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Crowd Around
Crowd Around

Expanding your donor pool with crowdfunding

By Andrea Jarrell


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©2013 Beppe Giacobbe c/o theispot.com



If you're wondering why crowdfunding has become a philanthropic phenomenon, talk to Andrew Gossen, senior director for social media strategy at New York's Cornell University.

"Crowdfunding is just a lot more fun for donors at all giving levels," Gossen says. Crowdfunding sites allow people with a great idea or worthy cause to bypass traditional funding methods and take their case directly to web-savvy investors and donors.

He and his colleagues discovered the appeal when they began studying crowdfunding to determine its applications for the university's advancement program. Some team members had never heard of crowdfunding before, so each of them chose a philanthropic crowdfunded project to support. 

Gossen picked a cause at Donors Choose, a giving site for public school projects. For $25 he bought games for a kindergarten class in Wisconsin to play when they couldn't go outside in the winter. 

"I immediately received a thank you [email] from the teacher. Then I began getting Instagram photos of the kids playing the games I'd bought," says Gossen. "At the end of the month, I received an envelope full of handwritten thank you notes from all the kids. Compared to that experience, why in the world would I opt instead to send my $25 to a generic annual fund and get a form thank you letter weeks later?" 

These crowdfunding platforms make giving more immediate, direct, and personal for donors who increasingly want to see the tangible impact of their gifts. Donors can choose projects to support with an unprecedented level of specificity. They can share and promote their favorite projects with their social networks, see real-time results as their causes are funded, and interact with the beneficiaries of their gifts. Chances are, faculty and students on your campus are raising research, scholarship, and study abroad funding through sites like Kickstarter, Indiegogo, and Petridish. Michigan Technological University's research office learned about one such faculty project posted on Petridish when PayPal contacted the university's accounting office to credit a payment. 

Prospective donors, especially younger ones that can be difficult to engage, are also using these sites to discover charities and causes they care about. 

"There's a qualitatively better model of philanthropy emerging," says Gossen. "If we don't position ourselves to address that threat, our alumni will go off and be philanthropic with other organizations, and it will be hard, if not impossible, to get them back."

Yet, rather than succumbing to doom and gloom, Gossen and other advancement practitioners exploring crowdfunding for their institutions see a poten­tial new frontier in higher education fundraising. Crowdfunding, they believe, may hold the power to reverse consistent declines in annual fund giving, engage younger donors, broaden the donor base, and provide institutions better data about giving habits that will feed prospect pipelines for the future.

Changing the future of fundraising

While crowdfunding is a new concept to most of higher education advancement, the premise behind it is as old and familiar as the notion of the annual fund—many small gifts pooled together to make a big impact. Annual fund solicitations are built on this message. But social media has unlocked the power of that message like never before.

The first crowdfunding sites launched in the early 2000s primarily to help startup entrepreneurs pool venture capital from individuals—microfinancing via the web and social media. Today 450 crowdfunding sites exist worldwide, according to the research firm massolution. Crowdfunding sites fall into three categories: entrepreneur-, artist-, and cause-funding platforms. Some sites fund all project types. 

More than 1 million crowdfunded campaigns were posted and completed on these sites in 2011, reports massolution in a study released last year. The appeal of crowdfunding is its American Idol-style democratization: The crowd determines which ideas make it. Donors have a limited time to give or the project dies. Once they've given, donors are motivated to share the project with their friends to ensure it becomes a reality. 

Massolution also found that crowdfunding platforms raised almost $1.5 billion in 2011. The majority of those projects were philanthropic ventures; however, experts predict that the 2012 Jumpstart Our Business Startups Act will supercharge the business crowdfunding arena in the United States. Until the JOBS Act, entrepreneurial crowdfunding sites could offer only sample products or gifts to funders. The new law will allow crowdfunded business ventures to offer equity in exchange for funding. With the law in place, Crowdfund Capital Advisors, an industry consultancy, predicted late last year that the debt and equity crowdfunding space will grow to at least $4.3 billion in 2013.

Why should educational fundraisers care about this growth? Because new generations of donors are learning the art and rewards of microfinancing and microphilanthropy. Just as social media platforms like Facebook, Twitter, Instagram, and YouTube changed norms and expectations for communication, crowdfunding platforms have the same potential to alter the future of fundraising.

Big threat, big potential

At most institutions annual fund giving is down. Alumni giving participation rates fell 3.3 percent in fiscal 2011, a decline for a third straight year, according to the most recent Index of Higher Education Fundraising Performance. "Many programs find it more challenging to acquire new alumni donors, especially younger alumni," the report notes. Since younger alumni are less inclined to give to higher education than their parents, the erosion in overall participation rates may be irreparable. 

