10 key characteristics of crowdfunding, part I – Blog #2

In this blog series we want to determine whether an increasing focus on crowdfunding is a logical step for the philanthropic sector.  Is crowdfunding in line with the next generation of givers? In order to answer this question I will present the 10 key characteristics of crowdfunding. The word ‘crowdfunding’ appeared more than ten years ago. It started here in Amsterdam in 2006, with the crowdfunding platform Sellaband. Crowdfunding as a financial tool is not 100% a new thing. Can we even say it is a new thing? Well there are some features that make crowdfunding unique. In this blog I will present the first four key characteritics of crowdfunding.

Hé! Each month I will upload a new blog series. Each series will have one central subject; the subject of this month is ‘All you need to know about crowdfunding’. A series consists out of several separate blogs. I presented an earlier version of this blog series during ‘The Dutch Days’ at the ISTR 2018 conference in Amsterdam. This is the second blog of the ‘All you need to know about crowdfunding’ series. In the first blog we discussed the 4 key crowdfunding concepts, to read the blog click here.

For a short video (NL) where I explain crowdfunding in 3 minutes click here.

Crowdfunding

If you want to know more about the key crowdfunding concepts please read the first blog of this series. In the first blog I discuss the basics of crowdfunding. Before we discuss the 6 new things about crowdfunding it is important to note that I focus only on philanthropic crowdfunding, that is reward- and donation based crowdfunding. Next to these forms there are also equity- and lending-based crowdfunding. I will post a separate blog about the differences between the four crowdfunding forms. But for now remember: we focus on philanthropic crowdfunding were donations and giving are central.

Afbeeldingsresultaat voor computer onlineOnline: the place

This might be an obvious one, but let’s start with an easy one. Crowdfunding takes place online. The site where the projects are presented is called a ‘platform’. The idea is placed online on a specific site by an initiator (in more traditional philanthropy we often refer to them as collectors). Crowdfunding provides you with several tools to reach your crowd. As crowdfunding is an online funding tool, most of the communication takes place online: in terms of the communication there is a real focus on social media.

Project oriented: presentation I

I’d say that the project oriented nature is THE key characteristic of crowdfunding: the funding goal is presented before the donor makes a donation. With crowdfunding we often speak of projects instead of funding goals. The project oriented nature makes crowdfunding quite unique. Traditionally charities would ask donors to make a donation to a general cause: please support our animal shelter. With crowdfunding donors are asked to contribute to a specific project: please help us build 5 new dog houses.

Specific: presentation II

The project oriented nature is guided by the requirement of a detailed description about what the initiator aims to do with the money: why is this project important, how will a donation be used? Most projects also add a short video to describe the project; however this is not mandatory (but advised). A crowdfunding campaign also informs you about the exact funding target (minimal amount they want to assemble), the number of donors, the average donation amount donated by earlier donors, the percentage assembled (depending on the rules of the platform a project has to assemble at least 80% of the target amount to be considered successful or the full 100% of the target amount).

Afbeeldingsresultaat voor transparentTransparent: presentation III

This detailed description and project oriented nature provide a certain transparency which in turn provides us with more information than for instance asking for a donation to a specific charitable organization. I would say that the focus of crowdfunding to provide donors with this much information is a relatively new feature in fundraising world. Another way in which crowdfunding is transparent is through the provision of updates. Since this is such a key characteristic, I will describe this in a separate paragraph (updates).

Next week: we will discuss the next three key characteristics of crowdfunding. The last three will be presented in the following week.

To sum it up, crowdfunding can not be called a new funding tool. However, it has several aspects that make it a unique tool, but is it an attractive tool? A unique feature is the presentation, the goal is presented as a project instead of a general cause. Second, the information flow is more elaborate and takes place before during and after a donor made a donation. Finally, crowdfunding is an online funding tool. More next week, stay tuned.

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