Crowdfunding manual june 12 draft


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Crowdfunding manual june 12 draft

  1. 1. The Crowdfunding Manual for Social Movements (Please Do Not Distribute!) -- Draft Manuscript -- Joe Brewer & Suresh Fernando June 12, 2011
  2. 2. Please Read This First!This manual is incomplete. We have written about several substantive issuesand gotten to this point. We need your help to shape it into it’s final form.What’s In Here NowWe have completed writing about: The values shift and technology revolution that make new funding models essential; The paradigm of open collaboration that lays foundations for the new economy; A taxonomy of models and tools for collaborative finance; The Pooled Ecosystem Fund as the solution to our financial challenges; The nuts-and-bolts for running a successful crowdfunding campaign.What We Know We Still NeedAll of this material is a bit jumbled because it lacks an opening context. Weknow that we still need: A strong introduction that explains the role of finance in large-scale social movements; Discussion of the mismatch between the progressive agenda and existing funding tools; A historic case study that explains how the U.S. conservative movement aligned financial objectives with a cultural agenda to build its infrastructure; Exploration of social justice and democracy through the lens of crowdfunding; A vision of what 21st Century social movements can look like when crowds self-organize and pool resources to advance a shared agenda.We are sharing this with you now because we believe that collaborativediscussions about this material can improve the manuscript and ensure that itis useful for social innovators and entrepreneurs striving to solve the fundingchallenges that inhibit adoption of sustainable solutions to social problems.Please read through this manuscript, make notes using the comment functionof Microsoft Word, and join us for discussions about how it can be improved inthe Google Group set up for this project.Looking forward to working with you to complete this important project,Joe Brewer & Suresh Fernando Draft Manuscript – Please Do Not Distribute 2 June 12th, 2011
  3. 3. INTRODUCTIONSo you want to successfully engage the crowd to solve the world’s most pressingchallenges? You’ve come to the right place.We have watched as fragmented efforts across issue silos repeatedly divide socialmovements against themselves. And we bear witness to the fact that the world ischanging faster than our institutions can adapt. The old roads lead to stagnationand ruin.We’d like to offer a new way forward that enables people to organize themselvesaround the issues and concerns that are most pressing to humanity—one that takesthe power of collaborative engagement and applies it to our modes of organization.Our purpose in writing this manual is to shed light on the vital capacities that 21stCentury social movements will need to acquire with a special emphasis on theburgeoning set of tools for engaging crowds of people in a focused manner thatleads to meaningful and substantive progress.While the focus is primarily on crowdfunding techniques, we will need to paint alarger context to show just how deeply the world is shifting right now. We are in themidst of a truly inspiring values transformation accelerated by a technologicalrevolution that—unlike mechanistic models of the past—actually strengthens oursocial fabric and helps us better connect to one another.To fully understand what crowdfunding is (and why it offers a glimpse of the newparadigm for social movements), we’ll have to survey the landscape of deep trendsin cultural values, institutional forms, and collaboration tools that enable a newsocial order to emerge that spans the global economy. This broad perspective willhelp us see how we can leverage the power of crowds to solve previously intractableproblems.Major topics we’ll cover along the way include: What is crowdfunding and how is it different from traditional fundraising? An overview of how social movements work, with an emphasis on the role of finance in building vital infrastructure; A Taxonomy of different models for collaborative finance and their application parameters; How to run a successful crowdfunding campaign; The nature of engagement and collaboration in crowd-based approaches to social change. Draft Manuscript – Please Do Not Distribute 3 June 12th, 2011
  4. 4. WHAT IS CROWDFUNDING?We are in the midst of a revolution where self-organized crowds have begun todisplace entrenched powers as the primary drivers of social change in the world. Atthe heart of this revolution is the capacity for people to easily find like-minded peersand collaborate using social media tools.Crowdfunding has grown in popularity as a way for artists and entrepreneurs todirectly engage their fans and invite them to help make their projects a success. Themost visible element in this process is the money that changes hands. Yet, there aremore interesting—and potentially transformative—things going on that warrantspecial attention.Crowdfunding is a community-engagement process between an individual ororganization seeking money to create something new and a crowd of supporterswho want to participate in the effort in a meaningful way. It is primarily about opencollaboration among the participants that takes the form of: 1. An Invitation to Make A Successful Project; followed by 2. A Campaign to Engage More People in the Effort; and culminating in 3. A Celebration of What Everyone Has Created TogetherNote how none of these steps is really about money. Yes, there must be moneypledged by fans. And the amount of money raised needs to be sufficient forachieving goals set out initially by the project’s host. But the central action centersaround meaningful engagement that empowers the crowd to create something new.This is why crowdfunding has so much potential for “game changers” in the arena ofsocial movements. It is a fundamentally empowering process that engages people inmeaningful action.Not bad for a process that also generates revenue for cool projects, eh?In this manual you will learn how to leverage the power of crowds to drive socialchange. You will discover how to create successful crowdfunding projects andwhich tools are best suited for your particular needs.So let’s get started.THE ROLE OF FINANCE IN SOCIAL MOVEMENTS[Add content about how social movements depend on infrastructure that gets builtover time. Present the U.S. Conservative Movement as a case study that shows how itwas funded, which institutions were put in place, and why finance was essential.Then explain how the Progressive Movement needs different finance models becauseit’s objectives are not aligned with free market ideology – as the Conservative Draft Manuscript – Please Do Not Distribute 4 June 12th, 2011
  5. 5. Movement is – and so it cannot exploit existing finance mechanisms to advance it’sagenda.]AN INFLECTION POINT IN HUMAN HISTORY: WE ARE AT THE TIPPING POINTWe are at an inflection point in human history that requires us to answer the call.There is no more time to dawdle. This inflection point can be characterized by theconvergence of a transformation in values with a technological revolution. Thiscombination makes possible a techno-cultural re-ordering that enables us tointeract with each other differently, making it possible to organize and coordinateactivities in new and innovative ways as well as to re-define the very structure ofour institutions, which are deeply connected to how we interact with each other.In this manual, we will explore new ways of organizing and collaborating onlinewith a view to shedding light on how our newfound capacity to massivelycollaborate and coordinate activity can serve as a basis for bringing about theTipping Point. A global revolution is now within our grasp.We will also examine some of the difficulties with current institutional models thataim to support social impact work and will offer suggestions for how these modelsmight be updated.The Values TransformationThe Tipping Point is finally in reach, made possible by an immense transformationin values that has many different axes. Here are a few:Climate Change: A Rallying Cry: This generation is unique in all of humanhistory in that we are faced with the greatest challenge ever presented to ourspecies; the threat of climate change. This is a global threat that places our entirespecies at risk. In and of itself this is remarkable, but what makes our currentsituation unique is that we are faced with this threat in conjunction both with theknowledge of this threat as well as sufficient communication and technologicalcapacity to do something about it. We are in the midst of crisis and have the tools tocultivate empowered collective action.Mistrust of, and Disinterest in, the Political Process: Notwithstandingcertain gains accrued with the recent election of President Obama and severalpopulist uprisings around the world, the political process involves in a limited way,at best, half the populace and deeply engages far fewer. Our best and brightest spurn‘opportunities’ in public service in search of the all-mighty dollar. The way that weare governed is seen as the lesser of many possible evils, and doesn’t really engageour capacity for creativity to make progress on addressing global challenges.Financial Market Collapse and the Rebalancing of Power: The recentcollapse of financial markets makes it evident to a growing majority that the Draft Manuscript – Please Do Not Distribute 5 June 12th, 2011
