Crowdfunding manual june 12 draft

The Crowdfunding Manual
for Social Movements

(Please Do Not Distribute!)

-- Draft Manuscript --
Joe Brewer & Suresh Fernando
June 12, 2011

Please Read This First!
This manual is incomplete. We have written about several substantive issues
and gotten to this point. We need your help to shape it into it’s final form.

What’s In Here Now
We 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 Need
All of this material is a bit jumbled because it lacks an opening context. We
know 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 collaborative
discussions about this material can improve the manuscript and ensure that it
is useful for social innovators and entrepreneurs striving to solve the funding
challenges that inhibit adoption of sustainable solutions to social problems.

Please read through this manuscript, make notes using the comment function
of Microsoft Word, and join us for discussions about how it can be improved in
the 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

INTRODUCTION

So you want to successfully engage the crowd to solve the world’s most pressing
challenges? You’ve come to the right place.

We have watched as fragmented efforts across issue silos repeatedly divide social
movements against themselves. And we bear witness to the fact that the world is
changing faster than our institutions can adapt. The old roads lead to stagnation
and ruin.

We’d like to offer a new way forward that enables people to organize themselves
around the issues and concerns that are most pressing to humanity—one that takes
the 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 21st
Century social movements will need to acquire with a special emphasis on the
burgeoning set of tools for engaging crowds of people in a focused manner that
leads to meaningful and substantive progress.

While the focus is primarily on crowdfunding techniques, we will need to paint a
larger context to show just how deeply the world is shifting right now. We are in the
midst of a truly inspiring values transformation accelerated by a technological
revolution that—unlike mechanistic models of the past—actually strengthens our
social fabric and helps us better connect to one another.

To fully understand what crowdfunding is (and why it offers a glimpse of the new
paradigm for social movements), we’ll have to survey the landscape of deep trends
in cultural values, institutional forms, and collaboration tools that enable a new
social order to emerge that spans the global economy. This broad perspective will
help us see how we can leverage the power of crowds to solve previously intractable
problems.

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.

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WHAT IS CROWDFUNDING?
We are in the midst of a revolution where self-organized crowds have begun to
displace entrenched powers as the primary drivers of social change in the world. At
the heart of this revolution is the capacity for people to easily find like-minded peers
and collaborate using social media tools.

Crowdfunding has grown in popularity as a way for artists and entrepreneurs to
directly engage their fans and invite them to help make their projects a success. The
most visible element in this process is the money that changes hands. Yet, there are
more interesting—and potentially transformative—things going on that warrant
special attention.

Crowdfunding is a community-engagement process between an individual or
organization seeking money to create something new and a crowd of supporters
who want to participate in the effort in a meaningful way. It is primarily about open
collaboration 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 Together

Note how none of these steps is really about money. Yes, there must be money
pledged by fans. And the amount of money raised needs to be sufficient for
achieving goals set out initially by the project’s host. But the central action centers
around meaningful engagement that empowers the crowd to create something new.
This is why crowdfunding has so much potential for “game changers” in the arena of
social movements. It is a fundamentally empowering process that engages people in
meaningful 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 social
change. You will discover how to create successful crowdfunding projects and
which 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 built
over time. Present the U.S. Conservative Movement as a case study that shows how it
was funded, which institutions were put in place, and why finance was essential.

Then explain how the Progressive Movement needs different finance models because
it’s objectives are not aligned with free market ideology – as the Conservative

June 12th, 2011

Movement is – and so it cannot exploit existing finance mechanisms to advance it’s
agenda.]

AN INFLECTION POINT IN HUMAN HISTORY: WE ARE AT THE TIPPING POINT

We 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 the
convergence of a transformation in values with a technological revolution. This
combination makes possible a techno-cultural re-ordering that enables us to
interact with each other differently, making it possible to organize and coordinate
activities in new and innovative ways as well as to re-define the very structure of
our institutions, which are deeply connected to how we interact with each other.
In this manual, we will explore new ways of organizing and collaborating online
with a view to shedding light on how our newfound capacity to massively
collaborate and coordinate activity can serve as a basis for bringing about the
Tipping Point. A global revolution is now within our grasp.
We will also examine some of the difficulties with current institutional models that
aim to support social impact work and will offer suggestions for how these models
might be updated.
The Values Transformation
The Tipping Point is finally in reach, made possible by an immense transformation
in values that has many different axes. Here are a few:
Climate Change: A Rallying Cry: This generation is unique in all of human
history in that we are faced with the greatest challenge ever presented to our
species; the threat of climate change. This is a global threat that places our entire
species at risk. In and of itself this is remarkable, but what makes our current
situation unique is that we are faced with this threat in conjunction both with the
knowledge of this threat as well as sufficient communication and technological
capacity to do something about it. We are in the midst of crisis and have the tools to
cultivate empowered collective action.
Mistrust of, and Disinterest in, the Political Process: Notwithstanding
certain gains accrued with the recent election of President Obama and several
populist 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 we
are governed is seen as the lesser of many possible evils, and doesn’t really engage
our capacity for creativity to make progress on addressing global challenges.
Financial Market Collapse and the Rebalancing of Power: The recent
collapse of financial markets makes it evident to a growing majority that the

