Civic Crowdfunding

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Earlier posts on this blog have explored the idea of crowdfunding and its legal implications, growing popularity as a source of capital, and use in supporting local businesses. As these posts explained, crowdfunding is the concept of online fundraising from a pool of many different donors or investors. These online crowdfunding platforms, most notably Kickstarter, have emerged over the last several years and crowdfunding has capitalized on its viral nature and led to the successful funding of many different projects, ranging from business startups to theatrical performances.

 

In recent years, new platforms – Citizinvestor, ioby, and Neighbor.ly – have emerged with a specific focus on public goods -“civic crowdfunding”. These websites facilitate the funding of public projects, some of which are organized by local governments themselves and others organized by citizens and community organizations interested in bringing new services or facilities to an area. Crowdfunding may be a preferred method of fundraising when bond issuance may be too cost prohibitive or where there is a group of citizens willing to coordinate the fundraising effort. One of the largest civic crowdfunding campaigns is BikeShareKC’s Kansas City B-Cycle program, a campaign that used Neighbor.ly to raise nearly $420,000 to support a project providing 90 shareable bikes at 12 sharing stations around downtown Kansas City.

Academic research around civic crowdfunding is limited, but emerging. Rodrigo Davies, now a Ph.D. candidate at Stanford, should likely be considered an academic pioneer in this field with his MIT master’s thesis exploring the concept of civic crowdfunding. Davies (2014) notes that a “typical”, or median, civic crowdfunding project has begun to emerge. This median project is one that seeks to raise only a few thousand dollars for a relatively small-scale garden or park project in a large city, producing a public good for an underserved community. The goals for the vast majority of projects fall in the $5,000-$10,000 range. Civic crowdfunding involvement, measured by number of projects per capita, is centered in New York, Washington DC, Vermont, Oregon, and Rhode Island.

It remains to be seen how these platforms will expand the crowdfunding concept into smaller and potentially more rural areas, but Davies points out that they do facilitate a locally-focused donor outreach effort for small-scale nonprofit organizations. He writes that the low-hanging fruit of civic crowdfunding are the relatively resource-light, uncontroversial initiatives that can be realized in a short space of time. While the projects in his research do typically attract a median of 13 donors even in urban settings, the other criteria do seem to be able to fit a more small-town setting.

Most observers agree, however, that these platforms and their respective campaigns, given their civic and public focus, have the potential for a catalyst effect, signaling support for ideas and neighborhoods, and sparking similar projects and involvement. Some campaign organizers use the money raised on civic crowdfunding platforms to attract additional funding from private foundations or state and federal governments. However, Davies also points out that the long-term consequences of civic crowdfunding are uncertain, but may be significant. He cites a 2013 study that warns against an overreliance on the private sector or citizen-led groups, referencing the possibility of “the undervaluing of low-return outcomes such as initiatives that serve the poorest in society, a neglect of unmeasurable (sic) outcomes such as civic engagement and trust, and confusion of regulatory accountability”. Successful projects on civic crowdfunding platforms have the potential to inspire a community by activating previously unengaged citizens and can raise capacity for volunteers to help execute projects, but there are important limitations to consider as these platforms continue to grow.

Here is a quick glimpse into three of the most prominent civic crowdfunding platforms:

CitizInvestor is a for-profit civic crowdfunding platform that hosts project pages that are unique in that they are posted by local governments themselves. Its for-profit nature increases the total project costs by 8% (3% for transaction fees and 5% for the company), but only charges donors and organizers when the project has reached 100% of the goal amount.

ioby, standing for “in our backyard”, is a nonprofit civic crowdfunding platform backed by the Kresge Foundation and the John S. and James L. Knight Foundation. Its focus is on helping projects gather funding as well as resources like volunteer time and social networks. It charges a $35 posting fee, but waives the fee for projects under $1,000.

Neighbor.ly has played a similar role to the others since 2012, but is preparing to launch a bond-buying program later in 2015 where individuals can purchase municipal bonds in the city project of their choice.

Civic crowdfunding is a growing field with a seemingly great deal of potential. It remains to be seen exactly how it may impact local governments as it continues to scale up and expand geographically.

Graham Sharpe is graduate student in the Master of Business Administration program at the Kenan-Flagler Business School at UNC-Chapel Hill. He is also a Fellow with the Development Finance Initiative.

References:

Davies, Rodrigo, Civic Crowdfunding: Participatory Communities, Entrepreneurs and the Political Economy of Place (May 9, 2014). Available at SSRN: http://ssrn.com/abstract=2434615 or http://dx.doi.org/10.2139/ssrn.2434615

https://philanthropy.com/article/Local-Governments-and/152005

http://www.fastcoexist.com/1680600/citizinvestor-crowdfunding-for-community-projects

http://www.ssireview.org/blog/entry/civic_crowdfunding_a_new_way_of_spending_down

http://www.salon.com/2013/03/12/can_crowdfunding_kickstart_struggling_cities_partner_2/

One Response to “Civic Crowdfunding”

  1. Maureen Berner

    Thank you Graham for the neat blog post! For the Community and Economic Development officers out there, I wanted to draw attention to a local government specific research paper just written about the potential for civic crowd-funding by one of the MPA students here at UNC-Chapel Hill, Audrey Shore. Her paper, “Civic Crowdfunding: A Trend or Reliable Fundraising Method for Local Governments?” looked at 40 local government projects nationally using Citizinvestor. She found the project goal and number of investors influences success and the poverty rate varies greatly among cities using civic crowdfunding and in relation to the state and national averages. She also found that this platform, and others, lacks transparency because it removes unsuccessful projects from public view, giving the public and interested local governments the impression the success rate is higher than it actually is. I share this with her permission and you can contact her with questions or for the full study at Audrey16@live.unc.edu.

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