Crowdfunding Community Projects

Elizabeth Treutel Crowdfunding is becoming a popular method of fundraising for entrepreneurs, high-tech start-ups, non-profit projects, and, Master of Urban Planning 2014 increasingly, community projects. As city governments across the country and world continue to suffer financially, community betterment projects like parks and trails become lower priorities. In turn, community organizers have begun taking matters into their 30 own hands. This paper presents crowdfunding as both a transfor- mative tool to catalyze community redevelopment and a potential liability for social justice and government responsibility. I describe Matireal, a crowdfunded community connector trail in Milwaukee, as a case-study for analysis. n an era where local governments are encourage government investment. In its design continuously tightening budgets and cutting and concept, Matireal is a privately funded programs, innovative planning interventions public project. Iare often the first projects cut. The poorest municipalities are often the communities Why Crowdfunding? with the highest level of need and the most disadvantaged populations. Crowdfunding, Matireal uses an innovative approach to an online funding mechanism through which address a multitude of social, economic, a great many individuals contribute relatively and environmental issues that the City’s tax small amounts of money to support a company, revenue cannot cover. When city governments are working with lean budgets and struggling project, or initiative, is quickly gaining strength to provide basic services to residents, these with community organizers and grassroots types of community-based projects often go planners as an intervention technique to finance un-funded to make way for more vital budget these essential community improvements. items. Fiscal issues are no longer a problem limited to rust-belt cities of the Midwest, but Introduced in the late 1990s and highly a national and global phenomenon. Cities popularized within the last five years, from Los Angeles to London are experiencing crowdfunding has primarily been used to fund financial hardships similar to those of many start-up entrepreneurial projects that often Detroit-like cities. Municipal financial hardships have a creative or digital focus (Mollick, 2013). can be blamed on a host of factors including poor regional tax policy, migration patterns, The widespread success and popularity of racial and socio-economic housing segregation, crowdfunding has promoted the flexible funding suburbanization, a weak property tax base, mechanism for everything from mission trips poor city leadership, misaligned financial to real estate development. Crowdfunding for priorities, and shifting land use patterns. The community-based projects, therefore, seems to crowdfunding model, specifically as used for be a natural fit. Matireal, addresses the needs and desires of the community that municipal governments are Through crowdfunding, individuals invest unable to meet. relatively small amounts of money into various sized projects, initiatives, or organizations in About Matireal, a ‘Creational Trail’ return for a pre-determined donor gift. In some cases, donors receive a share in the claim to Matireal is about connecting neighborhoods through art and recreation. The Matireal project future assets of the entity (Startup Exemption, founder, Keith Hayes, formed the organization 2013). In short, crowdfunding expands and “beintween” soon after the introduction of the replaces traditional “angel investors,” or persons design concept for Matireal with the mission to who contribute a large sum of money to support “make [art] do [work]” (Matireal, 2012). The trail, a new company or project, with a large pool of constructed of a geotextile made of recycled tire individual investors to attain the seed capital for material, gravel, and grasses, was completed a project (NLCFA, 2012). in November 2013. It reclaims a divested 2.4- mile rail corridor and connects two diverse Today, many non-profits, community neighborhoods over a rail bridge. The public art development groups, and individuals are gallery component of Matireal is currently in the development process. utilizing crowdfunding mechanisms to initiate improvement efforts in their own Once a more integrated community, the neighborhoods, which essentially serve as Harambee and Riverworks neighborhoods were public projects. I will explore one example, a severed by a four-lane highway and became recent project in Milwaukee, Wisconsin called segregated racially and socio-economically. “Matireal, a ‘Creational Trail.’” Matireal is a The highway has also created an unsafe pattern 31 multi-use trail built with a geotextile composed where pedestrians frequently attempt to cross of recycled tires, which contains a linear, public the busy thoroughfare via the divested rail art gallery called the “Artery” running along bridge. When completed, Matireal will form a an old rail corridor connecting neighborhoods linear art-based park through the rail corridor throughout the City. The project has utilized and rail bridge to reconnect the neighborhoods physically and culturally. The project aims to Kickstarter, an online crowdfunding platform, “engage all people… and break down major to complete the first phase of the project and AGORA 8 social, cultural, economic and racial boundaries space that anyone in the community can freely by stitching these along the artery” (Matireal, access (Spacehive, 2013). Past projects include 2012). The project is a “simple, low-tech creating a picnic area and garden in a park revitalization concept that works within a in Lancashire and renovating a vacant store neighborhood” using an innovative, sustainable, into a community street art gallery in Bristol and socially just planning intervention that the (Spacehive, 2013). Spacehive is unique because, City would not initially fund (Matireal, 2012). unlike Kickstarter, it is geared specifically toward projects that must be open to the public. Matireal launched itself into Kickstarter, the This prevents projects from discriminating largest online crowdfunding platform, on against certain users or excluding traditionally October 29, 2012. While project planning and allowed public uses. design had begun almost a year prior, the project hit a wall when attempts to obtain large Fundrise, another funding method, gives investments or City or Federal grants to fund individuals the ability to directly invest in their the project fell apart (beintween, 2013). Matireal neighborhoods through local commercial real founders needed funds for the first step in the project: to purchase a shipping container to use If the crowdfunding model for material storage and advertising (Matireal, 2012). They reached their crowdfunding goal of becomes commonplace… this $10,000 in less than a month with 230 backers could legitimize… the permanent (Matireal, 2012). With a total of $11,296 pledged, shifting of responsibility from backers received various gifts dependent on localities to provide basic public their pledge levels, ranging from a “sincerely amenities[.] written Thank You from the founders” for a $5 contribution, to “500 square feet of the estate development. Although not necessarily geotextile” (for use in personal driveways or a platform for funding public projects, it other projects) for contributions of $2,500 or allows individuals to invest without the fees more (Matireal, 2012). and middlemen of conventional real estate equity finance (Fundrise, 2013). In short, After the crowdfunded investment allowed residents can invest relatively small amounts the group to purchase shipping containers and of money into commercial real estate in their move forward with research and development neighborhoods, own a share in the action (with of the geotextile, the City of Milwaukee and the proportional financial returns), and help realize Wisconsin Department of Natural Resources their visions for their communities (Fundrise, (DNR) were willing to provide some support to 2013). Three neighborhood projects have been the project. The City and the Wisconsin DNR funded and are now underway in Washington assisted with land acquisition, the donation D.C., including the building at 406 H Street of recycled tires to create the geotextile, NE, which will transform a vacant building construction permits, and