June 12th, 2011

capitalist paradigm is not sacrosanct. It is ripe with systemic flaws and (if it was not
apparent already) rife with greed and avarice. It brings forth the worst of human
nature and we feel a subtle but steady shift in the global balance of power. We know
that this shift will bring about new institutions; even if we don’t know what those
institutions will look like. The old ones are simply inadequate in the face of 21st
Century challenges.
Species Extinction Risk: For the first time in the course of human history, the
climate change problem has forced us to have a conversation about the possibility of
the extinction of our species. We, the most intelligent and ‘rational’ of animals have
brought this upon ourselves. Now is the time to pull out all stops and explore radical
possibilities to reverse the process.
Alienation and Fragmentation in Western Culture: Economic and political
problems sit side by side with deep feelings of dislocation, disempowerment,
powerlessness, boredom and outright depression. We have created a culture where
we are forced to spend the vast majority of the day doing menial tasks in service of a
corporate agenda that is disconnected from our deepest personal concerns. We sit
in cubicles with walls. Similarly our homes separate and divide us. We long for
community and connection. There must be a better way!
Absence of Spiritual/Holistic Context: The deep sense of disconnection and
unhappiness that we feel is further exacerbated by the erosion of a deeper cultural
commitment to a larger social context. Spirituality, broadly understood, is also not a
part of life in the same way that it used to be. The capitalist push towards
individualism has taken its toll over the last several generations. We no longer think
of the greater good or celebrate the beauty of our planet.
Economic Inequity/War: All of the above takes place within a world that is
dramatically 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 the
need for a new orientation of values that shape our we govern ourselves, generate
business, and work together to make our communities more resilient in the face of
change. Inklings of a values transformation have started to emerge. And a
technological revolution has begun to offer new modes of social organization that
can accelerate this cultural process.

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The Technological Revolution
The Internet era is just beginning to mature. It is easy to forget the days of the
Netscape IPO in 1994 which, in some sense, marks the birth of the Internet era.1
Lost in the hype and promise of increased sales has been a sufficient examination of
the changing nature of the dynamics of interaction that become possible as a result
of the following simultaneous trends:

1

http://money.cnn.com/magazines/fortune/fortune_archive/2005/07/25/8266639
/index.htm
June 12th, 2011

The convergence of (1)the ubiquity of broadband dispersion; (2) increases in
processing 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 the
time. This has profound implications for the very notion of community and the
ability to organize and coordinate activity across geographic boundaries over
sustained periods of time.
It now becomes possible for us to come together like never before.

The Tipping Point
We can understand the Tipping Point as being the result of the convergence of the
values transformation with this technological transformation. A proper
understanding of these dynamics makes many things possible that were previously
unthinkable.

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WHAT MAKES TODAY DIFFERENT?
It’s essential to understand that within the context described above things are
different because we have much greater visibility into the disparate nature of our
existence as a global family. We see, through the media and the internet, the
problems that others have, the possible riches, the possible solutions etc. The
difference lies in the nature and possibilities for collective consciousness.
Our current situation can be characterized simultaneously as creating a personal
context that alienates as well as provides the possibility for connection that spans
the globe.
The move we need to make is from a paradigm of fragmentation and opacity to a
new paradigm that enables deeper collaboration and engagement across
boundaries—be they cultural, institutional, political, or economic.

THE NEW PARADIGM
The transition from the old paradigm to the new one can be described as follows:

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Old Paradigm New Paradigm

Self interested Part of Ecosystem

Industrialization, consumerism etc Sustainability

Organizations solely focused on financial Focused on triple bottom line
profit (corporations)
Employees are ‘workers’ Employees are people

Progress quantified by Return On Progress quantified by Social Return On
Investment Investment
Isolated Collaborative

Use technology to increase productivity Use technology to build community
Closed Open
Insular view of world Holistic view

At its essence these changes represent a shift in consciousness towards a more
holistic, systemic and interdependent perspective. This is a function of both changes
in the communication landscape that provides visibility and connectivity across all
boundaries (geographic being perhaps the most important), as well as a shift in
values towards an increased interest and focus on sustainability and mutual caring.
The impacts of these shifts converge at all levels and create a completely new
context for us to think about how we can come together to make the world a better
place.

The changes we are situated within require that we rethink everything; most
importantly the role of existing institutions as well as the way that we govern and
coordinate activity in service of social ends. This change in context provides huge
opportunities for new and innovative solutions to old problems. Our objective in
the following pages is to shed some light on new and innovative models for us to
consider as we come together to address global challenges.

THE CHALLENGE OF INTENTIONALITY
Given what we have advanced so far, we are faced with the question of what we as
dissatisfied global citizens can do. Must we leave fate to chance or are the
possibilities to bring about change in an intentional fashion any different than they
were in the past?

June 12th, 2011

Our answer to this question is a hopeful one.

SOCIAL MOVEMENTS AND COLLECTIVE CONSCIOUSNESS
A detailed analysis of the genesis and structure of social movements is beyond the
scope of this work. In the following we will suggest how a set of simple assumptions
reveal that the possibility for us to come together and bring about radical societal
shifts is far greater than it has ever been.