  6. 6. capitalist paradigm is not sacrosanct. It is ripe with systemic flaws and (if it was notapparent already) rife with greed and avarice. It brings forth the worst of humannature and we feel a subtle but steady shift in the global balance of power. We knowthat this shift will bring about new institutions; even if we don’t know what thoseinstitutions will look like. The old ones are simply inadequate in the face of 21stCentury challenges.Species Extinction Risk: For the first time in the course of human history, theclimate change problem has forced us to have a conversation about the possibility ofthe extinction of our species. We, the most intelligent and ‘rational’ of animals havebrought this upon ourselves. Now is the time to pull out all stops and explore radicalpossibilities to reverse the process.Alienation and Fragmentation in Western Culture: Economic and politicalproblems sit side by side with deep feelings of dislocation, disempowerment,powerlessness, boredom and outright depression. We have created a culture wherewe are forced to spend the vast majority of the day doing menial tasks in service of acorporate agenda that is disconnected from our deepest personal concerns. We sitin cubicles with walls. Similarly our homes separate and divide us. We long forcommunity and connection. There must be a better way!Absence of Spiritual/Holistic Context: The deep sense of disconnection andunhappiness that we feel is further exacerbated by the erosion of a deeper culturalcommitment to a larger social context. Spirituality, broadly understood, is also not apart of life in the same way that it used to be. The capitalist push towardsindividualism has taken its toll over the last several generations. We no longer thinkof the greater good or celebrate the beauty of our planet.Economic Inequity/War: All of the above takes place within a world that isdramatically polarized; those that have stand in stark contrast to those that do not.This disparity is not new, but is more visible than ever.This sampling of observations about the world we live in today makes evident theneed for a new orientation of values that shape our we govern ourselves, generatebusiness, and work together to make our communities more resilient in the face ofchange. Inklings of a values transformation have started to emerge. And atechnological revolution has begun to offer new modes of social organization thatcan accelerate this cultural process. Draft Manuscript – Please Do Not Distribute 6 June 12th, 2011
  7. 7. The Technological RevolutionThe Internet era is just beginning to mature. It is easy to forget the days of theNetscape IPO in 1994 which, in some sense, marks the birth of the Internet era.1Lost in the hype and promise of increased sales has been a sufficient examination ofthe changing nature of the dynamics of interaction that become possible as a resultof the following simultaneous trends:1 Draft Manuscript – Please Do Not Distribute 7 June 12th, 2011
  8. 8. The convergence of (1)the ubiquity of broadband dispersion; (2) increases inprocessing power; and (3) the decreases in the cost of memory is leading to a real-time infrastructure where everyone can be connected with everyone else all thetime. This has profound implications for the very notion of community and theability to organize and coordinate activity across geographic boundaries oversustained periods of time.It now becomes possible for us to come together like never before.The Tipping PointWe can understand the Tipping Point as being the result of the convergence of thevalues transformation with this technological transformation. A properunderstanding of these dynamics makes many things possible that were previouslyunthinkable. Draft Manuscript – Please Do Not Distribute 8 June 12th, 2011
  9. 9. WHAT MAKES TODAY DIFFERENT?It’s essential to understand that within the context described above things aredifferent because we have much greater visibility into the disparate nature of ourexistence as a global family. We see, through the media and the internet, theproblems that others have, the possible riches, the possible solutions etc. Thedifference lies in the nature and possibilities for collective consciousness.Our current situation can be characterized simultaneously as creating a personalcontext that alienates as well as provides the possibility for connection that spansthe globe.The move we need to make is from a paradigm of fragmentation and opacity to anew paradigm that enables deeper collaboration and engagement acrossboundaries—be they cultural, institutional, political, or economic.THE NEW PARADIGMThe transition from the old paradigm to the new one can be described as follows: Draft Manuscript – Please Do Not Distribute 9 June 12th, 2011
  10. 10. Old Paradigm New ParadigmSelf interested Part of EcosystemIndustrialization, consumerism etc SustainabilityOrganizations solely focused on financial Focused on triple bottom lineprofit (corporations)Employees are ‘workers’ Employees are peopleProgress quantified by Return On Progress quantified by Social Return OnInvestment InvestmentIsolated CollaborativeUse technology to increase productivity Use technology to build communityClosed OpenInsular view of world Holistic viewAt its essence these changes represent a shift in consciousness towards a moreholistic, systemic and interdependent perspective. This is a function of both changesin the communication landscape that provides visibility and connectivity across allboundaries (geographic being perhaps the most important), as well as a shift invalues towards an increased interest and focus on sustainability and mutual caring.The impacts of these shifts converge at all levels and create a completely newcontext for us to think about how we can come together to make the world a betterplace.The changes we are situated within require that we rethink everything; mostimportantly the role of existing institutions as well as the way that we govern andcoordinate activity in service of social ends. This change in context provides hugeopportunities for new and innovative solutions to old problems. Our objective inthe following pages is to shed some light on new and innovative models for us toconsider as we come together to address global challenges.THE CHALLENGE OF INTENTIONALITYGiven what we have advanced so far, we are faced with the question of what we asdissatisfied global citizens can do. Must we leave fate to chance or are thepossibilities to bring about change in an intentional fashion any different than theywere in the past? Draft Manuscript – Please Do Not Distribute 10 June 12th, 2011
  11. 11. Our answer to this question is a hopeful one.SOCIAL MOVEMENTS AND COLLECTIVE CONSCIOUSNESSA detailed analysis of the genesis and structure of social movements is beyond thescope of this work. In the following we will suggest how a set of simple assumptionsreveal that the possibility for us to come together and bring about radical societalshifts is far greater than it has ever been.The Intersection of a Set of Common Ideas: In order to fully understand thepotential that the internet has for bringing about massive social change, it isimportant to understand the impact on social movements of the ability to see intoeach others’ activities. In reflecting on this we can then get a better idea why theinternet and an associated collaboration infrastructure and models can serve to playa huge role in bringing about and sustaining future social movements.Without going into a detailed analysis, we will suggest that social movements can beassociated with a set of ideas that converge in the minds of those that are party tothe movement. These ideas in most cases will be vague and difficult to specify as isthe case with those that participate in the Tea Party Movement in the United States,or are a part of the larger global sustainability movement. Nevertheless there issome binding set of ideas that provides enough commonality to call themmovements.The Visibility of People Coming Together: An essential element in the formation ofsocial movements is everyone’s ability to see that others are also feeling the sameway and are interested in coming together and working to bring about meaningfulchange. This is why activists organize rallies and large movements are symbolizedby the congregation of many people in a single space. Examples of this include theMillion Man March, Woodstock, and the recent demonstrations; events thatcaptured and symbolized the spirit of a generation. In being able to observe suchactivity, we come to realize that we are not alone; that we are a part of a much largerprocess.The ability to see the movement as it is unfolding contributes greatly to themovement itself.An essential insight for change agents is that the internet can play a huge role inproviding visibility into existing movements at various stages. This visibility willserve to communicate the movement and to support the collective consciousnessand alignment of intent necessary to mobilize very large numbers of people towardsbetter ends.Visibility into the entire system, therefore, serves to change our consciousness ofeach other, but in and of itself it is not enough since we need to be able to cometogether and to work together. We need to be able to collaborate. Draft Manuscript – Please Do Not Distribute 11 June 12th, 2011
  12. 12. TOWARDS DECENTRALIZATION AND ENGAGEMENTMuch of the dissatisfaction and disillusion that we feel regarding the politicalprocess and the futility of fully partaking in the corporate agenda rests on the factthat we tend to feel powerless. We feel that our votes count for little and that ourdead end jobs serve to enhance the wealth of a few at the expense of the rest of us.What we are feeling is discontent relative to the very structure of power. One way tolook at this is in terms of the way that the traditional media and messaging flowsoutward and down through a centralized hierarchy.Fortunately, through the rapid advances in digital communications infrastructure,we are becoming directly connected to each other in ways that make possible a re-organizing of certain aspects of the power structure. We are, at the least, able toconnect with each other, to have more control over what we consider ‘news’ and soon. This distinction can be represented as follows: Draft Manuscript – Please Do Not Distribute 12 June 12th, 2011
  13. 13. An important realization in this context is that the cultural shift towards new andemerging values is dependent of the structure of communication our socialmovements are situated in. The architecture of our interactions influences what it ispossible for us to accomplish together.THE POSSIBILITY OF MASS COLLABORATIONThe technological revolution has created in a global communication system withhigh-speed computing and mobile devices woven together in a web of connectivitythat makes mass collaboration possible like never before.Projects like Wikipedia and the Linux operating system provide inspiration asshining demonstrations that large numbers of people spread across the globe cancome together and build complex solutions that address real needs. It has becomemuch easier to share information, distribute tasks, and see progress being madethan ever before. This allows us to ask ourselves how do we come together tointentionally change the world? Draft Manuscript – Please Do Not Distribute 13 June 12th, 2011
