Why Crowdfunding is Important for Philanthropy to Support

Crowdfunding is a unique tool that is greatly underused in the Indian social sector. Philanthropists can support and encourage nonprofits to adopt this new model of fundraising. This weeks story was originally published by our friends at India Development Reivew (IDR). Check out the original post here, and don’t forget to sign up for their newsletter if you haven’t already.

By Gautam John

Sometime in 2013, Bill Gates said, “Philanthropy should be taking much bigger risks than business [and] if these are easy problems, business and government can come in and solve them.”

Think risk
While most philanthropists agree with that sentiment, it does not necessarily reflect in their philosophy of giving nor in the way they manage risk for themselves and their portfolio.

There are different kinds of risks involved in grant-making – financial, reputational, and impact. If donors are to see themselves as partners in change, then identifying and mitigating these risks must be central to the conversation. And sustainability, resilience, and network-building are all critical and interlinked elements of this conversation.

Think sustainability–a bit differently though
Every donor is concerned with the sustainability and longevity of the work they fund. Likewise, for nonprofits, expanding their donor base is a priority.

The traditional approach has been to target a few high value donors rather than build a network of many small donors. And understandably so. The effort and capacity required to do the latter is very different from what is required to unlock institutional or philanthropic capital.

While this might be seen as a choice or a trade-off, we believe that this is better understood as a continuum that nonprofits ought to progress along and something that philanthropy ought to acknowledge, support and accelerate.

Funds from foundations, corporates and high net worth individuals will continue to feature as substantial components of an organisation’s budget. But we also believe that nonprofits must actively diversify their funding bases and look beyond ‘large’ ticket sizes.

Advantage crowdfunding
An increasingly popular yet under-utilised model is one that leverages crowdfunding.

There are multiple approaches to crowdfunding from creating one’s own giving platform as Pratham Books did with Donate-A-Book, to utilising existing platforms like Bitgiving and Ketto.

This idea, of creating a large network of small donors via a platform, is one we think has tremendous possibility and lends value to an organisation beyond just fundraising.

It de-risks the model 
A diversified portfolio that balances foundation and crowdfunded support offers nonprofits in your portfolio resilience of two kinds.

  • Funding resilience because it is de-risked from single points of failure–from changes in donor priorities to the regulatory.
  • Insurance against operational risks: Building a large support base comprising many individuals enables nonprofits to create a community that supports their work and their mission.

Allows for innovation
Very often, traditional funding is tied to programmatic work or has limited headroom for people and experimentation costs. As a result, grantee organisations are constrained in their attempts to prototype, iterate and experiment with new models of change and impact. Unconditional capital from crowdfunded sources could serve as a vital source of money for them to learn and experiment with new opportunities for impact.

Communicates impact 
Crowd funding from hundreds of individuals also pushes nonprofits to improve their storytelling around their impact to engage this retail donor base. This has tremendous value beyond just the organisation as it creates new conversations and narratives for the sector as a whole.

Creates networks
In creating a compelling story about their impact, organisations also end up building networks with diverse participants–other nonprofits, donors, individuals and media, who might have common shared values. These partners can enable greater access to knowledge, skills and support for the grantee organisations.

Beyond risk
For philanthropists, there are other good reasons why you ought to consider supporting these newer models of fundraising.

  • Crowdfunding can unlock further philanthropic capital for your grantees as it builds credibility for the work, the organisation and the sector among significantly larger groups of people.
  • It also allows for varied funding engagements with nonprofits at different ticket sizes and through multiple lenses of programs, functions and issues, rather than only through the entirety of a nonprofit’s work or theory of change.

Fund it
There are many ways in which philanthropists can support this shift.  You can start by recognising the importance of it and seeding the idea within your portfolios. Once this conversation starts, you can help in the following ways:

  • Support the costs for creating the capacity within your grantees to tell their stories of change to large audiences who have limited knowledge of the issue and short attention spans.
  • Nudge nonprofits to experiment with it by moving a small percentage of their philanthropic funding to matching grants against monies raised through crowdfunding,
  • Underwrite the costs of implementation either in the form of the fees that existing platforms charge or, in some cases, for creating new crowdfunding platforms.
  • Provide the initial few grants to crowdfunding campaigns to create a signalling effect of trust.

It is still early days for crowdfunding in India. There is a tremendous sense of possibility and a large upside in supporting this gradual shift for organisations, donors and for the sector at large.

Early adopters of these models will have a first mover advantage and this is why we advocate the time for donors to support this is now.

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Gautam John is the Director of Strategy at Nilekani Philanthropies. Prior to this, he spent several years with the Akshara Foundation building the Karnataka Learning Partnership and at Pratham Books building their open source publishing model. He is an advisor to Pratham Books, Akshara Foundation, Inclusive Planet Centre for Disability and Policy, STIR Education in India and Children’s Lovecastles Trust. He was a TED India Fellow in 2009. Before his time in the non-profit sector he was an entrepreneur for six years and graduated from the National Law School in 2002.