The Intersection of a Set of Common Ideas: In order to fully understand the
potential that the internet has for bringing about massive social change, it is
important to understand the impact on social movements of the ability to see into
each others’ activities. In reflecting on this we can then get a better idea why the
internet and an associated collaboration infrastructure and models can serve to play
a huge role in bringing about and sustaining future social movements.

Without going into a detailed analysis, we will suggest that social movements can be
associated with a set of ideas that converge in the minds of those that are party to
the movement. These ideas in most cases will be vague and difficult to specify as is
the 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 is
some binding set of ideas that provides enough commonality to call them
movements.

The Visibility of People Coming Together: An essential element in the formation of
social movements is everyone’s ability to see that others are also feeling the same
way and are interested in coming together and working to bring about meaningful
change. This is why activists organize rallies and large movements are symbolized
by the congregation of many people in a single space. Examples of this include the
Million Man March, Woodstock, and the recent 350.org demonstrations; events that
captured and symbolized the spirit of a generation. In being able to observe such
activity, we come to realize that we are not alone; that we are a part of a much larger
process.

The ability to see the movement as it is unfolding contributes greatly to the
movement itself.

An essential insight for change agents is that the internet can play a huge role in
providing visibility into existing movements at various stages. This visibility will
serve to communicate the movement and to support the collective consciousness
and alignment of intent necessary to mobilize very large numbers of people towards
better ends.
Visibility into the entire system, therefore, serves to change our consciousness of
each other, but in and of itself it is not enough since we need to be able to come
together and to work together. We need to be able to collaborate.

June 12th, 2011

TOWARDS DECENTRALIZATION AND ENGAGEMENT
Much of the dissatisfaction and disillusion that we feel regarding the political
process and the futility of fully partaking in the corporate agenda rests on the fact
that we tend to feel powerless. We feel that our votes count for little and that our
dead 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 to
look at this is in terms of the way that the traditional media and messaging flows
outward 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 to
connect with each other, to have more control over what we consider ‘news’ and so
on. This distinction can be represented as follows:

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An important realization in this context is that the cultural shift towards new and
emerging values is dependent of the structure of communication our social
movements are situated in. The architecture of our interactions influences what it is
possible for us to accomplish together.

THE POSSIBILITY OF MASS COLLABORATION
The technological revolution has created in a global communication system with
high-speed computing and mobile devices woven together in a web of connectivity
that makes mass collaboration possible like never before.

Projects like Wikipedia and the Linux operating system provide inspiration as
shining demonstrations that large numbers of people spread across the globe can
come together and build complex solutions that address real needs. It has become
much easier to share information, distribute tasks, and see progress being made
than ever before. This allows us to ask ourselves how do we come together to
intentionally change the world?

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An open architecture—that allows information to flow across its boundaries with
ease—provides a glimpse of what is now possible... millions of people coordinating
their activity to solve problems together! This is a particular application of the
principles of open collaboration that lie at the heart of crowdsourcing efforts.

THE EVOLUTION OF CROWD ENGAGEMENT
To help get a sense of what we’re now capable of doing with social movements, it is
worthwhile to take a brief tour of the key concepts that are foundational to crowd-
based action.

Open Collaboration
To properly understand what open collaboration is, it is necessary to provide a
definition 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 content
What is Openness? By open we mean that the collaboration strategy will reach across
existing 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 the
range of participation by using various communications tools, thereby increasing
the number of people, groups and organizations that are thinking about the problem
that an organization is attempting to solve.

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Crowdfunding.org2 provides a useful taxonomy of different open collaboration
categories:

Cloud Labour: Leveraging of a distributed virtual labor pool, available on-demand
to fulfill a range of tasks from simple to complex. Crowdsourcing is used to connect
labor demand and supply. Virtual workers perform activities that range from simple
to specialized tasks.

Collective Creativity: Tapping of creative talent pools to design and develop
original art, media or content. Crowdsourcing is used to tap into online communities
of thousands of creatives to develop original products and concepts, including
photography, advertising, film, video production, graphic design, apparel, consumer
goods, 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, where
the boundaries between a firm and its environment have become more permeable,
companies cannot afford to rely entirely on their own research and ideas to
maintain a competitive advantage.

Collective Knowledge: Development of knowledge assets or information
resources from a distributed pool of contributors. Crowdsourcing is used to develop,
aggregate, and share knowledge and information through open Q&A, user-generated
knowledge systems, news, citizen journalism, and forecasting.

Community Building: Development of communities through active engagement
of individuals who share common passions, beliefs or interests. Crowdsourcing can
be used to increase audience engagement and build loyalty through online dialogue
with customers or a broader population. It can also be leveraged to provide a forum
where views and opinions can be shared, ideas can be generated, and to receive
feedback on products and services.

Knowledge Building: Open collaboration environments where different people
work together as a part of a much larger project by either contributing certain
aspects of the project individually or by working in close collaboration with a few
people. This includes open source software projects, information repositories like
Wikipedia etc.
Crowdfunding: A more recent crowd engagement phenomena where people or
projects tap as wide an audience as possible to raise small amounts of financing
from a number of different funders. This mechanism of finance is on the rise and
something we’ll discuss at length later in this manual.