  14. 14. An open architecture—that allows information to flow across its boundaries withease—provides a glimpse of what is now possible... millions of people coordinatingtheir activity to solve problems together! This is a particular application of theprinciples of open collaboration that lie at the heart of crowdsourcing efforts.THE EVOLUTION OF CROWD ENGAGEMENTTo help get a sense of what we’re now capable of doing with social movements, it isworthwhile to take a brief tour of the key concepts that are foundational to crowd-based action.Open CollaborationTo properly understand what open collaboration is, it is necessary to provide adefinition both of what we mean by collaboration as well as openness.What is collaboration? There are many ways to define the notion of collaboration.We consider the following as essential: The sharing of risks, resources, responsibilities and rewards The co-creation of contentWhat is Openness? By open we mean that the collaboration strategy will reach acrossexisting boundaries. The boundaries can be geographic, within the organization(inter organizational), or across different organizations (intra organizational).Open collaboration is a specific form of collaboration; one that aims to extend therange of participation by using various communications tools, thereby increasingthe number of people, groups and organizations that are thinking about the problemthat an organization is attempting to solve. Draft Manuscript – Please Do Not Distribute 14 June 12th, 2011
  15. 15. Crowdfunding.org2 provides a useful taxonomy of different open collaborationcategories:Cloud Labour: Leveraging of a distributed virtual labor pool, available on-demandto fulfill a range of tasks from simple to complex. Crowdsourcing is used to connectlabor demand and supply. Virtual workers perform activities that range from simpleto specialized tasks.Collective Creativity: Tapping of creative talent pools to design and developoriginal art, media or content. Crowdsourcing is used to tap into online communitiesof thousands of creatives to develop original products and concepts, includingphotography, advertising, film, video production, graphic design, apparel, consumergoods, and branding concepts.Open Innovation: Use of sources outside of the entity or group to generate,develop and implement ideas. In a world of widely distributed knowledge, wherethe boundaries between a firm and its environment have become more permeable,companies cannot afford to rely entirely on their own research and ideas tomaintain a competitive advantage.Collective Knowledge: Development of knowledge assets or informationresources from a distributed pool of contributors. Crowdsourcing is used to develop,aggregate, and share knowledge and information through open Q&A, user-generatedknowledge systems, news, citizen journalism, and forecasting.Community Building: Development of communities through active engagementof individuals who share common passions, beliefs or interests. Crowdsourcing canbe used to increase audience engagement and build loyalty through online dialoguewith customers or a broader population. It can also be leveraged to provide a forumwhere views and opinions can be shared, ideas can be generated, and to receivefeedback on products and services.Knowledge Building: Open collaboration environments where different peoplework together as a part of a much larger project by either contributing certainaspects of the project individually or by working in close collaboration with a fewpeople. This includes open source software projects, information repositories likeWikipedia etc.Crowdfunding: A more recent crowd engagement phenomena where people orprojects tap as wide an audience as possible to raise small amounts of financingfrom a number of different funders. This mechanism of finance is on the rise andsomething we’ll discuss at length later in this manual.2 Draft Manuscript – Please Do Not Distribute 15 June 12th, 2011
  16. 16. To analyze the distinctions in these models, we find it useful to define the followingtaxonomic variables: Open: in principle, anyone can participate Hierarchical: the crowdfunding strategy is introduced by a particular organization that, at least to a large extent, controls the requirements, rewards etc. One-To-Many: Refers to a relationship between the originator of the crowdsourcing project and the recipients of the offer that is structured in a way such that there is no relationship or interaction between the recipients. Many-To-Many: Represents a relationship between those making the offer and the recipients such that whatever output is generated is of value to everyone including the recipients. Mutual Development: Represents a relationship between the output of the recipients and the input of other recipients such that peoples’ work builds off each others’ work. Collaborative: Represents a relationship between those making the offer and the recipients such that the recipients are engaged with each other and work together towards the larger objective Collective Intention: Refers to a larger over-riding goal or mission that binds all participants in the crowd engagement process. Crowd Collaborative Development One To Many HierarchicalEngagement Collective Intention Many To Mutual Strategies Many OpenCloud Labour No Yes Yes No No No NoCollective No Yes Yes No No No NoCreativityOpen Yes Yes Yes No No No NoInnovationCollective Yes No Yes Yes No No NoKnowledgeCommunity Yes No Yes Yes No No YesBuildingKnowledge Yes No Yes Yes Yes Sometimes YesBuildingCrowdfunding Yes Yes Yes No No No NoIt is interesting to note the following: Draft Manuscript – Please Do Not Distribute 16 June 12th, 2011
  17. 17. 1. There are few truly collaborative models where we understand collaboration as co-creation and the sharing of risks. 2. There are few models where all participants have a clearly defined collective intention. 3. Crowdfunding models, to date, don’t embrace collaborative principles.That said, mass collaboration projects do exist. Here are a few important examples.Mass Collaboration ProjectsWhat distinguishes mass collaboration projects from other forms of crowdengagement is: 1. The project outputs provide a collective social benefit that contributors can easily see. 2. The project is structured so that relations between contributors could be engaged in highly collaborative activities.Organization Focus Collective Mutual Collaborative Intention DevelopmentGoogle Collaborative Yes Yes NoMapMaker MapsLinux OS Software Yes Yes Yes Operating SystemOokaboo Picture Yes No No SharingOpenStreetMaps Collaborative Yes Yes No MapsRDTN Radiation Yes No No MonitoringWikipedia Information Yes Yes Yes ResourceRecently there has been increased media focus on crowdfunding as a number ofcrowdfunding platforms have emerged. It should be noted that prior to the recentwave of crowdfunding platforms, there have been a number of online fundingplatforms that support registered charities in various countries.Social Change, Crowdfunding, and Engagement PlatformsOver the course of the last several years, a number of websites have emerged thatprovide the opportunity for those who want to support social change activity toconnect directly with various causes of their choice. There are hundreds ofplatforms of this sort. Here are a few examples: Draft Manuscript – Please Do Not Distribute 17 June 12th, 2011
  18. 18. Organization Funding Volunteer Community Petitions Collaboration EngagementAvaaz No No No Yes NoCare2 No No Yes Yes No No No Yes NoCharityFocus No Yes No No NoDonorsChoose Registered No No No No Charities OnlyGiveMeaning Registered No No No No Charities OnlyGlobalGiving Registered No No No No Charities No Yes Yes No NoWiserEarth No No Yes No No Note that, once again, these platforms provide no opportunity to collaborate. Crowdfunding Platforms [We have gathered a lot of data for this section and are still organizing it into a taxonomy… will have it fleshed out for the final publication version.] (INSERT TABLE HERE) Now that we have introduced crowdfunding as a financing mechanism into the mix, it behooves us to examine the nature of funding for social change more closely so that we can identify some of the dynamics that drive this space and explore alternative solutions. THE EVOLUTION OF SOCIAL CHANGE FINANCE The function of money in the existing economic paradigm is to provide both a mechanism of exchange as well as to serve as an end-in-itself; to act as the primary motivator for activity. Within this context we have created an institutional form— the corporation—the object of which is to provide a framework to structure and organize resources in as efficient and productive a manner as possible. Hence, money, in and of itself has no direct relation to human well-being. That said, we are fortunate that money is, at least to some extent, used for creating social goods. The industry is wide and deep and continually evolving. Draft Manuscript – Please Do Not Distribute 18 June 12th, 2011
  19. 19. To frame the following analysis, we will suggest that, notwithstanding the fact thatthere are some resources available for those that want to bring about positive socialchange, there is a gap at the front end of the investment cycle in that there needs tobe substantially more capital available for early stage social innovators.The Motivation to Deploy Financial Capital and It’s Structural ResultBy and large the motivation to deploy financial capital is to garner further financialcapital. This is what is understood as `investment`. The deployment of financialcapital is based on an analysis of risk relative to potential reward. `Rational`investors then, ostensibly, make this evaluation and deploy capital accordingly.Social investors need to think differently. Traditionally they have had to assume thatfunds they deploy will provide no financial return; that their contributions are to be`philanthropic.` This leads to the following polarization:Hence, either funds are deployed for financial gain according to well understoodrisk-to–reward principles or funds are donated by socially motivated investors withno expectation of financial return. This creates a structural gap in the investmentlandscape.Social FinanceRelatively recently we have seen the emergence of the social finance sector which isattempting to fill this gap. Social financiers aim to provide financing, at various Draft Manuscript – Please Do Not Distribute 19 June 12th, 2011
