More than money - crowdsourcing meets crowdfunding
Crowdfunding campaigns are increasingly sourcing non financial contributions as well as money from backers. This blog explores this new trend in crowdfunding.
More than money - crowdsourcing meets crowdfunding
Crowdfunding and P2P lending’s great value has been its ability to involve groups of people in making lots of small financial contributions to collectively fund investments or donations. However, as entrepreneurs raising money are becoming more aware of the high cost often associated with successfully securing funds, they are increasingly seeking to maximise the additional benefits of crowdfunding, by seeking more than money from their backers. Platforms and businesses are doing this by combining crowdfunding with the crowdsourcing of non-financial assets such as people's time, skills and possessions. In the future, the sourcing of non-financial assets could grow to be just as important to projects as getting finance, and platforms will increase their capacity to enable this.
Sites such as Kaggle, Grabcad and designcrowd have demonstrated the potential benefits in using crowdsourcing to source ideas from a large online community to address challenges on anything from engineering to graphic design. While there are strong links between crowdsourcing and crowdfunding (crowdfunding is after all the crowdsourcing of money), to date, the majority of crowdfunding platforms and the projects they have helped launch, have stuck to focusing primarily on sourcing financial contributions from their backers. However, there is an increasing trend of projects looking to combine the two, and source non-financial benefits from backers, with platforms playing a bigger role enabling it.
Sourcing time, skills and things from backers
In Nesta’s study of crowdfunding users in the UK, 71% of those who had run a rewards-based campaign saw the non-financial benefits of crowdfunding such as press and marketing as important or very important when they made the decision to fundraise via a crowdfunding platform. In general, one of the most recognised benefits that supporters bring to campaigns in addition to money is the promotion of the fundraising campaign to new (social) networks of potential backers.
However, looking beyond support with marketing and networking, the study also documented a trend of more substantial non-financial benefits being provided by backers, with people offering to donate time and skills to the projects they backed (particularly the case of projects with a social purpose). 27% of people who had used donation-based crowdfunding platforms had offered to volunteer with the project they supported. The same was true for 32% of people who had invested in a community share, just as 39% of them had participated in shareholder meetings. Looking beyond volunteering time, 7% of those who used donation-based crowdfunding to support a project, had also offered things, such as hardware or the use of space towards the project.
In most cases, this link between crowdsourcing and crowdfunding has been either through an informal process with projects taking on board feedback from backers made in the comment field or else a staged process where the design and development is crowdsourced on other digital platforms and then taken on to a crowdfunding platform.
The development of the HandGround coffee grinder is one example of the latter. Before its Kickstarter campaign it started off as a design idea debated on Instagram by the developers and fans who were part of their Instagram community. After the campaign was launched on Kickstarter, backers were made part of ‘Team Hand Ground’, and were encouraged to give their opinions and ideas through surveys and open-ended responses every time a major design decision or trade off arose.
An example of integrating user comments is how the team behind the Ostrich pillow, who, for their second crowdfunding campaign, released a new pillow design which was heavily influenced by feedback from backers of their first campaign.
While offers of support in the past have happened in more informal ways, some platforms have begun to create a more structured way for people to dedicate their time and feedback to projects. Platforms such as Kriticalmass for example, let campaigns quantify the amount of volunteer hours a project needs in the same way as it sets a financial target.
Other platforms have sought to formalise the involvement of backers in the design and product development. The Spanish platform Goteo focuses on how to enable ‘crowd collaboration’ as well as funding, based on a belief that ‘everyone who contributes to a project should become part of the economic/productive/creative process they helped to improve. Therefore, projects that raise finance on Goteo also have the opportunity to source non-financial support from backers that can help make the projects a reality. For example, Nodo Móvil a campaign to create a mobile wifi connection unit for social movements and public spaces. In addition to raising well beyond its minimum funding goal, it also succeeded in attracting support from developers, a hacklab space for working, a 3D printer for prototyping, volunteer testers for their prototype solutions, as well as an offer to collaborate with local authority on testing the project in a public area.
In gaming, Games Planet Lab has been experimenting (it's only launched two campaigns so far), with involving backers in both funding and collaborating around the game development. This includes contributing with anything from coding to voice acting and voting on ideas put forward by developers throughout the development of the game.
For people contributing non-financial resources, the main drivers behind their participation, in most cases, is a combination of wanting the project they supported to succeed and being associated with its brand or social purpose, and getting a better product that more closely reflects what they would like from it. In the case of those investing for equity the motivation will primarily be helping the business succeed, increasing the likelihood of the business doing well and their investment delivering a return.
Given the large amount of effort required in putting a crowdfunding campaign together and the high failure rates on platforms, businesses seeking finance for a project or startup will increasingly be weighing up the cost versus rewards of crowdfunding. This will increasingly mean entrepreneurs have to get the most out of the potential non-financial benefits to make the most of their crowdfunding efforts.
Building on this, it is likely that more and more companies will turn to crowdfunding primarily for the non-financial benefits. There are already some example of companies, who have secured substantial funding from traditional sources of businesses finance, turning to crowdfunding primarily for market and product validation purposes. One example of this is how Hello which had already raised more than $10 Million in venture capital, turned to rewards based crowdfunding primarily to market their product.
What could the future look like
As platforms and the tech behind them become more sophisticated, the type of requests and resources they will be able to handle will be increasingly diverse. However, there will still be challenges as platforms aim to support more non-financial support. Most people can support with a promotional tweet or some feedback on the early stage design of a video game, but it could potentially be much harder to find backers who could provide specialist skills such as app development for a game or carpentry skills for a piece of furniture. This is both because the skills will be more scarce and people would be less inclined to volunteer them. Having said that, a future development could be projects exchanging equity, bounties or rewards in exchange for non-financial contributions in the same way as they reward financial contributions to incentivise the contribution of more niche or scarce skills.
Another challenge for any crowdsourcing of non-financial assets is the management of these. While attracting monetary contributions and releasing raised funds from the platform is relatively straightforward, managing volunteers' time and skills can be incredibly complicated. How do you, for example, ensure the people who volunteered their time as well as their money, will turn up on the day you need them, and if they do, that they can do what you ask of them?
Building on this some potential future evolutions could be:
as platforms become more sophisticated, crowdfunding campaigns will, to an increasing degree, be able to request and manage increasingly complicated types of non-financial support instead of or in addition to financial support
backers who contributed time, skills and non-financial assets will be rewarded by crowdfunding campaigns in the same way as those who have given a financial contributions, with products, equity or revenue share
companies will increasingly use crowdfunding purely for the non-financial benefits such as product development and promotion
for charities and projects with a social purpose, crowdfunding will become an integrated part of how they mobilise and manage volunteers.