While the premise behind crowdfunding is similar to an annual fund, the irony is that sites like Kick­starter and Petridish may be drawing donors away from annual funds. At these third-party sites, donors are supporting financial aid, faculty research, and extracurricular activities—the very projects funded by annual, capital, and endowment giving. 

"Traditionally, the annual fund is what kept graduates close to an institution, grooming them as donors," says Michael Greenberg, a former fundraiser at the University of California, Los Angeles who recently launched a higher education crowdfunding platform called ScaleFunder. "You could send out a mailer with a generic ask that often played on an alum's nostalgia. But today's alumni are hyperdiverse. They've had very different campus experiences. A one-size-fits-all ask no longer works. They want to see the [return] on the good they are doing." 

Michigan Tech is among the institutions that are adapting to this changing landscape by incorporating crowdfunding into its advancement program. Natasha Chopp, research development and marketing manager, runs the university's new fundraising platform Superior Ideas. "When we learned about a professor's project on Petridish, we asked ourselves why we were letting our researchers go elsewhere to find funding," she recalls. "Why not create our own platform to reach out for support from donors in a new way?" 

Superior Ideas launched in October 2012 and hosts both projects from Michigan Tech as well as partner universities. Following the Kickstarter model, Superior Ideas retains a percentage of the donations made to non-Michigan Tech projects. During its three-month beta phase, superior Ideas raised $44,000 in outright and in-kind gifts to fund research on sleep apnea and heart disease, among other projects. 

The earliest institution to adopt crowdfunding may be Vermont's Middlebury College. "We know donors want more control over their giving, and they want to see impact," says Margaret Paine, the director of advancement communications. In 2008 she set out to give the college's annual fund donors the same quality of experience its high-level donors have—more project choices, greater ability to direct their gifts, and expanded engagement. 

Paine worked with Elizabeth Robinson, director of the college's Project on Creativity and Innovation, who wanted to fund the entrepreneurial, research, and creative projects that Middlebury students were devising. "We began looking at kiva.org and other microfinance sites, thinking that maybe we could create a microphilanthropy site that empowered donors and students, but where the money would be a gift, rather than a loan," Paine says. 

It took two years from concept to development for the college to launch MiddSTART in the spring of 2010. MiddSTART originally featured projects initiated, designed, and implemented by students but now promotes some of the college's fundraising priorities such as scholarships. Successful ventures include an environmental business that cleans up infestations of milfoil, an aquatic plant, in Vermont lakes and a new library in a Nairobi, Kenya slum, as well as alternative spring breaks and internships. Student projects, which typically have a fundraising goal of $2,000 each, are vetted by the college for creative or entrepreneurial merits and the level of organization and commitment demonstrated by the student or student teams. 

In its first year, MiddSTART raised more than $90,000 for student projects, internships, and scholarships. Buoyed by success, the college added MiddGOAL, a separate athletics fundraising site that bundles team needs such as new crew boats and spring training trips. The advancement team promotes MiddSTART and MiddGOAL in its phonathons and the alumni magazine and through letter and email campaigns. The college also works with MiddSTART students on marketing their projects to donors, reaching out beyond the institution's prospect pool to their own networks. Middlebury has raised more than $600,000 through the two programs to date.

When Paine mentions Middlebury's crowdfunding efforts to advancement officers at other institutions, they sometimes express concern about diverting staff resources from primary fundraising goals. "We would be raising money for things like scholarships, internships, and team trips anyway, so those are budget-relieving projects," she says, referring to college priorities that are crowdfunded. She adds that working on gifts for student-led projects is a small price to pay for the kind of engagement and excitement among donors the college is seeing. 

"Conventional wisdom is that if you can get donors to give early and often, they will make a habit of giving throughout their lives," Paine says. "MiddSTART is attracting a new generation of student donors who are more likely to give after they graduate." 

Engaging next-generation donors

For institutions that are interested in integrating crowdfunding into their development activities but don't want to start from scratch, two new companies, USEED and ScaleFunder, create customized platforms for higher education clients. Institutions integrate these microsites into their existing websites, enabling them to post, share, and promote crowdfunded projects to donors. 

Cornell's Gossen, who is working with USEED, thinks crowdfunding could support projects such as a new building to serve Cornell's Big Red bands. "Imagine being invited as a donor to a once-a-week Google Hangout with the band. Video would be live-streamed to the donor pool, and donors could make requests of the conductor for songs they want to hear, viscerally illustrating the impact of their gifts." Gossen wants to put some fun back into the donor experience. "That's the sensibility of social media—fun, informality, and hanging out with people you like," he says. 

