5 Things Nonprofits Should Know About Crowdfunding

It’s Day 3 of my challenge and I am already cheating. In my defense, my fiancee made me grout tile for 8 hours today and I can barely keep my eyes open. So today, I have nothing new, and instead will share a blog post that I wrote for the Center for Nonprofit Management recently.

I do hope to keep my cheating to a minimum in the future.

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I recently attended a discussion about crowdfunding, hosted by the Los Angeles Chapter of Social Enterprise Alliance and Impact Hub Los Angeles.

The conversation was mostly around crowdfunding as it can be used for entrepreneur’s for-profit projects, but the lessons learned translate for nonprofits who are crowdfunding as well.

The presenters were Barry James, Co-Founder of UK’s Crowdfunding All Party Parliamentary Group and Founder, The Crowdfunding Centre; and Kathleen Minogue, Founder of Crowdfund Better.

Before I get into the great things we learned that day, I wanted to give you a little background on the topic. First, as you may have deduced, crowdfunding is the process of funding a project through a crowd of people who are interested.

There are four types of crowdfunding:

• Donation-based, which is basically just regular charitable giving, but through an online platform and usually for a set period of time.
• Rewards-based, which is where people who donate get a reward for doing so. Usually it’s access to the product or service. These crowdfunds are popular on sites like Kickstarter and Indiegogo.
• Crowdlending, which is where you give someone an interest free loan for a project. The most popular site for this kind of funding is Kiva.
• Equity crowdfunding is tricky and somewhat new. Up until very recently, only accredited investors were able to invest in companies (and receive equity in return). Now, unaccredited investors are able to as well, which means the general public can play a larger role. While this may seem not nonprofit-y, there are some companies that are doing good things through equity crowdfunding. For an example, check out a post I wrote on my personal blog, Put Up or Shut Up: Why You Should Invest in Elio Motors.

Now, on to lessons learned!

1. Crowdfunding is doubling every year.

Crowdfunding is huge. In 2014, $16 billion was raised using crowdfunding, and it will be about $36 billion by the time 2015 is over. That number is expected to keep doubling, and will outpace venture capitalism.

What that means for the average nonprofit is that the public is going to become more and more comfortable with crowdfunding as a way of donating. It may not fit into your fund development strategy now, but it might become a necessity in a few years.

2. Crowdfunding is a party for like-minded people.

Fundamentally, crowdfunding is about people coming together to make things happen. Kathleen put it simply, “It’s not your job to convince people to give to your campaign. It’s your job to find people waiting to back your campaign.”

She drove this point home again later when she said, “If you build it, they will not come.” Most people don’t care. You have to define your target audience and find out where they “live” and let them know what you are up to.

3. The key is to prepare.

You have to do your homework. Which, as I just mentioned, includes defining your target audience and finding out where they are most likely to see your message. It also means having 30% of your goal reached before you even launch. Prep your family and friends ahead of time and let them know to donate in the first few hours. Strangers don’t like to give until they see that you already have some traction. They also don’t want to fund something that you can’t even seem to get people you know to back. (This is like when foundations don’t want to give to organizations whose board members don’t give!)

4. Angel Investors find crowdfunds, not the other way around.

This is another one of those learnings that might not seem important to nonprofits, but actually is. Crowdfunding is a very public way to say I see a need, I’ve developed a solution, and it’s a solution that people are excited about.

It used to be that entrepreneurs went to investors to get backing, but now, more and more, the investors are just going to the internet to see what the most popular crowdfunding campaigns are.

Foundations may not be scouring crowdfunding sites to find their next grantees, but that’s not to say they won’t in the near future. It’s also a great way to find individual donors who want to give to your cause.

5. To be successful, become a participant.

If you’re thinking about launching a crowdfunding campaign, find an existing campaign (or two or three or four) that interests you and back it. Pay special attention to the user experience, the messaging, the email frequency, etc. and see what you can learn.

The session was chock full of other great information, but unfortunately it’s not 80 Things Friday. Ok, ok…one more thought that I found interesting. In the digital age, everything is much faster. But marketing is still about building relationships. And while you can get a message from California to New York in seconds, building relationships still takes a lot of time. Definitely food for thought!