2 http://www.crowdsourcing.org
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To analyze the distinctions in these models, we find it useful to define the following
taxonomic 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
Hierarchical

Engagement

Collective
Intention
Many To

Mutual

Strategies
Many
Open

Cloud Labour No Yes Yes No No No No
Collective No Yes Yes No No No No
Creativity
Open Yes Yes Yes No No No No
Innovation
Collective Yes No Yes Yes No No No
Knowledge
Community Yes No Yes Yes No No Yes
Building
Knowledge Yes No Yes Yes Yes Sometimes Yes
Building
Crowdfunding Yes Yes Yes No No No No

It is interesting to note the following:
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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 Projects
What distinguishes mass collaboration projects from other forms of crowd
engagement 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 Development
Google Collaborative Yes Yes No
MapMaker Maps
Linux OS Software Yes Yes Yes
Operating
System
Ookaboo Picture Yes No No
Sharing
OpenStreetMaps Collaborative Yes Yes No
Maps
RDTN Radiation Yes No No
Monitoring
Wikipedia Information Yes Yes Yes
Resource

Recently there has been increased media focus on crowdfunding as a number of
crowdfunding platforms have emerged. It should be noted that prior to the recent
wave of crowdfunding platforms, there have been a number of online funding
platforms that support registered charities in various countries.

Social Change, Crowdfunding, and Engagement Platforms
Over the course of the last several years, a number of websites have emerged that
provide the opportunity for those who want to support social change activity to
connect directly with various causes of their choice. There are hundreds of
platforms of this sort. Here are a few examples:

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Organization Funding Volunteer Community Petitions Collaboration
Engagement
Avaaz No No No Yes No
Care2 No No Yes Yes No
Change.org No No No Yes No
CharityFocus No Yes No No No
DonorsChoose Registered No No No No
Charities Only
GiveMeaning Registered No No No No
Charities Only
GlobalGiving Registered No No No No
Charities Only
Idealist.org No Yes Yes No No
WiserEarth 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.

June 12th, 2011

To frame the following analysis, we will suggest that, notwithstanding the fact that
there are some resources available for those that want to bring about positive social
change, there is a gap at the front end of the investment cycle in that there needs to
be substantially more capital available for early stage social innovators.

The Motivation to Deploy Financial Capital and It’s Structural Result
By and large the motivation to deploy financial capital is to garner further financial
capital. This is what is understood as `investment`. The deployment of financial
capital 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 that
funds 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 understood
risk-to–reward principles or funds are donated by socially motivated investors with
no expectation of financial return. This creates a structural gap in the investment
landscape.

Social Finance
Relatively recently we have seen the emergence of the social finance sector which is
attempting to fill this gap. Social financiers aim to provide financing, at various
June 12th, 2011

stages of the investment cycle, for projects that both deliver financial and social
value. Due to the nascent stage of this industry’s development, the infrastructure
and institutional frameworks continue to evolve as we speak. Over time the hope is
that an entire parallel institutional framework will emerge in support of social
ventures (organizations that deliver both social and financial value).

We would like to take this opportunity to raise some red flags regarding the nature
of the institutional frameworks that are evolving in support of the social finance
space 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 Model
Before addressing this question directly it makes sense to examine what social
finance institutions actually look like. Due to the nascent stage of the whole industry
space, there are no very large players; no institutions that would parallel the large
global or even national investment banks. That said, the intention within the social
finance space is to build an infrastructure that directly parallels what is transpiring
in 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 is
that it is easy to look at the massive success of the institutional framework that
supports the private sector and simply assume that this model will work for the
social finance space too.

It is easy to assume that the institutional framework that allocates financial capital
within 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 of
the last 150+ years in the finance space has evolved as the mechanism that is best
suited to support the growth of financially profitable businesses. The goal of venture
capitalists and financiers alike, therefore, parallels the objectives of those that start
businesses; they establish investment criteria that are based on maximizing
financial profit. This leads to two related phenomena:

The Development and Endorsement of the Values that Guide Financial
Investment and Capitalism in General: It is no secret that capitalism relies on
self interest, greed, avarice, a focus on the survival of the fittest and so on. No
further need be said about this.

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A Focus on Scalability: Since traditional financiers focus solely on maximizing
their own financial profit, their criterion for selecting appropriate investments is
determined by identifying those projects that will provide the most possible
financial return for the least possible risk. In other words, they focus on projects
they believe will do disproportionately well.

This dynamic is most apparent in the venture capital industry, the sole function of
which is to provide capital to new and emerging businesses. Due to the fact that the
vast majority (roughly 9 out of 10) early stage businesses fail, it is necessary for
venture capital investors to be efficient in the selection of the one out of ten
businesses that will increase by twenty fold, for example. It is only if this takes place
that it will be possible for them to develop a business model that is financially
sustainable as an investment firm.