  20. 20. stages of the investment cycle, for projects that both deliver financial and socialvalue. Due to the nascent stage of this industry’s development, the infrastructureand institutional frameworks continue to evolve as we speak. Over time the hope isthat an entire parallel institutional framework will emerge in support of socialventures (organizations that deliver both social and financial value).We would like to take this opportunity to raise some red flags regarding the natureof the institutional frameworks that are evolving in support of the social financespace for the following reasons: 1. Many attempts to cultivate social finance models are built on faulty aspects of the old paradigm and simply won’t work; 2. These concerns reveal what is needed in order to make social finance work properly.The Problem With The Social Finance Institutional ModelBefore addressing this question directly it makes sense to examine what socialfinance institutions actually look like. Due to the nascent stage of the whole industryspace, there are no very large players; no institutions that would parallel the largeglobal or even national investment banks. That said, the intention within the socialfinance space is to build an infrastructure that directly parallels what is transpiringin the private sector. The intention is that, in time, there will be investment banks,trading desks, stock exchanges, research groups, investment advisors and so on.The reason that this intention seems to be pervasive in the social finance space isthat it is easy to look at the massive success of the institutional framework thatsupports the private sector and simply assume that this model will work for thesocial finance space too.It is easy to assume that the institutional framework that allocates financial capitalwithin the private sector is the correct model within the social finance space.We submit that this assumption is false.We need to realize that the institutional model that has evolved over the course ofthe last 150+ years in the finance space has evolved as the mechanism that is bestsuited to support the growth of financially profitable businesses. The goal of venturecapitalists and financiers alike, therefore, parallels the objectives of those that startbusinesses; they establish investment criteria that are based on maximizingfinancial profit. This leads to two related phenomena:The Development and Endorsement of the Values that Guide FinancialInvestment and Capitalism in General: It is no secret that capitalism relies onself interest, greed, avarice, a focus on the survival of the fittest and so on. Nofurther need be said about this. Draft Manuscript – Please Do Not Distribute 20 June 12th, 2011
  21. 21. A Focus on Scalability: Since traditional financiers focus solely on maximizingtheir own financial profit, their criterion for selecting appropriate investments isdetermined by identifying those projects that will provide the most possiblefinancial return for the least possible risk. In other words, they focus on projectsthey believe will do disproportionately well.This dynamic is most apparent in the venture capital industry, the sole function ofwhich is to provide capital to new and emerging businesses. Due to the fact that thevast majority (roughly 9 out of 10) early stage businesses fail, it is necessary forventure capital investors to be efficient in the selection of the one out of tenbusinesses that will increase by twenty fold, for example. It is only if this takes placethat it will be possible for them to develop a business model that is financiallysustainable as an investment firm.On the Purpose of Social FinanceOf course this orientation is natural within the context described above. But itraises a larger question: What is the purpose of social finance? Is it not to providethe necessary resources to bring about positive social change? If so, we submit thata different orientation to how financial capital is deployed should be considered;one that takes into account that bringing about positive social change requirescreating a culture of change. It requires populating the world with change agentsand widely supporting those that already are change agents, even if in a small way.On the Wide Dispersion of Social GoodsWe believe that the world would be a better place if we create an institutionalframework that supports many different people, projects and organizations thatwant to bring about positive social change. This orientation stands in stark contrastto the current model which selects a few ‘promising’ projects at the expense of thevast majority of smaller, less ambitious projects.The result of this is that we create and maintain a class of individuals that aredisillusioned with the status quo and that want to do something about it, but get nosupport whatsoever. This absence of support causes them personal grief and forcesthem to go back to work in what, for them, are dead end, meaningless jobs. Itperpetuates unhappiness, misery and the status quo.Simply put, we need to completely rethink the institutional models in such a waythat the foundation upon which they are built is the values that the social financeindustry purports to support; community, sustainability, collaboration, love, etc. Asan example of how this sort of shift might be conceptualized, here is a comparison ofthe traditional investment banking model in relation to what it could be:On the Possibility of Innovative, Values Based Social Venture Investment Banks Draft Manuscript – Please Do Not Distribute 21 June 12th, 2011
  22. 22. Maybe the following comparison chart will serve to make what we see aspossible a little clearer:Comparison Points Tradition IBanks Current SV Landscape New SV IBank ModelFunction Proactively drive industry Isolated service offerings Focus on developing transition and trends not based on defined sector specific through capital allocation macro perspective of the intelligence and entire landscape support services to cultivate an emerging class of social entrepreneursService Offerings: single Full Service: Fragmented: Full Service: viainstitution Financing Some financing collaboration across Advisory Some advisory industry Research Some research Trading Secondary OR M&A markets under Brokerage development No single institution offers the full breadth of servicesMaturity MATURE. Industry models IMMATURE. Industry There is an have evolved over the last models are very new and opportunity to develop 100+ years in flux innovative models that incorporate current trends in information technology etc.Proactivity/Passivity VERY PROACTIVE. The PASSIVE. I see little VERY PROACTIVE. depth of their knowledge evidence that social unique positions them to venture infrastructure actively drive the direction players are actively of the entire space. engaged in trying to map out the landscape, potential relationships and deals etc. to make them happenIncubation NO. Industry participants Some incubation. Mostly Integrate incubation play at a later stage in the incubators act (real world and investment cycle independently of funding virtual) with rest of sources. service offering This follows since the focus is early stage.Collaboration: NO. IBanks compete and NO. There does not seem YES, why not? Thereinformation sharing likely don’t share much to be much activity does not seem to be any information. coordinated across the principled reason why entire social venture this is not possible. There is a principled ecosystem reason that collaboration is less likely – institutions are explicitly self interestedCollaboration: YES. Financing are almost NO. Why not? Theretransaction syndication always syndicated doesn’t seem to be any amongst a group of reason why risk can’t financiers be sharedOpen Information NO. In large part due to NO, but why not? There YES, certainSystems competition issues and the does not seem to be any information is made fact that the institutional principled reason why this available by Draft Manuscript – Please Do Not Distribute 22 June 12th, 2011
  23. 23. culture formed before is not possible. participating open source models institutions in service evolved. of the larger collective mission.Sectoral/Ecosystem YES. Large investment NO. Transactions are, for YES. Organize theFocus banks conduct in depth the most part, conducted sector focus on the sectoral research that on an isolated basis by basis of ecosystems. provides them with evaluating projects on a intelligence and positions case by case basis. Identify those in the them well to drive industry to partner transactional activity with to develop relationships within ecosystems Identify opportunities early on.The Structural Challenge within the Social Finance Space: Risk/RewardImbalance for Early Stage InvestorsFinancially motivated investors have, over the course of the last hundred years orso, developed a set of institutions and practices that we refer to as the `investmentbanking industry`. Investment bankers have, over time, segmented their investmentportfolios such that they focus on certain types of investments; all of which havedifferent risk-reward profiles.We have, for example, angel investors, seed investors that specialize in early stageenterprises, venture capitalists that specialize in Series A financings, others thatprovide mezzanine financing, still others that provide debt financing and so on. Thissegmentation has resulted due to the fact that investment at the various stages ofthe cycle require different interests, competencies and so on.What is most important about this equation is that there are financially motivatedinvestors that will provide capital at the very front end of the investment cycle; tothose entrepreneurs that are just starting new ventures and therefore pose thegreatest risk. It is a well documented fact that the vast majority of entrepreneurialventures fail. What makes it possible for financial investors to invest even in such ahigh risk situation is that the few early stage businesses that succeed do sufficientlywell enough to compensate for all of the other losses. This is only possible becauseearly stage businesses are focused on making money!This is where the problem begins. If we assume that those that are sociallymotivated will not be as focused on maximizing financial profit what follows is thatthe financing of early social ventures poses a specific challenge since they carry thesame level of financial risk but do not provide sufficient levels of financial return tocompensate investors. This makes it substantially more difficult for financiallymotivated investors to invest in early stage social venture projects. What can bedone about this? Draft Manuscript – Please Do Not Distribute 23 June 12th, 2011
