Crowdfunding 2.0: Can Social Innovators Turn The Model On Its Head?

Friday, 22 July 2016 11:22 GMT

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Crowdfunding began as a way to fund personal projects. A new generation of social entrepreneurs takes it to the next level.

When college friends Matt Flannery and Jessica Jackley decided to launch an experimental website to raise funds for small-scale entrepreneurs in Bangladesh, they had no idea of the revolution they would start. Launched in 2003, Kiva.org enabled visitors to see profiles of individual business entrepreneurs (like women basket weavers or smallholder farmers) and give them an interest-free ‘micro-loan’ for as little as $25. Bring together enough like-minded funders, and suddenly you have meaningful amounts of money flowing to business entrepreneurs who have no other sources of financing.

The era of crowdfunding for social causes was born.

Since launch, Kiva has sent nearly US$850 million to low-income borrowers in over 80 countries. The default rate remains less than 3%, making this one of the safest forms of lending to emerging markets, with 75% of the loans going to women.

There is no question that crowdfunding for social causes is here to stay. But are there new ways to mobilize money for social good?

Fortunately, the evidence appears strong. Two current trends in particular are striking:

Taking crowdfunding into niche sectors

“Crowdfunding platforms are going beyond the ‘We fund everything’ of generic platforms such as Kickstarter,” says Josephine Korijn, a social finance consultant at Chelwood Capital. “There’s real power in specializing in a niche sector, such as solar energy, where a site can establish itself as the ‘go-to’ site, or where it can bring together specialist funders and projects.”

One of the best examples is DonorsChoose.org. Founded by former New York high school teacher and Ashoka Fellow Charles Best, DonorsChoose.org specifically focuses on schools as the recipients of its funding. Schools post a project, such as the building of a new classroom or the purchase of equipment, and supporters (parents, alumni and well-wishers) can back the campaigns. Donors Choose has raised over US$430 million to date, reaching almost 19 million students in schools across the United States, and backing over 700,000 projects.

Another example is Youcaring.org, where family and friends can set up a campaign to raise funds for a loved one suffering from a severe illness. YouCaring has raised over US$350 million to date.

Pooling the power of consumers for corporate change

An even more radical approach goes beyond simply pooling donations, and instead looks at how to bring together customer spending power in new ways to create pressure for corporate change.

This is the approach of Ashoka Fellow Will Byrne. Having previously founded the non-profit organization Groundswell, which enables consumers in the US to join together to purchase renewable energy more cheaply, Byrne is now enabling consumers to pool their purchasing power to influence companies through a new commercial start-up called Threshold.

“Threshold enables customers to come together and launch campaigns petitioning a company to make some kind of change in their behaviour. If the company complies, the customers commit to making a purchase from the company,” says Byrne. ‘We arrange gift vouchers from the company so that customers can honour their commitment.”

Threshold is currently piloting several campaigns in Washington, DC and San Francisco. A glance at the website reveals a wide range of campaigns, including asking a popular restaurant chain to give its unused food to the homeless and another asking a bike company to set up outdoor workshops for bike repair.

Byrne says that by placing actual customer orders behind the requests, Threshold changes the conversation between company and customer.

“It becomes a dialogue, not a petition. The atmosphere isn’t antagonistic at all,” says Byrne.

‘Companies actually love the campaigns,” he adds. “It’s direct feedback from the customer on what they value. It’s better than any marketing survey because the customer is actually voting with their wallet – they’re saying make this change, and we will buy more from you. That’s very compelling for any business.”

According to Byrne, start-ups like Threshold are just the forerunners of a whole new movement that he calls ‘civic consumption’. “We are seeing the rise of consumers as activists, using their purchasing power as a new way to influence corporate behaviour.”

Collectively, entrepreneurs such as Charles Best and Will Byrne are building the next evolution in crowdfunding, one where a proliferation of specialist sites will enable any citizen to mobilize funds for any cause that they care about.

Crowdfunding 2.0 has arrived.

Mark Cheng (@chelcap) and Laura Kromminga (@laurakromminga) work in the Hybrid Finance team at Ashoka. UBS and Ashoka have partnered up to launch the UBS Social Innovators program – an international, multi-year search and support package for social entrepreneurs looking to scale their social businesses. Follow the conversation online at #UBSInnovate on Twitter.

This article was first published at Forbes, on the 17th of July, 2016. 

 

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Crowdfunding 2.0: Can Social Innovators Turn The Model On Its Head?

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