On the Purpose of Social Finance
Of course this orientation is natural within the context described above. But it
raises a larger question: What is the purpose of social finance? Is it not to provide
the necessary resources to bring about positive social change? If so, we submit that
a different orientation to how financial capital is deployed should be considered;
one that takes into account that bringing about positive social change requires
creating a culture of change. It requires populating the world with change agents
and widely supporting those that already are change agents, even if in a small way.

On the Wide Dispersion of Social Goods
We believe that the world would be a better place if we create an institutional
framework that supports many different people, projects and organizations that
want to bring about positive social change. This orientation stands in stark contrast
to the current model which selects a few ‘promising’ projects at the expense of the
vast majority of smaller, less ambitious projects.

The result of this is that we create and maintain a class of individuals that are
disillusioned with the status quo and that want to do something about it, but get no
support whatsoever. This absence of support causes them personal grief and forces
them to go back to work in what, for them, are dead end, meaningless jobs. It
perpetuates unhappiness, misery and the status quo.

Simply put, we need to completely rethink the institutional models in such a way
that the foundation upon which they are built is the values that the social finance
industry purports to support; community, sustainability, collaboration, love, etc. As
an example of how this sort of shift might be conceptualized, here is a comparison of
the traditional investment banking model in relation to what it could be:

On the Possibility of Innovative, Values Based Social Venture Investment Banks

June 12th, 2011

Maybe the following comparison chart will serve to make what we see as
possible a little clearer:

Comparison Points Tradition IBanks Current SV Landscape New SV IBank Model
Function 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
entrepreneurs
Service Offerings: single Full Service: Fragmented: Full Service: via
institution 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 services
Maturity 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
happen
Incubation 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? There
information 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
interested
Collaboration: YES. Financing are almost NO. Why not? There
transaction syndication always syndicated doesn’t seem to be any
amongst a group of reason why risk can’t
financiers be shared
Open Information NO. In large part due to NO, but why not? There YES, certain
Systems competition issues and the does not seem to be any information is made
fact that the institutional principled reason why this available by

June 12th, 2011

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 the
Focus 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/Reward
Imbalance for Early Stage Investors
Financially motivated investors have, over the course of the last hundred years or
so, developed a set of institutions and practices that we refer to as the `investment
banking industry`. Investment bankers have, over time, segmented their investment
portfolios such that they focus on certain types of investments; all of which have
different risk-reward profiles.

We have, for example, angel investors, seed investors that specialize in early stage
enterprises, venture capitalists that specialize in Series A financings, others that
provide mezzanine financing, still others that provide debt financing and so on. This
segmentation has resulted due to the fact that investment at the various stages of
the cycle require different interests, competencies and so on.

What is most important about this equation is that there are financially motivated
investors that will provide capital at the very front end of the investment cycle; to
those entrepreneurs that are just starting new ventures and therefore pose the
greatest risk. It is a well documented fact that the vast majority of entrepreneurial
ventures fail. What makes it possible for financial investors to invest even in such a
high risk situation is that the few early stage businesses that succeed do sufficiently
well enough to compensate for all of the other losses. This is only possible because
early stage businesses are focused on making money!

This is where the problem begins. If we assume that those that are socially
motivated will not be as focused on maximizing financial profit what follows is that
the financing of early social ventures poses a specific challenge since they carry the
same level of financial risk but do not provide sufficient levels of financial return to
compensate investors. This makes it substantially more difficult for financially
motivated investors to invest in early stage social venture projects. What can be
done about this?

June 12th, 2011

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 returns
Option 1 is self defeating in the sense that we don’t want social entrepreneurs to
focus on financial profit. They’re mission is to deliver social value and this should
not be diluted in any way.
Option 3 is being worked on in many different ways; most obviously by working
with 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 some
of this money could not be converted to a interest free loan pool. This would at least
provide 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 COLLABORATION
The substance of the preceding discussion is the suggestion that a major
contributing factor to our current context is the communications and technological
infrastructure that makes collaboration much more feasible than ever before. We
live in a highly networked world where we can ‘see’ each others’ activity via social
networks like Facebook and Twitter and connect and interact across geographic
boundaries.

The question we must now ask ourselves is: how does this massive shift in the way
that we stand in relation to each other and the ways that we can now interact with
each other influence the deployment of financial resources to early stage social
finance projects? Is there any discernible relation?

Microlending: The Grameen Bank story
As of 2007, the Grameen bank had lent small amounts of money to 7.34 million
people, 97% of whom are women. They claim a staggering 98.35% repayment rate.3
There are two basic ideas that make this sort of lending unique that are worthy of
close consideration:
Group Lending: Monies are lent to groups of people (primarily women) with the
stipulation that any default in the loan impacts the whole group.
Social Cohesion: This creates an immediate group dynamic that has personal
implications. No longer is your failure to repay the loan something that impacts only