  24. 24. There are only three theoretically possible solutions: 1. Increase the financial return potential of social ventures 2. Reduce the financial risk for early stage investors 3. Change investor expectations such that they don’t require ‘traditional’ financial returnsOption 1 is self defeating in the sense that we don’t want social entrepreneurs tofocus on financial profit. They’re mission is to deliver social value and this shouldnot be diluted in any way.Option 3 is being worked on in many different ways; most obviously by workingwith foundations to change the nature of how philanthropic monies are deployed.Grants and donations provide a -100% rate of return. Is there any reason that someof this money could not be converted to a interest free loan pool. This would at leastprovide some capital back to foundations that then could be redeployed.Our focus in the forthcoming will be on considering option 2.REDUCING FINANCIAL RISK THROUGH COLLABORATIONThe substance of the preceding discussion is the suggestion that a majorcontributing factor to our current context is the communications and technologicalinfrastructure that makes collaboration much more feasible than ever before. Welive in a highly networked world where we can ‘see’ each others’ activity via socialnetworks like Facebook and Twitter and connect and interact across geographicboundaries.The question we must now ask ourselves is: how does this massive shift in the waythat we stand in relation to each other and the ways that we can now interact witheach other influence the deployment of financial resources to early stage socialfinance projects? Is there any discernible relation?Microlending: The Grameen Bank storyAs of 2007, the Grameen bank had lent small amounts of money to 7.34 millionpeople, 97% of whom are women. They claim a staggering 98.35% repayment rate.3There are two basic ideas that make this sort of lending unique that are worthy ofclose consideration:Group Lending: Monies are lent to groups of people (primarily women) with thestipulation that any default in the loan impacts the whole group.Social Cohesion: This creates an immediate group dynamic that has personalimplications. No longer is your failure to repay the loan something that impacts only3 Draft Manuscript – Please Do Not Distribute 24 June 12th, 2011
  25. 25. you and your relation with the lending institution (Grameen), it also impacts othersin the group that are likely to be your friends.This is especially successful since the Grameen model is applied largely in ruralAfrican villages. One can literally imagine that the others’ in the lending group mightbe close friends, relatives and so on. It is quite likely that you see many of those inthe group in your day-to-day life.Hence, in understanding why the Grameen model works it is also important tounderstand the context in which the Group Lending is taking place. The relationsbetween the lendees are not necessarily arms length. There may be personalrelationships at stake. These personal relationships, no doubt, not only serve tocreate social pressure that minimizes loan defaults, it also creates a mutual supportnetwork.What is it that gives rise to the closeness and the intimacy in the lending circles? It isthat there are close personal relationships between the lendees. Can this bereplicated in urban environments where projects are operating at a distance and notpart of a local village? It is optimistic to think that we can replicate the bonds thatexist in closely knit rural communities, but we can do certain things that, over time,bring to bear on relationship formation and trust formation.We can, for example, increase the visibility of each others’ activity, we can createshared virtual spaces that foster ongoing real-time interaction, we can coordinateregular face to face meetings. We can provide interaction frameworks that connectpeople on a human level through regular social interaction and rituals of varioussorts.If we are innovative there is much that we can do. In order the understand theimport of what is possible, it is first necessary to understand the way that thetechnological context within which we are now situated serves to connect us in away that can create a culture of collaboration. Draft Manuscript – Please Do Not Distribute 25 June 12th, 2011
  26. 26. ON VIEWING THE RELATION BETWEEN PROJECTS AS PART OF ANECOSYSTEMIn general terms, an ecosystem can be understood as a natural set of relationshipsthat exist between projects that makes it possible that they collaborate. Henceprojects that are a part of an ecosystem interact with each other, the leaders knoweach other, and the projects are mutually interdependent in some way.In more specific terms, an ecosystem can consist of projects that share the samelarger goals, that share common team members, share common customers ormarkets, that are a part of the same value chain (partners, suppliers etc.), share acommon technology infrastructure etc. There is no theoretical limit to what isconstitutive of an ecosystem and this will be determined in practice by talking toprojects that might form a part of an ecosystem. An example of this is the OpenManufacturing Ecosystem.There are two important points that need to be emphasized, and the rationale forthese points will become clearer as we proceed.Relational/Holistic Paradigm: an ecosystem perspective views the world as a systemof interdependent relations, and models the world with that as the starting point. Itviews projects and our activity as a part of a larger picture.Cross Boundary Paradigm: a related notion is that in viewing the world relationallyor holistically, we must give credence to how we are related to other projects; thosethat are distinct from us but that are related to us in some way. The ecosystemmodels attempts to provide some formality to this idea.Why Does It Make Sense To Have An Ecosystem Perspective?There are two reasons that we want to highlight:Timing: The development of a networked world: We all know that thefollowing is true: Internet connectivity penetration rates are increasing Bandwith limitations are being reduced The cost of communication is dropping (thank you Skype!) Interoperability protocols, applications etc. are evolving Social networking platforms (Facebook...) are changing the culture of communication Processing power is being pushed to the edge of the network (Smartphones etc.) The real time infrastructure is evolving (Twitter) Draft Manuscript – Please Do Not Distribute 26 June 12th, 2011
  27. 27. All of these, and other, socio-technological forces lead to an environment andculture of interaction where : Information flows freely across organizational boundaries Geographic constraints are less meaningful Structural limitations on information management don’t constrain participation (thousands of people can work on projects!) Meetings can be run virtually Projects can be scaled to involve many people with minimal incremental cost The communications infrastructure can be scaled to include many people with minimal incremental costThese forces lead to a world where we are connected across boundaries. This makesthe notion of boundaries less relevant at all levels; between people, organizations,nation states etc. This is leading to many well studied phenomena such as theincrease in distributed workforces, global mass media, globally distributed teamsetc.Hence, advances in the communications infrastructure now make it possible for us toorganize ourselves from the perspective of ecosystems. Draft Manuscript – Please Do Not Distribute 27 June 12th, 2011
  28. 28. Ecosystems, Visibility and Social CohesionIn citing the Grameen Bank model, we note that the reason that it works is thatthere are bonds between the lendees. We submit that in viewing the connectionbetween projects as a part of an ecosystem we can develop associated processesthat will help to build the sorts of human bonds that support the Grameen Bankmodel. Of course, there will be a great deal of complexity and much needs to beworked out, but the possibilities are vast since there are no theoretical geographicconstraints to participants in the working groups.4What we are suggesting is that technology can bridge the divide between us. It cancreate visibility into each others’ activity in a way that serves to develop humanbonds. It can also provide an infrastructure to support collaboration at a distance.So what does this have to do with finance, you ask?Collaboration (and Pooling) in Traditional Finance ModelsPrior to microlending (Grameen) model, collaboration principles have been appliedin the finance sector on the funding side of the equation in what is known assyndication. Competing investment bankers regularly work together to financelarger transactions by dividing up the responsibility for raising the required capital.This results in an increased probability of being able to raise the funds to thesatisfaction of the client as well as the sharing of risk with others in the fundingsyndicate.Aggregating (pooling) of investments is commonplace in the form of mutual funds ofvarious sorts. In this scenario a large pool of capital is raised. The monies are thenmanaged by an investment manager who selects specific investments within thepool. This, again, safeguards the investment risk by distributing it across a widerange of investments.How can we utilize collaboration principles to take reduce investment risk evenfurther?4 We say this with the full understanding that there is no substitute for face-to-faceinteraction and therefore regular face-to-face meetings need to be built into theinteraction processes. Draft Manuscript – Please Do Not Distribute 28 June 12th, 2011
  29. 29. The Ecosystem Pooled Fund: funding groups of early stage projects thatare collaboratingPreviously we identified that there exists a systemic funding challenge that inhibitsthe flow of capital to early stage social ventures; those ventures that aim to bothdeliver social and financial value. The challenge is that early stage projects carrysignificant financial risks yet do not provide sufficient financial return to offset thisrisk. This structural constraint substantially reduces the possibility for the widerdispersion of social goods which we believe is necessary if we want to bring aboutthe broader paradigm shift towards sustainability and care for each other and theworld.We can take the use of collaboration principles to the next level by focusing onfunding early stage projects that are actually collaborating. We submit that in doingso two key themes that we have identified can be, to at least some extent, satisfied;the wider dispersion of social goods (since we are funding groups of projects), thereduction of investment risk for the reasons outlined below. Draft Manuscript – Please Do Not Distribute 29 June 12th, 2011
