The amount of money raised through crowdfunding has exploded in the last five years, rapidly transforming most parts of the economy, from start-up investment to personal loans.  The social good sector seems to be one of the few areas failing to make the most of this promising new form of finance with crowdfunding still making up less than 0.5% of giving in the UK.

In our new Nesta report, Crowdfunding Good Causes, we explore why this is, what the opportunities and challenges in crowdfunding for good causes are and how organisations can be better supported to use crowdfunding.

Crowdfunding for Good Causes

In 2015 alone, £3.2 billion of loans, investments and donations were made through crowdfunding platforms in the UK. However, the vast majority of this money funded loans to businesses and individuals or equity investment in start-ups with just $81 million going towards supporting good causes.

Opportunities in crowdfunding for good causes

Despite this lack of uptake, previous research has shown that crowdfunding has a number of potential financial as well as non-financial benefits, including:

• The potential to attract new donors and fund projects that would not otherwise get funded; a survey showed that 64% of those who had raised funds via crowdfunding were unlikely or very unlikely to have received finance elsewhere.
• It can help get more people involved in campaigning and volunteering; the same survey found that 27% of those who had supported a crowdfunding campaign also offered to volunteer for that project.
• Crowdfunding can be instrumental in raising awareness and promoting a cause; the same surveyalso found that 90% of funders went on to promote the project they supported, typically via social media.
• Since crowdfunding raises money for specific projects, rather than organisations as a whole, it provides more transparency around what funds will be used for and how they will benefit others.  
• Crowdfunding has the potential to enable more experimentation into new ways of addressing social challenges by reducing the cost of failure for fundraisers. When there isn’t support from the crowd, a project won’t meet its funding target and so can’t go ahead, meaning reduced financial losses for the fundraiser.
• It is possible to use crowdfunding to support a broad range of social projects and initiatives.

At a time when smaller organisations are increasingly squeezed by government cuts and other more intrusive forms of fundraising — such as face-to-face, mail or telephone — are criticised by politicians and the media, it is especially surprising that those fundraising for good causes have been slow to realise the advantages of crowdfunding.

Challenges in crowdfunding for good causes

Despite the clear opportunities for charities, community groups and social entrepreneurs using crowdfunding, previous research has identified several challenges that organisations should be aware of, these include:

• A potentially negative impact on equality, diversity and participation. People and communities that are wealthier, have better digital skills or have larger social networks are more likely to run a successful campaign and are therefore better positioned to benefit from crowdfunding.
• Because crowdfunding focuses on one-off donations, there is a risk that it could reduce the number of people making repeat monthly donations to charities.
• Crowdfunding for good causes may encourage public sector funders to stop funding services previously paid for by the taxpayer. Since crowdfunding often emphasises visible short-term impact, it is not a reliable substitute to government funding when creating lasting social value.
• It puts the decision on which projects go ahead in the hands of the crowd who may have little knowledge about the areas they are funding. This raises a potential conflict between what organisations — which typically have expertise in the social needs of a particular area — think is a priority and the opinion of the crowd.
• It isn’t easy money and a successful crowdfunding campaign, just as any other fundraising campaign, requires hard work. This often involves dedicated teams and careful planning months in advance of the campaign going live.

What we did

We wanted to understand what is preventing organisations with a social purpose from harnessing the benefits of crowdfunding and identify what can be done to help support those that want to do so.

We surveyed over 450 charities, community groups and social entrepreneurs to try and understand their awareness, perceptions and usage of crowdfunding. We also interviewed eight of the leading UK crowdfunding platforms working in this sector and asked them how they worked with these organisations and what they saw as the key opportunities and challenges in doing so.

A lack of knowledge, skills and capacity is the biggest barrier to using crowdfunding

Nearly nine in ten of the organisations we surveyed had heard of crowdfunding, but only 15% had actually used it to raise funds. We wanted to understand what was preventing those who were standing around the pool from jumping in!

When asked why they were yet to use crowdfunding, more than 70% of organisations reported not knowing enough about the regulation of crowdfunding and how the different types of crowdfunding work and what they offer.

Two in three organisations reported not having the skills and capacity to set up and run a crowdfunding campaign within their organisation.

Community and voluntary sector organisations can begin building the knowledge and skills required to run a crowdfunding campaign using the free guides and support offered by most crowdfunding platforms on their website. Nesta has also developed free guides and toolkits such as 10½ tips to help you reach your crowdfunding goal and Working the Crowd for anyone considering setting up a crowdfunding campaign.

‘Nevertheless, more could be done to develop practice guides and toolkits tailored to charities, community groups and social enterprises and to make sure these organisations know that these guides and tools exist.

The difficulty of fundraising for core costs was seen as an important barrier to using crowdfunding

Just over half of the organisations we surveyed highlighted that they thought it would be too difficult to fundraise for core costs through crowdfunding as a reason why they were not using crowdfunding.

However, crowdfunding an organisation’s core costs is not impossible. One possible way of doing this would be to say on the campaign page that a certain percentage of the money raised would go towards paying the organisation’s overheads.

There is a strong appetite for crowdfunding amongst charities, community groups and social entrepreneurs

We wanted to understand the future potential use of crowdfunding by organisations with a social purpose, so we asked how suitable they thought crowdfunding was to their organisation’s needs and how likely they thought they were to use crowdfunding in the next 12 months.

The community and voluntary sector clearly recognise the potential of crowdfunding with 85% reporting that they thought at least one type of crowdfunding would be suitable for their organisation’s needs and 43% reporting that they were planning on using one form of crowdfunding in the next 12 months.

The clear appetite for crowdfunding suggests that overcoming the challenges we highlighted around knowledge, skills and capacity is likely to result in a substantial increase in the use of crowdfunding.

What can charities, social enterprises and community groups do to make the most of crowdfunding?

Based on the insights from our research we made three recommendations to charities, social enterprises and community groups:

1. While crowdfunding is not a silver bullet and will not work for everyone, all community and voluntary sectors organisations should at least give it a go and try setting up a small crowdfunding campaign. Even if they are unsuccessful in reaching their funding target they won’t have lost anything other than the time they put into the campaign and are likely to learn a lot along the way.
2. Interviews with crowdfunding platforms consistently highlighted that organisations often struggle to make the most of crowdfunding because they see it as a fundraising task, rather than a joint task between campaign and fundraising teams. This is something that can be addressed by joining up these two teams when setting up crowdfunding campaigns.
3. Other than setting up a campaign on a pre-existing crowdfunding platform, larger organisations should explore different ways to utilise crowdfunding. One way of doing this is to partner with a platform to curate a themed community of projects with a similar mission or geographical focus that you or the members in your community would like to crowdfund. An alternative is to use a white label service to develop customised crowdfunding platforms that fit their organisation’s or networks’ brand and fundraising needs.

You can read the full report here.