3 http://en.wikipedia.org/wiki/Grameen_Bank#Operational_statistics
June 12th, 2011

you and your relation with the lending institution (Grameen), it also impacts others
in the group that are likely to be your friends.
This is especially successful since the Grameen model is applied largely in rural
African villages. One can literally imagine that the others’ in the lending group might
be close friends, relatives and so on. It is quite likely that you see many of those in
the group in your day-to-day life.
Hence, in understanding why the Grameen model works it is also important to
understand the context in which the Group Lending is taking place. The relations
between the lendees are not necessarily arms length. There may be personal
relationships at stake. These personal relationships, no doubt, not only serve to
create social pressure that minimizes loan defaults, it also creates a mutual support
network.
What is it that gives rise to the closeness and the intimacy in the lending circles? It is
that there are close personal relationships between the lendees. Can this be
replicated in urban environments where projects are operating at a distance and not
part of a local village? It is optimistic to think that we can replicate the bonds that
exist 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 create
shared virtual spaces that foster ongoing real-time interaction, we can coordinate
regular face to face meetings. We can provide interaction frameworks that connect
people on a human level through regular social interaction and rituals of various
sorts.

If we are innovative there is much that we can do. In order the understand the
import of what is possible, it is first necessary to understand the way that the
technological context within which we are now situated serves to connect us in a
way that can create a culture of collaboration.

June 12th, 2011

ON VIEWING THE RELATION BETWEEN PROJECTS AS PART OF AN
ECOSYSTEM
In general terms, an ecosystem can be understood as a natural set of relationships
that exist between projects that makes it possible that they collaborate. Hence
projects that are a part of an ecosystem interact with each other, the leaders know
each other, and the projects are mutually interdependent in some way.

In more specific terms, an ecosystem can consist of projects that share the same
larger goals, that share common team members, share common customers or
markets, that are a part of the same value chain (partners, suppliers etc.), share a
common technology infrastructure etc. There is no theoretical limit to what is
constitutive of an ecosystem and this will be determined in practice by talking to
projects that might form a part of an ecosystem. An example of this is the Open
Manufacturing Ecosystem.

There are two important points that need to be emphasized, and the rationale for
these points will become clearer as we proceed.

Relational/Holistic Paradigm: an ecosystem perspective views the world as a system
of interdependent relations, and models the world with that as the starting point. It
views projects and our activity as a part of a larger picture.

Cross Boundary Paradigm: a related notion is that in viewing the world relationally
or holistically, we must give credence to how we are related to other projects; those
that are distinct from us but that are related to us in some way. The ecosystem
models 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 the
following 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)

June 12th, 2011

All of these, and other, socio-technological forces lead to an environment and
culture 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 cost
These forces lead to a world where we are connected across boundaries. This makes
the notion of boundaries less relevant at all levels; between people, organizations,
nation states etc. This is leading to many well studied phenomena such as the
increase in distributed workforces, global mass media, globally distributed teams
etc.

Hence, advances in the communications infrastructure now make it possible for us to
organize ourselves from the perspective of ecosystems.

June 12th, 2011

Ecosystems, Visibility and Social Cohesion
In citing the Grameen Bank model, we note that the reason that it works is that
there are bonds between the lendees. We submit that in viewing the connection
between projects as a part of an ecosystem we can develop associated processes
that will help to build the sorts of human bonds that support the Grameen Bank
model. Of course, there will be a great deal of complexity and much needs to be
worked out, but the possibilities are vast since there are no theoretical geographic
constraints to participants in the working groups.4
What we are suggesting is that technology can bridge the divide between us. It can
create visibility into each others’ activity in a way that serves to develop human
bonds. 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 Models
Prior to microlending (Grameen) model, collaboration principles have been applied
in the finance sector on the funding side of the equation in what is known as
syndication. Competing investment bankers regularly work together to finance
larger 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 the
satisfaction of the client as well as the sharing of risk with others in the funding
syndicate.
Aggregating (pooling) of investments is commonplace in the form of mutual funds of
various sorts. In this scenario a large pool of capital is raised. The monies are then
managed by an investment manager who selects specific investments within the
pool. This, again, safeguards the investment risk by distributing it across a wide
range of investments.
How can we utilize collaboration principles to take reduce investment risk even
further?

4 We say this with the full understanding that there is no substitute for face-to-face
interaction and therefore regular face-to-face meetings need to be built into the
interaction processes.
June 12th, 2011

The Ecosystem Pooled Fund: funding groups of early stage projects that
are collaborating
Previously we identified that there exists a systemic funding challenge that inhibits
the flow of capital to early stage social ventures; those ventures that aim to both
deliver social and financial value. The challenge is that early stage projects carry
significant financial risks yet do not provide sufficient financial return to offset this
risk. This structural constraint substantially reduces the possibility for the wider
dispersion of social goods which we believe is necessary if we want to bring about
the broader paradigm shift towards sustainability and care for each other and the
world.
We can take the use of collaboration principles to the next level by focusing on
funding early stage projects that are actually collaborating. We submit that in doing
so 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), the
reduction of investment risk for the reasons outlined below.

June 12th, 2011

Now that we have a better understanding of what it means to collaborate within an
ecosystem and the factors that will lead to increased collaboration amongst social
venture projects, we can examine how ecosystem collaboration mitigates financial
risk for investors. The risk for investors is tied directly to the prospect of the failure
of the project. Hence, this risk can be offset in two specific ways; increasing the
probability of success of the specific projects and decreasing the probability of
failure of projects.