It's fun with a serious, high-stakes purpose. First of all, crowdfunding is not just for low-level donors. During USEED's pilot project at the University of Delaware, 12 percent of donors to student projects were major gift prospects. Second, these sites may improve the donor pipeline—attracting, cultivating, and tracking new donors affiliated with the institution as well as those with no previous ties. Such sites also provide institutions access to new data on donor giving patterns. Brian Sowards, founder and CEO of USEED, calls it "studying a donor in the wild." 

Because ScaleFunder and USEED platforms connect to a school's existing gift processing system and donor database, development officers can collect data on the projects that interest donors and track their giving. Fundraisers can also examine how prospects share and promote projects to their own network of friends and colleagues. 

"You're not only giving prospects more of the kinds of tangible projects they're interested in," Gossen says, "you can get a fix on what young alumni give to now, which may have nothing to do with their major or any other typical data institutions have about their graduates. When it comes time to ask them for a major gift, you have a trail of breadcrumbs showing what they actually support. It's a no-brainer that that kind of data is going to be a lot more effective than what we have now."

Allowing alumni and donors to leverage their spheres of influence via social media is also a powerful new tool for institutions, says Gregory Ware, vice president of business development at ScaleFunder. An alumna might share with her network of friends a link to a university breast cancer researcher's crowdfunded project she supports. The institution can capture data on the alumna's friends—previously unknown to it—who give to that project, thereby expanding the prospect pool. 

Done well, crowdfunding enthusiasts see the potential to deeply engage new pockets of alumni, student communities, and prospects from the general public. "It's really what we've always done," says Abby Adair Reinhard, a USEED co-founder and a former fundraiser at Harvard University in Massachusetts. "Crowdfunding is peer-to-peer fundraising that says, ‘Step up and join me. Here's what I'm passionate about.' Today's technologies just make all of that more possible and effective."

In Short

Where's my cut? Two new crowdfunding sites allow students and new graduates to raise money for their education or entrepreneurial projects in exchange for a percentage of future earnings. At upstart.com and pave.com, prospects post profiles with career and fundraising goals to attract successful professionals interested in investing both their time and treasure. These investors want students to succeed—borrowers repay as much as 7 percent of their salary at Upstart and 10 percent at Pave—so investors also provide career advice. "Your backer is fully aligned in your success or failure," a Pave co-founder told USA TODAY. Both companies receive 3 percent of the funds prospects raise as well as a small percentage of funds repaid to backers.

The lure of crowdfunding. Crowdfund donors give "because of our identity and what we either vicariously want to experience or what we already value currently," according to Elizabeth Gerber, a professor at Northwestern University in Illinois. That explains why someone who dreams of producing movies but lacks the resources of a Ben Affleck might find crowdfunding a fledgling production appealing. "The relationship lasts [beyond the transaction]. So the content creator will keep you engaged in a way that you wouldn't otherwise," she adds in a "Marketplace" interview on public radio. The other reasons people give: Donors receive recognition, they have a connection with the person seeking funds, and they want to be a part of something.

Sales pitch. Crowdfunding usually works for specific projects, but the higher education platform USEED sees potential for engaging donors to support the institution itself. Abby Adair Reinhard, a USEED co-founder, points to the success of DonorsChoose.org, where contributors can support public school classroom projects as well as the platform itself. More than 90 percent of donors make an additional gift to DonorsChoose.org to fund the nonprofit's operating expenses, says founder Charles Best. Reinhard sees a similar opportunity for educational institutions. "When someone donates to a robotics project, you can invite them to make an additional gift to your School of Engineering's annual fund," she says. "We call it upselling for institutional gifts."

Want more? Andrew Gossen, senior director for social media strategy at New York's Cornell University, will lead a session on crowdfunding at the CASE Summit for Leaders in Advancement, July 14–16 in San Francisco. Learn how Cornell uses crowdfunding to cultivate new donors online and how to mix the platform with other campaigns and appeals. The 2nd Annual Global Crowdfunding Convention and Bootcamp takes place October 14–16 in Las Vegas. Although geared toward entrepreneurs and angel investors, the convention's lineup of marketing and social media experts will share tips for crowdfunding success. For other ideas, read "16 Ways Crowdfunding Can Change Education." 

About the Author Andrea Jarrell Andrea Jarrell

Andrea Jarrell is a freelance writer whose articles and essays have appeared in The Christian Science Monitor, The New York Times, and The Washington Post.

 

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