  30. 30. Now that we have a better understanding of what it means to collaborate within anecosystem and the factors that will lead to increased collaboration amongst socialventure projects, we can examine how ecosystem collaboration mitigates financialrisk for investors. The risk for investors is tied directly to the prospect of the failureof the project. Hence, this risk can be offset in two specific ways; increasing theprobability of success of the specific projects and decreasing the probability offailure of projects.Increasing the Probability of Success of ProjectsWorking within a collaborative environment will increase the probability of thesuccess of social ventures for the following reasons:Scale: In grouping projects together, we create scale (more people, ideas, resourcesetc.). Projects have access to each other’s networks, can bid for projects together,can attend meetings together, can share certain costs (trade shows, for example) etc.Modularity: In viewing ones enterprise as a part of a system of relations, one candirect ones activities in a way that is aligned with ones ecosystem partners. Thisprovides increased opportunity for sales, increased partnership opportunities etc. Draft Manuscript – Please Do Not Distribute 30 June 12th, 2011
  31. 31. Social cohesion: we hope that some of what works in the Grameen Peer Lendingmodel, works in this context as well. In support of this idea, we will be developingnon-binding collaboration agreements that formalize the commitments betweengroups. Although we don’t expect these agreements to be binding, we do expect thatcommitments that are made openly will bring social forces to bear that will result inthose that one is collaborating being more likely to provide support.Offsets technology risk: A constant challenge for investors is to be able to assess thevalue of technology and processes that have not already garnered marketacceptance. In getting peers to use your technology, processes etc., (as ecosystemcollaborators) the functional utility of the technology is validated by people thatunderstand the technology.Increased Product Validation: in fitting your technology or process into a value chainof collaborators, you will solve problems and enhance the product thereby making itmore market worthy.Increased Network/Channel Capacity: In working collaboratively with others, youwill build networks and contacts that will open up other market opportunities.Decreasing the Probability of Failure of ProjectsAn important feature of this model is the fact that in working collaboratively withothers, one can make drastic changes in ones business model, technology etc. whileremaining a part of a collaborative process that supports this transition.To understand this idea better, consider the circumstances in which early stageentrepreneurs function when operating in isolation. If there is a fundamentalproblem with their project that places the project at risk and where failure isimminent, there is little that one can do other than attempt to raise further capital orsell the business, if possible.In contrast, if the project is a part of an Ecosystem Collaboration, problemsassociated with the project might be identified at an earlier stage (offsetting the riskof ‘entrepreneur myopia’). Strategies can be collaboratively developed that mighteven result in completely changing project structures. One can, for example, workwith partners with a view to selling ones project to a partner. By operating moreopenly and in a more accountable fashion, the chance of failure is reduced.Building A Social Finance System Through Open CollaborationTaken together, these benefits of an ecosystem paradigm for social financedemonstrate how monetary flows can become tightly coupled with positive socialoutcomes. Now we’d like to shift gears and ask the question; how might a socialmovement employ social finance to influence political outcomes, accelerate culturalshifts in the values landscape, and lead to rapid deployment of solutions that moveus toward a sustainable world? Draft Manuscript – Please Do Not Distribute 31 June 12th, 2011
  32. 32. A pooled ecosystem model won’t simply pop into existence all at once. It must groworganically through the local activities of people who are working to bring aboutsocial change. This is where crowdfunding campaigns come back into the picture.We have discovered that innovative projects pave the way to a new financial systembuilt on the open collaboration paradigm. It is possible to aggregate small financialcontributions in order to create pooled funds for strengthening social movements.This manual is a great example. It is a resource for social entrepreneurs that wouldbe difficult to fund using the traditional investment mentality. There are fewmonetary rewards for creating a resource that will be freely distributed when it isfinished. We reached out to members of our community to pool enough money tobring it into being, with a purpose of creating social impact as it gets passed aroundon the internet.So how do crowdfunding campaigns work? What does a practitioner need to knowif they are to run successful campaigns? This is the topic we’ll cover in depththrough the next several pages. Draft Manuscript – Please Do Not Distribute 32 June 12th, 2011
  33. 33. What You’ll Need to Run A Successful CampaignCreating a successful crowdfunding project is both an art and a science. It is anengagement process that requires you to do the following:Find A CrowdRemember that this isn’t primarily about money. Otherwise you could just go toyour rich uncle or pitch to a friend with deep pockets. It’s about getting a lot ofpeople involved in your cause. So you’ll need a crowd of people who want to seeyour project succeed. In the section The Wisdom of YOUR Crowd we’ll help yougauge what kind of crowd you’ll need to make your project a success.Tell A Good StoryGetting the attention of your friends and followers can be tough in our time-crunchworld. You need to engage them with a good story. What is it that you’re trying todo? Why should they care about it? What will they get out of the experience thatmakes it special to them? In the section Getting to “Yes We Can” we’ll cover the coreelements of engagement and interactivity that are essential to crowd-based efforts.Create Value for the CommunityNot just any project will do. You’ve got to propose something that your crowd reallywants or needs. In other words, you’ve got to carefully consider just what yourcommunity values enough for lots of people to pitch in and make it real. In Creatingthe “Killer Product” we will walk you through the design process to ensure that yourpromised deliverable takes a form that crowds can rally around.Use Social Media ToolsWorking with crowds takes a special kind of conversation. Monologuing just won’tcut it. You’ve got to sustain meaningful dialogue with your crowd that encouragesthe word to spread. This is not a “low touch” activity. Talking with the crowd isongoing, dynamic, and sometimes outright intense. In Carrying The Conversationwe’ll explain how to leverage your Facebook friends, Twitter followers, blogreaders, and real-world networks throughout the entire campaign.Get Your Fans to Spread The WordFew among us have a thousand followers already hanging on our every word. Andsimply talking with your two best friends for weeks on end isn’t going to get theword out (or bring you a large enough range of people to get the pledges you’ll needto fund your project). You’ve got to ask more of your fans AND do it in a way thathelps them feel good about doing more than dropping money into the coffers. We’llhelp you figure out how to grow your crowd in Spreading Like A Virus.Follow Through on Your PromisesAt the end of the day, if all goes well, you’ll have all hands on deck and enough fuel inyour tank to make the drive. Even when you reach your fundraising goal the Draft Manuscript – Please Do Not Distribute 33 June 12th, 2011
  34. 34. conversation continues. Remember that this is about engagement. You’ve got todeliver the rewards, stay in contact with your fans while you create your killerproduct, and get it out in the world like you said you would. In Keeping It Real we’llshare a set of techniques for keeping your crowd involved all the way through toyour next round of engagement.We weren’t kidding about crowdfunding being about more than money. It takes alot of hard work and careful planning to succeed. If you want engagement, you’regoing to have to work for it. And you’ll discover that new possibilities can beunleashed along the way that are well worth it.No one said social change would be easy. That doesn’t mean it can’t be fun though.By the time you get to the end of this manual, you’ll have all the tools you need to getthe crowd involved in the change process. And you’re sure to make new friendsalong the way. Draft Manuscript – Please Do Not Distribute 34 June 12th, 2011
  35. 35. The Wisdom of YOUR CrowdSo first things first… you’ve got to have a crowd to crowdfund something. Who areyou going to reach out to with your pitch? How do you know if they’ll care aboutwhat you’re doing? How will you identify your early adopters, those preciousindividuals who step up first and get the process rolling? And how much moneyshould you ask for from your community of potential supporters?In this section we’ll identify the criteria that you’ll need to consider as you step outfront and appeal to the masses.You’ll learn how to: Define the user group that will benefit from bringing your project into being; Measure your sphere of influence to get a handle on the power of your crowd for leveraging change; Determine the scope of your project based on insights about your crowd; Set priorities for who to engage first before you get started; Get the momentum rolling and grow your support base as you go along.What Are You Trying to Accomplish?Figuring out who’s in and who’s not is all about identifying a shared purpose. The“crowd” can be any self-selecting group of people that shares an affinity forsomething (e.g. loves bird watching), wants to achieve something (e.g. have a greatschool in our neighborhood), or wants to be part of a meaningful experience (e.g. weelected the first African American president!).What you want to accomplish will shape who might be part of your crowd. In themarketing and technology worlds, this is called your user group—the people whowill use your product or service. Here are some examples: This Crowdfunding Manual is likely to be used by social entrepreneurs who want to create social good; Facebook is likely to be used by people who want to stay connected with their friends; Text messaging is likely to be used by socially active people who stay too busy for long conversations; A car is likely to be used by people who need to travel long distances in their daily routines.Each of these examples demonstrates how the product or service matches a profileof people who may care about seeing it come into being. As a project host, you willwant to consider who is likely to get excited about what you’re offering and whythey’d get involved to make it a success. Draft Manuscript – Please Do Not Distribute 35 June 12th, 2011
