The Limitations and Potential Impact of Crowdfunded Social Good
Global aid organizations, investors, and entrepreneurs are turning to a new source of deep pockets: crowdfunding.
The US devotes 1 percent of its budget to foreign aid. This year’s onslaught of powerful hurricanes is placing a heavy strain on both the US government’s internal and foreign aid budgets. In 2015, global crowdfunding raised $34.4 billion. That’s 80 percent of the 2017 US foreign aid budget. By 2025, the global crowdfunding industry could reach $96 billion.
Through crowdfunding, the developing world can leap into a more resilient future.
New Story, a housing-focused non-profit, is a prime example of the potential impact of crowdfunding on long-term resilience.
Since 2015, the organization has used crowdfunding to build more than 900 homes in seven communities across Haiti, El Salvador, and Bolivia. It began in Haiti, where thousands of Haitians still lived homeless five years after the 2010 earthquake. It gained support from Y Combinator, a group that invests $120,000 yearly to startups, and built its first 100 homes. Today, New Story continues to build homes through charitable donations, empowering local communities by training locals, buying local materials and involving the community in the design process.
New Story is one example of among many. But for every successful initiative, there are plenty more that fail to get off the ground. Only 35 percent of the projects on Kickstarter get funded. It's even worse on Indiegogo, where only 11 percent of projects reach their funding goal.
For start-ups using crowdfunding, raising capital might be the easiest step. Issues of trust, local infrastructure and sustainable practices are difficult to overcome. For development and aid focused start-ups, these three barriers are monolithic.
Trust and Social Media
Crowdfunding platforms themselves are global social networks that cross-pollinate with sites like Facebook and Twitter. In 2017, 67 percent of Americans get their news from social media.
Today, trust and social media engagement go hand and hand.
Projects are 60 percent less likely to succeed with fewer than 1,000 Facebook friends. It’s no wonder, considering Facebook has over 2 billion active users. This way, campaigners have the means to target groups of interest, like diaspora communities and angel investors. Crowdfunding campaigns raise three times more capital when supporters are updated on a weekly base.
New Story keeps a digital public record of each funded family, finance disturbing, and offers video of families moving into their new homes.
Showing investors exactly where and how their money is put to use is a powerful tactic for increasing buy-in and sustaining public interest.
Sustainability of Crowdfunded Businesses
What happens when the work is done? Typically, it means the end of the project. Half of all startups fail in the first four years. One of biggest contributors to this statistic is lack of need in the market.
In development and aid work, there’s always a demand for more. The survival of crowdfunded initiatives depends on evolution and expansion. New Story decided to expand rather than die out. It took its experiences in Haiti and applied them in South America.
Growth under various crowdfunding models can be hindered by government regulations, too. In 2012, President Obama signed the Jumpstart Our Business Startups Act, hoping that entrepreneurs would create more jobs.
Around the world, equity-based crowdfunding is met with a mix of hope and trepidation. But most welcome reward- and donation-based crowdfunding.
It’s clear that crowdfunding can't solve all the ills of the developing world. It has its uses, though. Now, more than ever, scattered groups have the opportunity to make lasting change and help fill gaps left by the disappointing foreign aid budgets. Now, it has less to do with who you know than what you have to offer.