Increasing the Probability of Success of Projects
Working within a collaborative environment will increase the probability of the
success of social ventures for the following reasons:

Scale: In grouping projects together, we create scale (more people, ideas, resources
etc.). 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 can
direct ones activities in a way that is aligned with ones ecosystem partners. This
provides increased opportunity for sales, increased partnership opportunities etc.

June 12th, 2011

Social cohesion: we hope that some of what works in the Grameen Peer Lending
model, works in this context as well. In support of this idea, we will be developing
non-binding collaboration agreements that formalize the commitments between
groups. Although we don’t expect these agreements to be binding, we do expect that
commitments that are made openly will bring social forces to bear that will result in
those that one is collaborating being more likely to provide support.

Offsets technology risk: A constant challenge for investors is to be able to assess the
value of technology and processes that have not already garnered market
acceptance. In getting peers to use your technology, processes etc., (as ecosystem
collaborators) the functional utility of the technology is validated by people that
understand the technology.

Increased Product Validation: in fitting your technology or process into a value chain
of collaborators, you will solve problems and enhance the product thereby making it
more market worthy.

Increased Network/Channel Capacity: In working collaboratively with others, you
will build networks and contacts that will open up other market opportunities.

Decreasing the Probability of Failure of Projects
An important feature of this model is the fact that in working collaboratively with
others, one can make drastic changes in ones business model, technology etc. while
remaining a part of a collaborative process that supports this transition.

To understand this idea better, consider the circumstances in which early stage
entrepreneurs function when operating in isolation. If there is a fundamental
problem with their project that places the project at risk and where failure is
imminent, there is little that one can do other than attempt to raise further capital or
sell the business, if possible.

In contrast, if the project is a part of an Ecosystem Collaboration, problems
associated with the project might be identified at an earlier stage (offsetting the risk
of ‘entrepreneur myopia’). Strategies can be collaboratively developed that might
even result in completely changing project structures. One can, for example, work
with partners with a view to selling ones project to a partner. By operating more
openly and in a more accountable fashion, the chance of failure is reduced.

Building A Social Finance System Through Open Collaboration
Taken together, these benefits of an ecosystem paradigm for social finance
demonstrate how monetary flows can become tightly coupled with positive social
outcomes. Now we’d like to shift gears and ask the question; how might a social
movement employ social finance to influence political outcomes, accelerate cultural
shifts in the values landscape, and lead to rapid deployment of solutions that move
us toward a sustainable world?

June 12th, 2011

A pooled ecosystem model won’t simply pop into existence all at once. It must grow
organically through the local activities of people who are working to bring about
social change. This is where crowdfunding campaigns come back into the picture.
We have discovered that innovative projects pave the way to a new financial system
built on the open collaboration paradigm. It is possible to aggregate small financial
contributions in order to create pooled funds for strengthening social movements.
This manual is a great example. It is a resource for social entrepreneurs that would
be difficult to fund using the traditional investment mentality. There are few
monetary rewards for creating a resource that will be freely distributed when it is
finished. We reached out to members of our community to pool enough money to
bring it into being, with a purpose of creating social impact as it gets passed around
on the internet.

So how do crowdfunding campaigns work? What does a practitioner need to know
if they are to run successful campaigns? This is the topic we’ll cover in depth
through the next several pages.

June 12th, 2011

What You’ll Need to Run A Successful Campaign
Creating a successful crowdfunding project is both an art and a science. It is an
engagement process that requires you to do the following:

Find A Crowd
Remember that this isn’t primarily about money. Otherwise you could just go to
your rich uncle or pitch to a friend with deep pockets. It’s about getting a lot of
people involved in your cause. So you’ll need a crowd of people who want to see
your project succeed. In the section The Wisdom of YOUR Crowd we’ll help you
gauge what kind of crowd you’ll need to make your project a success.

Tell A Good Story
Getting the attention of your friends and followers can be tough in our time-crunch
world. You need to engage them with a good story. What is it that you’re trying to
do? Why should they care about it? What will they get out of the experience that
makes it special to them? In the section Getting to “Yes We Can” we’ll cover the core
elements of engagement and interactivity that are essential to crowd-based efforts.

Create Value for the Community
Not just any project will do. You’ve got to propose something that your crowd really
wants or needs. In other words, you’ve got to carefully consider just what your
community values enough for lots of people to pitch in and make it real. In Creating
the “Killer Product” we will walk you through the design process to ensure that your
promised deliverable takes a form that crowds can rally around.

Use Social Media Tools
Working with crowds takes a special kind of conversation. Monologuing just won’t
cut it. You’ve got to sustain meaningful dialogue with your crowd that encourages
the word to spread. This is not a “low touch” activity. Talking with the crowd is
ongoing, dynamic, and sometimes outright intense. In Carrying The Conversation
we’ll explain how to leverage your Facebook friends, Twitter followers, blog
readers, and real-world networks throughout the entire campaign.