safety provisions into an ethnic restaurant (Fundrise, 2013). for the project. Without the initial capital Fundrise allows residents to take ownership of investments from Kickstarter investors, the their neighborhood, literally and figuratively; City or State would probably not have been however, it may also promote gentrification willing or able to provide assistance. In the case and, at this point, still requires leadership from of Matireal, crowdfunding investment allowed larger developers to guide the management, the innovative project to gain traction with the programming, and design of the project. community, which encouraged government entities to provide assistance. Citizinvestor allows municipalities to raise money through crowdfunding in order to Other Examples of Crowdfunded move forward on projects shelved by budget Community Projects shortfalls (Citizinvestor, 2012). To use this online crowdfunding platform, the projects require Aside from Kickstarter, one can find many evaluation by a local government and approval 32 other examples of crowdfunding platforms by the appropriate department, and solely lack used for community projects. Spacehive funding for implementation (Citizinvestor, 2012). is a crowdfunding platform that connects Projects range from building a community community-based project initiators with garden in Philadelphia to restoring a publicly financial supporters in the United Kingdom owned historical hotel in Florida (Citizinvestor, (Spacehive, 2013). Spacehive hosts project 2012). Of course, the premise behind this proposals and manages internet donations for platform is that residents will willingly projects, as long as the project is in a public contribute to government-initiated public Treutel projects beyond their current tax contributions. Benefits of and Concerns Raised Although funded projects are still in their early stages, this platform is promising because, unlike by Crowdfunding for Community Kickstarter, Fundrise, or Spacehive, Citizenvestor Projects projects must undergo the typical public Just as challenges exist for securing development phases. In many ways, Citizinvestor crowdfunded financing for community allows the public to decide directly which public projects, positive and negative implications projects to fund, which can have both positive exist regarding the outcomes of the projects. and negative impacts. Residents often initiate crowdfunding projects to take community matters into their own hands, Challenges and Risks in some cases to,fill gaps in municipal funding and services. Innovators like Keith Hayes of There are many challenges and risks associated Matireal can utilize platforms like Kickstarter or with crowdfunding community projects, Spacehive to open up their projects to financial although many previous challenges have support from their community, or from anyone diminished with the recent passing of the across the globe. This provides flexibility to Federal JOBS Act. Section 4(6) of the act legalizes attain seed money for community projects crowdfunding at a deeper level than previously and provides communities the opportunity to written into law, exempting investors in for- invest more directly in projects they support. profit projects from being officially accredited Furthermore, crowdfunded projects can be more (Startup Exemption, 2013). However, the innovative and efficient than projects that must crowdfunding model still faces challenges. The conform to traditional standards and regulations likelihood of failure for a crowdfunded project is of the bureaucratic system. quite high despite the many celebrated successes highlighted in the media (Mollick, 3: 2013). Along with the benefits of crowdfunding, there are also concerns associated with Literature surrounding the new and transforming public projects into private understudied funding mechanism of ventures. In Driven from New Orleans, John crowdfunding lacks evidence describing why Arena dissects privatization of public goods certain projects succeed or fail. While these in the case of public housing. Arena suggests studies are inclusive of all kinds of projects, that creating non-profit alternatives to public not just community projects, they are still services further legitimizes public sector failures applicable. It is unclear whether crowdfunding (Arena, 179: 2012). The same risks apply to other efforts reinforce or contradict theories about how community projects such as park improvements, traditional ventures raise capital and achieve nature trails, and similar endeavors that are success, or what the long-term implications of traditionally publicly funded through tax crowdfunding are (Mollick, 3: 2013). Assessing revenue. If the crowdfunding model becomes crowfunding success begins with whether or commonplace for public provisions, this could not it is fully funded, as many crowdfunding legitimize the long-term retrenchment and platforms return funds to contributors if funding permanent shifting of responsibilities for our levels are not met. Of all projects initiated on localities to provide basic public amenities such Kickstarter, only 49% are ever funded, with an as utilities or welfare programs that government average goal of those funded projects being entities are better suited to provide (Arena, 183: $5,604 (Mollick, 32: 2013). Other indications of 2012). success include whether or not the intended deliverable was completed and, if applicable, the length of delays in the project (Mollick, 3: Planners’ Roles 2013). Variables affecting the success of a project While crowdfunding public projects may adapt include a founder’s integration with social media to budget shortfalls and realize residents’ sense and geographic location. In general, projects of place and expression of community identity, in larger cities tend to have a much higher long-term implications of crowdfunding success rate (Mollick, 32: 2013). Along with the could include shrinking government, more 33 challenges for founders, funders face uncertainty dependence on the free market to provide about the success or quality of the deliverable. public services, and the introduction of new There are no accountability systems in place to externalities that government intervention guarantee project success. Similarly, even if a works to correct. project is initiated by an organization or start-up with the intention of helping or improving the Projects like Matireal benefit the community in community, there is no guarantee that the project many ways, but there are still issues of equity will truly be public. AGORA 8 and prioritization. Rail to trail conversions or phase crowdfunding and public funding into a public art galleries may seem glamorous, but project’s investment model where each is most when cities are faced with aging infrastructure, appropriate, thereby increasing the likelihood water and sewer systems should take priority. of success. Planners could also advocate for a For these reasons, Crowdfunded community crowdfunding platform similar to Spacehive, projects should not replace traditional public one designed specifically to address the risks works initiatives, but can fill funding gaps in and rewards that come with crowdfunding cities struggling to provide services. Planners public projects. This could include the can take advantage of crowdfunding to realize requirement that projects be publicly accessible, change in their community. Specifically, participation in community planning processes planners can take an active role in both that ensure equity and engagement from the improving processes of crowdfunding for public entire community, and involvement with public projects and catalyzing relationships between officials. the public, project founders, and government entities for crowdfunded projects. Crowdfunding has the potential to create new and innovative opportunities for community As the Matireal project in Milwaukee illustrates, projects that may not otherwise be possible. crowdfunding can be used to subsidize or Planners could play an active role to integrate initiate projects that also use traditional key stakeholders, provide guidance, and catalyze municipal funds. Planners can connect local partnerships to increase the success and public entrepreneurs with government officials early benefits of crowdfunded community projects. in the process to encourage both parties to

