The Rise of Crowdfunding Philanthropy
Viral crowdfunding campaigns can spread like wildfire, especially when it's for a good cause. In Chicago, Joel Cervantes Macias spotted an 89-year-old man selling Mexican ice pops on the street. Since the man looked too old to be working and Macias had little cash to give him, he decided to post his photo on the charitable crowdfunding page, GoFundMe. While the “Relief for Fendicio the paleta man” campaign had a goal of $3,000, it quickly went viral and achieved $300,000 in funds.
Since then, it’s become a bit of a parable and CEO Rob Solomon shares it frequently to illustrate the power of social fundraising. In his view, this represents a cultural shift, where one small action can lead to a huge impact for social good. Giving over the Internet combines two previously distinct channels of interaction, social sharing and e-commerce and builds upon something more democratic and altruistic. With crowdfunding, anyone can start to give to charity right away and share campaigns for any social issue, all while funneling these funds to nonprofits or directly to the person in need. It’s a great way to introduce new donors to charities and nonprofits in a transparent way.
The Giving Layer
Since GoFundMe’s founding in 2010, the company has raised $10 billion from 150 million donations. North American platforms raised over a remarkable $74 billion in crowdfunding in 2020. The result offers a vast pool of funds that fundamentally shifts who is funding charitable work and how support is accomplished. Viral campaigns can reach more potential donors and they give due to an emotional response, not the broader social problem. This has forced nonprofits to scramble for ways to share their own community-oriented messages within social and crowdfunding platforms. The nonprofits that are flourishing are focusing on personalized messages and interactive ways to engage with donors. Crowdsourcing windfalls can often come with few strings attached, which leaves those who secure them with fewer checks and balances. For generations, major cause-related funding was provided by foundations, who often were capable of attracting federal, state or institutional players to invest. For major funders, these crowdsourced projects may mirror risk-free startups.
Foundational Change
One of the biggest questions within crowdfunding is whether the crowd-driven money will be allocated effectively as the industry grows. Users can now solicit monetary support for everything, from buying alcohol to attending Burning Man. But by acting as neutral facilitators, many platforms can be manipulated in similar ways to Facebook promoting fake news. Still, the movement is funding various groups, ranging from growing nonprofits with their own missions to social-good businesses. Some of these community-based bets show foundations where they might invest more wisely in the future, especially if funding goes toward a group or solution that proves successful.
UC Berkeley research shows that many venture capitalists use Kickstarter as a road map to identify the spaces and places where they should be investing. Crowdfunding is now supporting innovators in many areas that have typically been excluded from venture capital. It has been expanding the reach of VC funding itself. Today, nearly 50% of companies implement Regulation Crowdfunding, private investments supporting businesses that can improve communities are based in economically depressed areas.
Some experts like Richard Swart, who advises the Bill and Melinda Gates Foundation, believe it could be a purposeful guideline for the developing world. Now, major foundations are considering implementing crowdfunding campaigns as a discovery strategy for identifying aid groups with innovative poverty, health and resilience solutions while also understanding the sensitive cultural, historical and political issues in some regions.
Crowdfunding platforms like Allied Crowds and Kiva have since been established to assist investors and beneficiaries in navigating the business of financing international deals that have broader social contexts. Federal aid can help here like the British government, who once instituted a program to cover the last 10% of financing for crowdfunded projects that improve communities.
Taking Accountability for Greater Change
Essentially, all these charitable crowdfunding platforms operate on one basic principle: beneficiaries know how much funding they need and how best to spend it. GiveDirectly is one app that showcases this by transferring cash directly to those in extreme poverty and enlists its ground team to help identify recipients before the funding is given. Implementing strict accountability for how much they spend has earned the group a top rating from GiveWell.
Donors don’t know the direct beneficiary of their money, but the group shares the personal stories from villagers posted on their community platform. This allows the giving conversation to come full circle for donors. GiveDirectly also funds independent studies to track the impact of their money in the communities that receive it. They post these publicly and adjust as new research comes out. It’s yet another way to create trust, allowing the group to test new approaches and provide some recipients with universal basic income or support to refugees. These tactics appear to make donors feel more comfortable about investing in causes more frequently. In 2016, GiveDirectly’s donor pool increased at a rate of 40% year-over-year and half of those people became repeat donors. More trust also means more significant investments as the typical donation grew to about three times more than what people donate on GoFundMe.
However, people still seem willing to give to organizations, and more than once, if they can show the same level of transparency that makes crowdfunding appealing. These groups may even offer additional benefits, narrowing in on one specific cause and making donors feel like they are part of a greater cause.
It’s also no surprise that GoFundMe and GiveDirectly are both highly lean operations and clearly show where each donation goes. These sites enable person-to-person transactions, trusting that the recipients best know how to use their funds. Even with viral GoFundMe campaigns, organizers don’t have to explain how the extra donations will be used, beyond these people watching how they’re used.
Nonprofits must equally continue finding ways to seamlessly personalize their impact. For example, Charity: water digs wells and implements water purification projects and matches donation amounts to specific projects that are publicly mapped to share more information about the location, community and the current water flow. Likewise, the next step for aid groups may be to cooperate closely with crowdfunding platforms. This type of partnership, where everyone collaborates on sharing data, can help these groups better determine which kind of traditional coverage gaps exist and why, and how to improve them. These collaborative projects may have the power to shift and inspire new policies, especially as inequalities in everyday living and care become more prevalent and crowdfunding becomes the norm.