Following the Crowd – Is It All That?

The recent increase in crowdfunding platforms in South Africa has sparked interest from a number of sectors who see it as an alternative to more traditional ways of fundraising – be it in the for profit or non-profit sector. Is this misplaced hope or is it the way forward?

There are a number of credible, established crowdfunding platforms in South Africa. Although they may focus on different areas: the arts, charitable causes or start-up businesses, they operate in essentially the same way. The “crowd” – being the online community – contributes to a project featured on the crowdfunding platform. Although there are multiple donors, the means of gathering donations remains the same. Crowdfunding, in this traditional sense, can thus be seen as single-source crowdfunding.

With single-source crowdfunding, there is much work to be done in driving donors to the cause on the crowdfunding platform. You can’t simply put a crowdfunding project on a platform and hope that some kind stranger will donate. Good marketing is essential to create awareness of the project – and this requires budget. Unfortunately, a lot of non-profit organisations (and also for-profit start-ups) hoping to raise funds by using crowdfunding don’t have the resources for the level of marketing required. Another issue, especially in the non-profit space, is that as the non-profit organisation grows, so does the sum required to crowdfund for. It’s thus an ongoing effort, which requires more resources than you’d think.

Although the idea of single-source crowdfunding is appealing, as mentioned, the model has its shortcomings. “Working the crowd” to get them to donate is possible, but it takes time and effort. Philanthropy in South Africa typically has a different way of playing out compared to ways of giving in Europe and the USA. This is because there’s a large number of people who give to their direct extended family networks, rather than to non-profit organisations run by third parties. Given this context, crowdfunding locally for bigger amounts could be challenging – especially if done on an ongoing basis.

So what’s the solution for a sustainable crowdfunding model in South Africa? While direct donation by the crowd should not be scrapped, it’s possible to add additional revenue streams to the single-source crowdfunding model to make it a more viable income stream for non-profit organisations. Enter the disruption of the single-source crowdfunding: leveraging the crowd to give in new, creative ways that increase non-profit organisations’ revenue stream. These new ways of giving will, in turn, grow the pre-existing crowd.

And now for the how: instead of once-off donations, make it easier, and more beneficial, for pre-existing donors to give. Giving becomes more attractive when you aren’t taxed on the money you give. Payroll giving enables donors to give a specified percentage of their salary, pre-tax, to a non-profit organisation. A few corporates such as Nedbank and the Old Mutual Foundation have already implemented systems that enable their staff to practice payroll giving. By streamlining a payroll giving system and positioning it on a crowdfunding hub, you can create a powerful army of givers who will donate to causes on the crowdfunding platform on a monthly basis.

Aside from empowering pre-existing donors to give, you can enlarge the pool of givers by going beyond the traditional idea of donating. Impact investing is one of the ways in which this can be done. There’s also “impact shopping” – encouraging consumers to support businesses who have philanthropy built into their business model. An example of this would be where the purchase of a product triggers the donation of a percentage of the purchase price to a non-profit cause. The combination of business and philanthropy ensures a much more reliable and constant income stream for non-profit organisations – provided that the product is selling well.

So yes, crowdfunding seems to be here for the foreseeable future. However, for it to be seen as a viable and sustainable means of generating income it may need to evolve from single-source crowdfunding to multi-source crowdfunding. This article is the first in a series looking at crowdfunding in South Africa – watch this space for more.