  36. 36. What Can You Achieve This Time Around?With every crowdfunding campaign, you’ll want to start out with a set of realisticexpectations that fit your situation. Two important considerations are: 1. How much money should I ask for? 2. How long should I take to raise it?We recommend using the Goldilocks Principle to answer these questions: “The target amount shouldn’t be so big that it feels unachievable. Neither should it be so small as to feel insignificant for a crowd to address through collective action. It needs to be just right.”In our experience, a good balance is somewhere between several hundred dollarsand several thousand dollars depending on what you hope to create, how muchwork will be required to get it done, and how big your sphere of influence is (moreon this in a moment).Note that we are talking about micro-scale ventures that fall outside the realm oftypical fundraising models. If you want to develop a world-changing technology,you’ll seek a lot more venture capital than crowdfunding typically delivers.5 Youmight pitch your business plan to investors who feel they can benefit frompartnering with you by offering seed money to get you going. But if your goal ismore modest in scope, say $5,000 to $10,000, there really aren’t other good fundingoptions. It isn’t worth competing for foundation grants or reaching out to potentialinvestors for such a modest chunk of change.This is where crowdfunding becomes like magic.It should feel reasonable that a competent person with a good idea can raise amodest amount of money, if well enough connected to a supportive community thatstands to benefit from the idea growing into something useful for them.As you scope out the target amount, consider the following: How much work will it take for me to do this? What amount do I feel comfortable doing the work for? What is the money going to be used for? What are my larger strategic objectives that this project fits into? Am I wanting to grow my audience? Build my reputation? Create a tool that I’ll use too?5Crowdfunding can result in millions of dollars raised, as demonstrated by the useof text messaging to pool micro-donations for disaster relief in Haiti after the 2010earthquake. So it can be used for creating large-scale investment pools too. We’lldeal with this category of crowdfunding projects in a later section. Draft Manuscript – Please Do Not Distribute 36 June 12th, 2011
  37. 37. It may be helpful to think about the dollar amount as a feasibility metric todetermine whether you feel like what you’re proposing is feasible for the time andresources you’ll put into the work. And you’ll want to be sure to think about thelong haul and what kinds of relationships you need to build out of the projects youhost.Regarding the issue of time frame, you’ve got to figure out how long you want tospend engaging your crowd in the fundraising process and whether you knowenough potential supporters to reach your goal in time. It may be that you’ve got alarge email list with a high “click through rate” that you can make appeals to. Or youmight have several hundred Facebook friends who can help get the word out.This leads to the next important question…Who Do You Know Already?If you run a non-profit, you’ve probably got a list of donors and an email list forpeople who want to stay informed about your work. Or if you are a local artist,you’ve got some fans who signed up for your Facebook group to get the inside scoopon upcoming venues and exhibits. Figuring out who you can reach out to at themoment of kick-off is important for gauging how easy it will be to build a crowd ofpassionistas who will step up and play when the fundraising begins.You might want to make a mental check-list of the following: 1. Email lists or social media groups for fans of your work; 2. Online forums where the issue you’re addressing is a common conversation topic; 3. Other organizations or community groups who stand to benefit from what you create who might help promote your cause; 4. Individuals you know personally who can be asked to contribute money and help spread the word.This will help you map out the web of people who can be invited into the process.Your crowd will likely spread beyond these immediate contacts as people in yournetwork spread the word to others in their networks. But you’ve got to start withwho you know.And now that you have a sense of who your crowd might be, you’ll want to clarifythe pitch that will appeal to them. You need a good story… Draft Manuscript – Please Do Not Distribute 37 June 12th, 2011
  38. 38. Getting to “Yes We Can”A great example of successful crowdfunding is the historic presidential campaign ofBarack Obama in 2008. The story that inspired tens of millions to get involved canbe expressed in three simple words — yes we can. It is a story aboutempowerment.; a story about hope; and a story about collective action.So many people believed in this story that fundraising records were broken as theObama campaign raked in $750 million over a 21 month period.6 According to thecampaign staff, more than 80% of this money came in as small donations of less than$200. Now that’s an engaged crowd!There is tremendous power in storytelling. Your ability to engage your crowd willbe strongly influenced by the narrative that lays out: What you are trying to accomplish; Why I should care about it; What we’re capable of doing together; How we’ll get to the better world if I get involved.Typically, stories in the political realm have been in the “what I can do for YOU”category. There is no story of WE. Yet crowdfunding is about collaboration. Thelocus of action is in the synergy that exists between leaders and followers. Membersof the crowd really need to internalize the mantra that “yes we can” do this together.A useful way to think about this is through the Criterion of Belief: The Criterion of Belief is reached when members of your community begin to believe that what you’re doing is going to happen because they are making it so through collective action. It is the perceptual shift that arises when they start to believe they can make something significant happen.Getting beyond this threshold involves a combination of shared purpose and sharedenthusiasm. It happens when your story of collective action begins to feel real.Psychologically, this emerges through four stages.Stage 1: I want to SEE it become real.You want to set the right tone early on that what you’re doing is clearly describedand of obvious valuable to your community. Your story needs to convey thatcollaboration can lead to a desirable outcome that members of the crowd canvisualize—and feel good about being a part of.6 Draft Manuscript – Please Do Not Distribute 38 June 12th, 2011
  39. 39. Stage 2: I see that OTHERS are getting involved.Many desirable futures never materialize. In order to believe that this one can,you’ve got to attract early adopters who throw their chips down right away. It isn’tenough to tell a good story and walk away. You’ve got to demonstrate that others inthe community want to make it real too. And this means taking the story forward intime as the crowd begins to act, expressing that others share the same sense ofpurpose that needs to become contagious for your project to succeed.Stage 3: I see myself as a SIGNIFICANT person.Most members of your crowd will sit on the side lines and watch what happens.Getting them engaged will require that participation be meaningful and significant.They have to feel either (a) that the desired future won’t become real unless theycontribute; or that (b) they can increase the momentum that helps others getinspired by what’s going on.Stage 4: I feel the INEVITABILITY that this is going to happen.Your story needs to progress as the campaign unfolds. Bystanders who haven’tjumped on board will watch to see if it looks likely to succeed. Many of them willtake action only when it begins to feel inevitable that enough people have gotteninvolved. Others may feel that failure is eminent… and that their contributionscould be what pushes it over the top. This increases the significance of their actionsand makes their participation more meaningful to the effort.It should be noted that a story is not a static thing. It will evolve and change as timepasses. Getting to “yes we can” moves through all four stages of engagement. It canbe stressful at times with all the uncertainty. And plenty of surprises will pop out ofnowhere along the way. Get ready for the adrenaline rush of depending on theactions of others for your ultimate success! Draft Manuscript – Please Do Not Distribute 39 June 12th, 2011
  40. 40. Creating the “Killer Product”A good story has substance. It is about doing something meaningful. So it isessential that the shared purpose you advance leads to an impactful outcome. Whatyou choose to do together is a major influencer for why people choose to getinvolved.Consider this example from one of the authors: Something very interesting happened at the launch of my first crowdfunding campaign. I set out to create a strategy handbook for the progressive movement and published an announcement to my email list inviting pledges to help fund it. Right away, more than 20 emails came back with urgent pleas for something more— the crowd wanted to help write the handbook! Psychologists wanted to write sections on motivation, values and beliefs. Marketing professionals wanted to draft materials on brand strategy and political identity. Political scientists wanted to describe various governance structures that shape the dynamics of politics. They didn’t just want to contribute money. These people had important things to say. Why did so many people feel compelled to do unpaid work as a prerequisite to helping fund the project? And how was it that my response—that I promised to let them contribute their ideas if they helped get it funded—actually increased their participation? This violated the common sense of fundraising that says “make it easy to give money and start with simple and painless requests.” The answer lies in the nature of the work I suggested we do together. Strategy handbooks are typically written by individual experts who have their own take on what is needed to advance an agenda. Many progressive activists feel disenfranchised and powerless to contribute their knowledge to help the movement. I tapped into this feeling to engaged their participation. And the outcome was truly inspiring. Nearly 70 people helped fund the project (spanning 21 U.S. states and 5 foreign countries) and 30 of these investors went on to contribute substantive thoughts to the manuscript as it was written. I had suggested we create something together that the crowd was anxious to sink its teach into—a Killer Product with the right mix of features for collaboratively creating it. - Joe Brewer, Founder of Cognitive Policy WorksSuccessful crowdfunding campaigns are designed for impact. This is what the“Killer Product” represents – creating something profoundly valuable that requirescollaboration to see it through.The design criteria for a Killer Product are: 1. It is broadly useful to the entire community; 2. It is something that benefits from broad inputs from people with diverse backgrounds; Draft Manuscript – Please Do Not Distribute 40 June 12th, 2011
