thing enduring we can do in the world of business is the impact that we make on society". Another banker there noted wryly, "I never read a book called "The Great Businessmen of the 18th Century". He added that "the only way to leave a mark is through things that create social change".

My guess is that around two thirds of the delegates present had come from the world of banking and finance. So therefore, yes – it does seem as though venture philanthropy is philanthropy repackaged for bankers. Now is that a bad thing? No, far from it. First of all,  the world of bankers is a world of money and finance. What is its that nonprofits and charities around the world most are mostly seeking?

It is precisely that money and finance which bankers are trained and skilled at accessing. The skills that they bring to philanthropy include assessing, analyzing and measuring risk and impact. The world from which they come requires them to ask questions and draw conclusions which inform hard decisions. Are these not people whom you would want on your team? So what if they re-frame the language of gift and good as investment and impact. Any good fundraiser (or banker) will tell you that the way to successfully negotiate a deal is to see through the eyes, to walk in the shoes, to talk in the language of the other party. So learning the language of finance - or learning the language of venture philanthropy - is important for nonprofits who plan to tap into this new opportunity.

But for those of you that are nervous of a language that seems to be based on numbers, ratios and percentages I can pass on other heartening news. A meme of the conference was that, at the end of the day, most investment (read 'donation') decisions are judgements made on the basis of people. People give to people, the old saying goes among fundraisers, and people invest in people.

Another heartening meme was that stories, especially stories told by video or film  are as - if not more - effective and valuable
as statistics, percentages and ratios to demonstrate convincing success and impact.

You will hear more of Asian Venture Philanthropy and I would encourage you to embrace it. On the basis of the energy and commitment that I again experienced at AVPN2014 I am convinced it has the potential to achieve significant social change. Even if it is philanthropy repackaged for bankers it is your job to open the package.