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Increasingly, the social sector is witnessing the power of crowdsourcing and crowdfunding platforms. What about equity-based crowdfunding? Will this collective effort find application in the non-profit space as well? Jared Tham thinks this is just around the corner.
Equity crowdfunding is already a reality in the for-profit sector, having been in Europe since 2010, and soon after, in the US. This new movement allows retail investors to participate not just in terms of shareholding, but also at times with voting rights1 in start-up companies.
Using intermediary organisations, sophisticated investors are able to become direct shareholders in early-stage businesses. Such investments are considered high-risk, given that most start-ups do fail, and that payout of dividends is rare. Investors therefore depend on the company being bought out in order to liquidate their investments, in which case the returns may be severalfold. However, the crowdfunding approach means that this risk is spread over many more people.
As one such intermediary, Crowdcube is Britain’s largest and the world’s first equity crowdfunding platform, targeted exclusively at investors who are sufficiently sophisticated to understand risks and make their own investment decisions.2 More than £37 million has been successfully invested in 143 companies through Crowdcube so far, with the average investment being £2,500, and 52 percent of investors being keen on some role in the business, either as an adviser or in a non-executive role.3 And in the US, the CrowdFund Intermediary Regulatory Advocates and Return on Change have been working together to help create new legislation that will permit organisations to engage in equity crowdfunding.4 These developments are worth following for what they might foretell for the non-profit sector. What if equity crowdfunding could be applied to non-government organisations (NGOs) as well? What if the regular donor base of an NGO could not only (partially) own the non-profit organisation to which they give money, but also be selectively involved in executive decision-making processes? Donors might have a say in which staff an NGO hires, in its strategic planning process, as well as in deciding on the tactics used to achieve its mission.
Such a radical approach would breathe new life into the concept of the “people sector,” by letting people actively engage with organisations that purport to exist for their benefit. The idea would be a conceptually novel one for NGOs, were there not already examples from other sectors that exhibit some characteristics of equity crowdfunding.
In the public sector, we now have the example of the Seoul city government, where citizens who form the taxpayer base are now being engaged in the radical redesign of public services, as part of the vision of Mayor Park Won-Soon (who was elected with the campaign slogan, “Citizens are the Mayor”) to turn Seoul into an innovation-led Sharing City.
To achieve this vision, the Seoul Innovation Bureau was created as a cross-departmental innovation unit. The overriding principle of the bureau is that citizens are the main catalysts and sources of innovation, whether that be in identifying problems, clarifying issues or generating solutions. The bureau team captures and orchestrates this knowledge and insight.5
The egalitarian roots of equity crowdfunding can be traced back to the beginnings of the cooperative movement, which started in Europe in the 19th century, and has since grown to become a collective which represents close to one billion individual members, according to the International Co-operative Alliance.6 Co-operatives are businesses owned and run by and for their members. Whether the members are the customers, employees or residents, they have an equal say in what the business does and a share in the profits.7
Not to be left behind, even the world of football is getting into the game. Equity crowdfunding has already kicked off, with clubs such as AFC Wimbledon and Ebbsfleet United being amongst the prominent players using this approach to sustain themselves, albeit with mixed results.8 Issues on which team supporters can vote include electing the team's directors, which players to sign, and how much a season ticket costs.9
Given the increasing adoption of this approach, it would seem plausible that it could apply to NGOs as well. Yet many non-profit professionals would baulk at the idea of losing control over the management of certain aspects of their organisations. The general public, while well meaning, are generally seen as less knowledgeable and experienced, and therefore less capable of being involved in the day-to-day operations of a non-profit organisation. It also diminishes the professional judgement of staff who have invested decades of their lives in honing their craft.
Yet, the idea should not be dismissed too easily. While such an approach will not fit the vast majority of existing NGOs, there are certain conditions under which it may work:
a) When the mission is clearly spelt out, so that it is easily understood by all.
b) When the interventions by the community have a clear start and end point, where people can identify issues about which they have clear opinions and wish to have a say.
c) When outreach and community engagement is the raison d'être for the organisation, and getting ground support (in the form of volunteer support or widespread adoption of an idea) is crucial to the success of the mission.
Most of these factors can be found in current political campaigns (not to be confused with the longer process of governing) where the candidate’s main goal is to win the election through receiving the greatest number of votes.
How NGO equity crowdfunding furthers the idea of crowdfunding (as is practised in political campaigns), is that it truly democratises the process by which change comes about. While voters in a political campaign really only have a brief period to vote once every few years, that process in NGO equity crowdfunding can be a continual one, as long as it is beneficial for the organisation. While there are certainly costs involved in the administration of such engagement efforts, a balance with the potential benefits of community engagement must be taken into account.
Similarly in the non-profit sector, advocacy organisations which seek specific legislative changes may do well to employ an equity crowdfunding approach. As an illustrative example, if Greenpeace were to advocate for the consumption of only dolphin-safe tuna, on a global basis, it could launch a massive viral campaign that attacks corporates where it matters—their brand image.
Such efforts have proved successful, typically with the acquiescence of major multinational corporations which would start providing only certified dolphin-friendly tuna, which is then followed by its competitors.
But such solutions, while creating significant change in the ethical shopping sector, would realistically only address the supply side of the problem. To effectively create mindset change on the demand side, to influence consumers who are not on Greenpeace’s mailing list to sit up and adjust their behaviour, requires a different set of tools.
With an equity crowdfunding approach, Greenpeace could possibly “de-risk” their community advocacy budget for dolphin-safe tuna by providing collaterals at a level which is proportional to the level of funding which is crowdsourced.
While there are certain collaterals which would be specific to every campaign, such as soft copy banners and petition letters, as more people participate in the campaign, their "How NGO equity crowdfunding furthers the idea of crowdfunding ... is that it truly democratises the process by which change comes about. While voters in a political campaign really only have a brief period to vote once every few years, that process in NGO equity crowdfunding can be a continual one, as long as it is beneficial for the organisation." collective voice could vote on (and fund) the creation of even more elaborate advocacy materials, such as the printing of a sustainable fishing guide and even inflatable dolphins with the Greenpeace logo.
Such materials could then be used in a way which is most effective to a community. The sustainable fishing guides may work best in Norway, but in other countries, perhaps what would get the message across is really a giant inflatable dolphin.
Not only will equity crowdfunding enable NGOs to multiply their often lean budgets, community decision-making will enable them to use the appropriate approach within each geographic area. This “social franchising” approach can ensure that while the overall message and branding are consistent, it can also be contextualised to the specific psychographic characteristics of each target group.
Equity crowdfunding in NPOs would not only boost involvement of those who give, but also ensure that the outcomes are aligned with the interests of those who are stakeholders in some way, especially those who are end beneficiaries. However, it is not a panacea, and those who seek to employ this novel strategy should find situations where it is most beneficial, that is where there is a clear mission, when community has clear start and end points, and when community engagement is almost as important as the mission itself.
Jared Tham has managed signature projects at the Lien Centre for Social Innovation for the past six years, including the Social iCon conference, the Social Space publication, and the iLEAP Professional Course for Non-Profit Leaders. His previous roles took him to the Singapore International Foundation, Child Right & You (Mumbai), Halogen Foundation, and National Council of Social Service. A connector for the social sector, he is in his element working across various issues and fostering collaborations among different organisations. He is currently a post-graduate candidate for the Master of Tri-Sector Collaboration.