Crowdfunding Public Projects a Simplify Project
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Crowdfunding public projects a Simplify project 1 Published by the Department of Environment, Water and Natural Resources Government of South Australia 30 March 2015 Head Office Chesser House 91-97 Grenfell Street ADELAIDE SA 5000 Phone +61 (8) 8204 9000 Web www.environment.sa.gov.au ABN 36702093234 Report prepared by Performance and Strategy Branch Strategy & Advice Group Department of Environment, Water and Natural Resources Copies of the report can be obtained from Phone +61 (8) 8204 9365 Email [email protected] Web http://yoursay.sa.gov.au/simplify_ideas 2 Contents A Simplify project 5 Acknowledgments 5 WHAT IS CROWDFUNDING? 6 A brief history 6 Different types of crowdfunding 6 It’s about more than just money 7 It’s not easy money 7 WHAT MAKES A CROWDFUNDING CAMPAIGN SUCCESSFUL? 8 WHY SHOULD GOVERNMENT SUPPORT CROWDFUNDING? 9 Democratised funding 9 Empowers more people to be altruistic 9 Lower business costs 9 Fills a gap left by traditional finance 10 Targets niche public needs, rather than mass public good 10 INVESTMENT-BASED CROWDFUNDING 11 INVESTING IN PUBLIC PROJECTS 12 A note about bonds 12 WHAT ROLES COULD GOVERNMENT PLAY IN DONATION-BASED CROWDFUNDING? 13 Campaigner – running our own projects 13 Facilitator – helping projects that support our goals 13 Investor – directly funding projects 14 Platform – owning the whole process 14 OPPORTUNITIES FOR SOUTH AUSTRALIA 15 For investment-based crowdfunding 15 For donation-based crowdfunding 15 What kinds of projects should government support? 16 What kinds of projects are not suitable? 16 What else do we need to consider? 16 Where to from here? 17 WHAT ABOUT CROWDSOURCING? 18 What’s the difference between crowdfunding and crowdsourcing? 18 A note about alternative government investment models 18 Which crowdsourcing approaches are government using? 19 WHERE CAN I FIND OUT MORE? 20 3 Crowdfunding is part of the online collaborative economy, which is growing exponentially and constantly evolving. Crowdfunding happens when a project is funded by raising many small "The power of crowdfunding isn't i amounts of money from a large number of people in an online community. in the funding, it's in the crowd." - Mari Kuraishi But it’s not just about the money. Crowdfunding allows project campaigners Co-Founder & President GlobalGiving to simultaneously obtain investment, test the market, gain exposure, and build their customer base. It allows funders to invest financially and emotionally in what they think is worthwhile, democratising decisions about which projects happen. Almost US$2.7 billion was raised to fund more than one million new crowdfunding projects in 2012, The great promise of crowdfunding is that it offers advantages that other and by 2014 it was already a forms of finance do not. It enables a very personalised value exchange. A US$6 billion industry.ii project will be funded if it taps people’s motivations and interests – and they will pay what it is worth to them. Using an online platform, it unlocks new interactions between the producers of goods and services and the people who want them. So what does this have to do with government? The public sector is shifting – we are moving from representative to more participatory and deliberative democracy. Through implementing Building a Stronger South Australia: A Modern Public Service and Better Together: Principles of Engagement, the South Australian Government is bringing government closer to citizens, business and communities. This includes finding new ways to deliver better outcomes with finite government funds and assets. It includes unlocking the capacity of individuals and the private and third sectors to contribute to the public good. Crowdfunding presents opportunities to help us do this. This paper highlights government’s interest in leveraging crowdfunding to bring new resources to public projects. It gives a brief overview of what crowdfunding is, the benefits it brings, and the roles that government could play in supporting it. This paper starts the conversation, and puts forward suggested applications for further exploration. We focus on reward crowdfunding, but also touch on related online tools which help to raise investment and create jobs, and to bring community and government closer together – investment-based crowdfunding and various forms of crowdsourcing. 