What I learned from crowdfunding 74 projects

Up until recently, I didn’t give much thought to philanthropy. I found the whole process of selecting the “right” non-profit organizations to be unexpectedly complex. Like many of my 20-something year old (millennial) counterparts, my day-to-day experiences with philanthropy mostly defaulted to the occasional donations made through fundraisers hosted by friends or at work.

It wasn’t until I tried crowdfunding this past year that I found a more intuitive mechanism for making philanthropic contributions. Crowdfunding abstracted away some of the complexity associated with charity and provided a more systematic way to segment, target, and track my impact [1].

A recap of crowdfunding
Crowdfunding is one of those concepts that sounds simple, but in reality is deceptively complex. By definition, crowdfunding is “the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the internet”.

In the non-profit context, the term crowdfunding has been used interchangeably with digital fundraising, and is often viewed as a “channel” for engaging millennials. While crowdfunding certainly fits the definition of a channel — with unique user behaviors — thinking of it as such, only scratches at the surface.

Building a philanthropic “stock” portfolio
Most crowdfunding platforms allow donors to fund small-portions of discrete projects — effectively building a portfolio of philanthropic grants. Using an investment analogy, this is similar to buying and creating a portfolio of stocks.

While donations to multiple non-profit organizations can also simulate the experience of having a philanthropic portfolio, a project-based portfolio is conceptually more intuitive to segment, and track over time.

For example, last year I put ~$3.7k into 74 projects, which was levered up to ~$356k by others in the crowd. I clearly see my contribution relative to the total (~1%), and can track this portfolio of projects over time. Once each project completes its stated activities, I will also get a sense of the outcomes, impact, and next steps.

Like stock portfolios, I can also do things like slice and dice my philanthropic portfolio to see how concentrated/diversified I am, and adjust accordingly based on my preferences.

High resolution philanthropy
Most crowdfunding platforms operate on a project-based financing model. This allows for donors to allocate their donations down to the activity-level (vs the organization-level). This higher resolution philanthropy lets donors start with the question: “what specific things am I interested in supporting?”, rather than “what non-profits organizations do I want to support?”.

For example: consider if you wanted to help find a cure for ALS by supporting ALS research. Traditionally, the way you could do this was to support charities like ALSA — the charity that ran the Ice Bucket Challenge. However, ALSA does not exclusively focus on funding research (see pie chart). InFY2014, roughly $0.28 of every dollar went to research expenses[2].

With crowdfunding, donors have the choice (but not the obligation) to get more specific. Sticking with the ALS example, donors could instead donate their dollars on a crowdfunding platform to an ALS research project[3].

This was my personal preference. I used crowdfunding to get the specificity that I wanted — with roughly $0.80-$0.90 per dollar donated going directly to the researchers for research-related activities [4].

Marginal impact on donated dollars
One of the most difficult questions to answer in philanthropy is how to maximize the marginal impact of one’s dollars.

I won’t get into more philosophical debates like whether “funding the arts is better than funding poverty interventions”, but rather, more broadly discuss the new information that crowdfunding provides to donors to complement their decision-making.

Most crowdfunding platforms require that any campaign/project make public their total budget and budget-breakdown. The platform will also display how far (or close) a project is from its budget goal. It changes the fundraising attitude from, “we’ll raise as much as we can” to “we’ll raise as much as we think we need”. It may seem trivial, but disclosing these pieces of information is critical.

With this, donors can think about marginal impact along the dimension of need. All things equal, I felt more comfortable with making choices about where my next dollar would go. For example, I preferred funding projects farther from their goal, rather than those already past its goal.

This type of information also has implications for reducing concentrations of donations (a limited resource) to a small number of charitable organizations/causes — potentially helping to maximize marginal impacts across the philanthropic ecosystem.

In Conclusion
Defining crowdfunding merely as a “channel” for engaging donors to support “business as usual” philanthropy leaves a lot of opportunity on the table. Crowdfunding provides donors the infrastructure to experiment with high resolution philanthropy, a portfolio approach to making donations, and new decision tools to evaluate marginal impact.

Ultimately, this post is about highlighting — from a millennial donor’s perspective — observations from a year spent crowdfunding. It’s not to suggest that crowdfunding will replace traditional philanthropy. But rather, to encourage discussion and debate on points that I think should be getting more attention in the broader conversation when it comes to millennials and philanthropy.

[1] I focus here on my own observations — recognizing that while I classify as a millennial, I don’t speak for all millennials, nor do my views only apply to millennials. Any data I reference from my own crowdfunding experiences, are compiled from publicly available data from my crowdfunding profile: here.

[2] Looking at ALSA’s 3 years of financial statements, the “Research” expense line-item has been roughly consistent (though this may change in FY2015 after the Ice Bucket Challenge).

[3] This is not to say that non-research activities (like patient & community services, public & professional education, and fundraising), are not important. Rather, that everyone has their own preferences — which could be very specific, or broad-based. There are people who don’t want the specificity and trust charities to allocate the funds accordingly.

[4] Most crowdfunding platforms charge a $0.05 platform fee, $0.03 payment processing fee per dollar donated. There sometimes is an additional gift processing fee from the receiving organization that amounts to ~$0.02-$0.10 per dollar donated.

Thanks to Lorena and Brian for reading drafts of this.