  41. 41. 3. It is owned collectively and easy to share; 4. It is something none of us could create on our own. 5. It helps everyone address a major need of the community.This crowdfunding manual is an excellent example. We are attempting to address adeep-rooted need among social entrepreneurs for a micro-scale financing modelthat builds community and attracts intellectual and monetary resources to socialchange efforts. As a burgeoning field of practice, we are all learning together andhave benefited greatly from the valuable insights of social impact investors,bloggers, online community organizers, and collaboration designers throughout thewriting process.At the end of the day, (hopefully!) a useful handbook will be created that is licensedfor collective ownership by all members of this dynamic community of changemakers. And it will be easy to share in digital form for activists and campaigndesigners across the globe to use in their engagement and fundraising efforts.Creating a killer product requires knowledge of the community you want to activate.We’ve found it helpful to ask ourselves the following questions as part of the designprocess:Is there a common roadblock that hinders everyone?Identifying a shared need and offering tools to address it will be highly valued byyour community. We often ask ourselves what is holding people back. Is theresomething that gets in the way of bringing solutions to scale? Are thererecognizable obstacles that are obvious to everyone?In the case of this manual, we observed that all-too-often the most important workdoesn’t get funded because it isn’t part of the institutional DNA of non-profits,government agencies, or businesses. So we set out to discover a path to funding foractivities that keep falling through the cracks, yet are widely acknowledged as vitalfor changing the game.If so, who is responsible for removing it?A common reason for activities to be divided into silos across the community is thatresponsibilities tend to align with the goals of specific organizations. As a result, noone is responsible for increasing capacity across the entire community. Getting to akiller product means finding something that everyone needs, but no one isresponsible for delivering.We set out to create this manual because the venture capital model doesn’t work forsmall-scale social enterprises and philanthropic institutions remain entrenched insilos defined in a previous era, unable to bridge across domains in this vital periodof global transition. No one has taken responsibility for socially networkedcommunities to collaborate across institutional boundaries where it is most needed. Draft Manuscript – Please Do Not Distribute 41 June 12th, 2011
  42. 42. How can the crowd contribute?Many problems cannot be solved by individuals. Solutions for systemic challenges—like building trust among strangers, shifting cultural norms across society, andcreating new hybrid organizations that change the institutional landscape—allrequire diverse inputs from people with many kinds of expertise. So we askwhether the crowd can bring vital resources to the effort. Does cross-cuttingknowledge need to be applied in a novel way? Is the solution an emergentphenomenon that arises only after a significant portion of the population adoptsnew behaviors?For this manual, we didn’t presume to know ahead of time what would be useful forreaders. This is why we created a Google Group to host online discussions aboutcontent for major sections of the manual—to get the crowd’s input into the writingprocess and ensure that we truly create something useful when all is said and done.By answering these questions, you will be well on your way to discovering adesirable tool or resource that many members of your crowd feel strongly aboutseeing to completion. You will be more likely to get recognition for your strategicthinking and insights into the needs of your community, which will help you build“street cred” as a person who can get the job done.Taken together, you will start to see increased engagement and personalcommitment from members of your crowd who will help make your project asuccess. Draft Manuscript – Please Do Not Distribute 42 June 12th, 2011
  43. 43. Carrying The ConversationOkay, so by now you’ve learned how to map out your crowd and design a killerproduct they want to own for themselves. You’re ready to strike up a conversation.This is going to require some savvy with social media tools and a few insights intothe patterns that are commonplace in unfolding peer-to-peer dialogue across thedigital landscape.Let’s start with a simple schematic. The following picture shows how an ideaspreads across the community, starting with a few people exchanging information.As time unfolds (left to right), the number of people exposed to the idea increases.This may be due to an email blast going out to a list with more people opening theemail over time.Without dialogue this increase quickly comes to an end as the number of emailsopened gets saturated. The number of people engaged will decrease ifcommunication continues to be directed toward all the same people who wereapproached the first time around. Reaching more people will only happen if theidea spreads beyond those who were targeted in the first round.This can happen in several ways. You may reach out to a new list of people onFacebook or through a blog post to a website that gets a stream of new visitors. Orindividuals you reached out to may share your idea by forwarding the email orlinking to online materials using a social media platform.Sounds simple enough, but the skills involved in creating an “echo chamber” wherethe conversation spirals to new communities are not the same as traditional skills Draft Manuscript – Please Do Not Distribute 43 June 12th, 2011
  44. 44. from mass media—which are tailored for a one-to-many conversation that isessentially a monologue. Social media requires that you engage in interactivedialogue in a space where conversations can be one-to-one, one-to-many, and many-to-many. This means you have to actively participate in multiple ongoingdiscussions throughout the entirety of your crowdfunding campaign.It may sound a bit trite that using social media requires you to be social. But thepower of social media comes with the ease of sharing information and making itvisible for others to share again. As you begin reaching out to potentialcontributors, you’ll want to prepare yourself for ongoing engagement that includesrepetition and novelty—reposting the same information to remind people whatyou’re doing alongside updates that mark your progress.Some techniques you’ll want to employ are: Invite people to add their own ideas instead of simply making declarations about yours; Request that people spread links to their friends and colleagues; When you see others reposting on Facebook and Twitter, acknowledge and thank them by “liking” their status or “retweeting” their post; Give daily updates on your social media sites to keep others aware that your project is still happening; Create web videos and blog articles about what you are doing, how things are progressing, and what you need from your supporters for the campaign to be a success.It is helpful to keep in mind that the pattern depicted in the graph on the previouspage repeats itself. Each time the conversation begins to wane you’ll want tostimulate new discussions, create content others can link to and share, and inviteparticipation to increase the number of supporters for your work.Keeping the conversation going is the goal. It will falter and fade on its own if youdon’t feed it continuously throughout the entire campaign. Many projects failbecause this follow-through doesn’t happen. The key to your success will benavigating the conversation so that it grows more engaging and inclusive over time. Draft Manuscript – Please Do Not Distribute 44 June 12th, 2011
  45. 45. Spreading Like A VirusIn the last section we described how a conversation waxes and wanes, making itnecessary to actively keep it going. We suggested two strategies for doing this: (1)Routinely renew the conversation by generating new content and reposting links tosocial media sites; and (2) Make it easy for others to help spread the word.Keeping a conversation going isn’t the same as helping it grow. Typical rules ofengagement for online interaction suggest that 80% of the work is done by less than20% of the people who participate. In the campaign we ran to fund this manual, afew thousand people saw our project and 87 people contributed money to it—a rateof roughly 3%. So it is helpful to increase the number of people who interact withyour crowdfunding project to reach those precious highly engaged individuals whowill actually step up to the plate.A useful way to think about the spread of ideas across a community is with themodel of a virus.7 Just as a contagion spreads through the physical contact betweenindividuals until it infects a critical percentage of the population, an idea can spreadthrough social contact until it becomes highly visible as a hot topic of discussion.The practice of viral marketing takes this epidemiological model as inspiration forreaching large audiences through peer-to-peer conversations in existing socialnetworks.7The authoritative introduction to viral marketing is Unleashing The Idea Virus bySeth Godin (2000). Draft Manuscript – Please Do Not Distribute 45 June 12th, 2011