4 A Simplify project ‘Simplify: a red tape reduction initiative’ gathered ideas from South Australian citizens on what government can do to be better. One of the top 20 ideas endorsed by Cabinet in August 2014 for further development and investigation was to ‘establish opportunities for leveraging community participation through co-funding new ventures’. DEWNR is the sponsor agency for the idea, and has produced this report to facilitate further action. Acknowledgments This paper was prepared by a small team of committed DEWNR staff, all passionate about finding ways that government can do better. Special thanks go to the research and writing team, Jen St Jack, Noriko Wynn, Nerida Buckley and Lynn Newman. Extra help came from Liz Barnett, Paul Dearden, Tarnya van Driel, Cindy Flower, Jennie Fluin, Lauren Heritage-Brand, Liz Millington, Aaron Osterby, Katrina Pobke, Andy Raymond, Michelle Read, Carol Schmidt, Kieran Squire, and Jodie Woof, who attended a workshop or reviewed the draft paper. Crowdfunding is a relatively new and constantly evolving phenomenon. We are infinitely grateful for the papers and generous support from Dr Rodrigo Davies, Nesta (Peter Baeck, Liam Collins and Stiam Westlake) and Dr Daren Brabham, whose research has heavily informed our thinking and content. 5 What is crowdfunding? Crowdfunding is a way to finance projects through small contributions from a large audience (the crowd), rather than large amounts from one or a few sources.ii It happens online, via a crowdfunding website or ‘platform’. Key features A project idea is pitched on the platform, stating what the campaigner hopes - Small $ from many to achieve, how much money they need and how it will be spent. The - Online contribution may be in the form of a donation, loan, equity purchase, or pre- - Project-based - Sense of urgency: time- ordering of a product or service. Most platforms operate an ‘all-or-nothing’ bound funding target model – if a pre-set target is not met in a given time period, funding does not - Mutual visibility proceed and investors are not charged. Progress towards the target and the - Platform as mediator number and names of contributors are publicly available. A brief history Public subscription was used for centuries to fund projects like the Statue of Liberty plinth or Shinto shrine torii gates in Japan, appealing to widely held motivations like nationalism or religion. Now, thanks to the internet, modern crowdfunding is connecting projects that need funding with people motivated to fund them with increasing ease, no matter how obscure their motivation. Since the launch of the first crowdfunding platform for music in 2000, ArtistShare, crowdfunding has rapidly become a widespread form of alternative finance. Donation and lending crowdfunding took off in the mid-2000s, with platforms like Kiva and Prosper enabling micro-financing and peer-to-peer lending.ii Reward-based crowdfunding exploded between 2006 and 2010 and now accounts for about 40% of the market,iii with platforms popular in Australia including Pozible, Kickstarter and Chuffed. The past decade has seen crowdfunding expand in both scope and scale, funding the arts, movies, tech start-ups, gaming, scientific research, disaster relief, and civic projects. 70% of projects raise less than $10,000,iv but amounts have run to more than $10 million for the five most successful campaigns of all time. Different types of crowdfunding Most crowdfunding can be defined as fitting into two types – donation-based and investment-based – each with two variations. Importantly, each variation relies on funders being intrinsically and socially motivated to contribute. Beyond those motivations, each contribution offers a different return. Type Variation Contribution Return Donation-based Charity Donation Intangible benefits only crowdfunding Reward Pre-purchase Products, perks or rewards Investment-based Lending Loan Repayment of loan, with (peer-to-peer) or without crowdfunding (micro-financing) interest Equity Investment Stake or shares in the venture 6 It’s about more than just money There are many more benefits to this exchange than purely financial. Crowdfunding allows project campaigners to simultaneously obtain investment, test the market, gain exposure, and build their customer base or community. It allows funders to invest in what they think is worthwhile, democratising decisions about which projects happen. Some of the non-financial benefits of crowdfunding are listed below, noting that they vary depending on the model. Benefits for the wider community will be explored further on page 10. For the campaigner For the investor For the wider community - Connecting with the interested - Minimal commitment altruism, - Democratised funding community, beyond location and helping to make something you - Empowers more people to be personal relationships care about happen altruistic - Promotion - First access to a product or service - Lower business costs - Market testing, particularly for - Connection to campaigner and - Fills a gap left by traditional finance riskier ideas community - Targets niche public needs, rather - Improving projects by engaging than mass public good with customers - Cheap,