References

Arena, J. (2012) Driven from New Orleans: How Nonprofits Shread, P. (2013, Feb 8). The Risks and Rewards of Betray Public Housing and Promote Privatization. Crowdfunding. TIME Business and Money. 2013. Retrieved Minneapolis: University of Minnesota Press. April 2013 from: http://business.time.com/2013/02/08/the- risks-and-rewards-of-crowdfunding/ Fundrise. (2013). Crowdfund Real Estate. Retrieved April 2013 from: https://fundrise.com/about Spacehive. (2013, March 18). “Spacehive.” Retrieved April 2013 from: https://spacehive.com Kickstarter. (2012, Nov 28). Matireal, a ‘Creational Trail. Startup Exemption. Crowdfunding 101. 2013. Retrieved Retrieved April 2013 from: http://www.kickstarter.com/ April 2013 from: http://www.startupexemption.com/ projects/keith-hayes/matireal-a-creational-trail crowdfunding-101

Mollick, E. (2013). “The Dynamics of Crowdfunding: Westmill Capital. (2012). 906 H Street NE. Retrieved April Determinants of Success and Failure.” University of 2013 from: http://www.westmillcapital.com/portfolio/retail- Pennsylvania - Wharton School. development/906-h-street-ne/

National Crowdfunding Association (NLCFA). (2012) Crowdfunding 101. Retrieved April 2013 from: http://www. nlcfa.org/crowdfund-101.html

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