Get Your Fans to Spread The Word
Few among us have a thousand followers already hanging on our every word. And
simply talking with your two best friends for weeks on end isn’t going to get the
word out (or bring you a large enough range of people to get the pledges you’ll need
to fund your project). You’ve got to ask more of your fans AND do it in a way that
helps them feel good about doing more than dropping money into the coffers. We’ll
help you figure out how to grow your crowd in Spreading Like A Virus.

Follow Through on Your Promises
At the end of the day, if all goes well, you’ll have all hands on deck and enough fuel in
your tank to make the drive. Even when you reach your fundraising goal the

June 12th, 2011

conversation continues. Remember that this is about engagement. You’ve got to
deliver the rewards, stay in contact with your fans while you create your killer
product, and get it out in the world like you said you would. In Keeping It Real we’ll
share a set of techniques for keeping your crowd involved all the way through to
your next round of engagement.

We weren’t kidding about crowdfunding being about more than money. It takes a
lot of hard work and careful planning to succeed. If you want engagement, you’re
going to have to work for it. And you’ll discover that new possibilities can be
unleashed 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 get
the crowd involved in the change process. And you’re sure to make new friends
along the way.

June 12th, 2011

The Wisdom of YOUR Crowd
So first things first… you’ve got to have a crowd to crowdfund something. Who are
you going to reach out to with your pitch? How do you know if they’ll care about
what you’re doing? How will you identify your early adopters, those precious
individuals who step up first and get the process rolling? And how much money
should 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 out
front 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 for
something (e.g. loves bird watching), wants to achieve something (e.g. have a great
school in our neighborhood), or wants to be part of a meaningful experience (e.g. we
elected the first African American president!).

What you want to accomplish will shape who might be part of your crowd. In the
marketing and technology worlds, this is called your user group—the people who
will 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 profile
of people who may care about seeing it come into being. As a project host, you will
want to consider who is likely to get excited about what you’re offering and why
they’d get involved to make it a success.

June 12th, 2011

What Can You Achieve This Time Around?
With every crowdfunding campaign, you’ll want to start out with a set of realistic
expectations 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 dollars
and several thousand dollars depending on what you hope to create, how much
work will be required to get it done, and how big your sphere of influence is (more
on this in a moment).

Note that we are talking about micro-scale ventures that fall outside the realm of
typical fundraising models. If you want to develop a world-changing technology,
you’ll seek a lot more venture capital than crowdfunding typically delivers.5 You
might pitch your business plan to investors who feel they can benefit from
partnering with you by offering seed money to get you going. But if your goal is
more modest in scope, say $5,000 to $10,000, there really aren’t other good funding
options. It isn’t worth competing for foundation grants or reaching out to potential
investors 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 a
modest amount of money, if well enough connected to a supportive community that
stands 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 use
of text messaging to pool micro-donations for disaster relief in Haiti after the 2010
earthquake. So it can be used for creating large-scale investment pools too. We’ll
deal with this category of crowdfunding projects in a later section.
June 12th, 2011

It may be helpful to think about the dollar amount as a feasibility metric to
determine whether you feel like what you’re proposing is feasible for the time and
resources you’ll put into the work. And you’ll want to be sure to think about the
long haul and what kinds of relationships you need to build out of the projects you
host.

Regarding the issue of time frame, you’ve got to figure out how long you want to
spend engaging your crowd in the fundraising process and whether you know
enough potential supporters to reach your goal in time. It may be that you’ve got a
large email list with a high “click through rate” that you can make appeals to. Or you
might 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 for
people 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 scoop
on upcoming venues and exhibits. Figuring out who you can reach out to at the
moment of kick-off is important for gauging how easy it will be to build a crowd of
passionistas 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 your
network spread the word to others in their networks. But you’ve got to start with
who you know.

And now that you have a sense of who your crowd might be, you’ll want to clarify
the pitch that will appeal to them. You need a good story…

June 12th, 2011

Getting to “Yes We Can”
A great example of successful crowdfunding is the historic presidential campaign of
Barack Obama in 2008. The story that inspired tens of millions to get involved can
be expressed in three simple words — yes we can. It is a story about
empowerment.; a story about hope; and a story about collective action.

So many people believed in this story that fundraising records were broken as the
Obama campaign raked in $750 million over a 21 month period.6 According to the
campaign 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 will
be 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. The
locus of action is in the synergy that exists between leaders and followers. Members
of 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 shared
enthusiasm. 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 described
and of obvious valuable to your community. Your story needs to convey that
collaboration can lead to a desirable outcome that members of the crowd can
visualize—and feel good about being a part of.

6 http://abcnews.go.com/Politics/Vote2008/story?id=6397572&page=1
June 12th, 2011

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’t
enough to tell a good story and walk away. You’ve got to demonstrate that others in
the community want to make it real too. And this means taking the story forward in
time as the crowd begins to act, expressing that others share the same sense of
purpose 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 they
contribute; or that (b) they can increase the momentum that helps others get
inspired 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’t
jumped on board will watch to see if it looks likely to succeed. Many of them will
take action only when it begins to feel inevitable that enough people have gotten
involved. Others may feel that failure is eminent… and that their contributions
could be what pushes it over the top. This increases the significance of their actions
and 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 time
passes. Getting to “yes we can” moves through all four stages of engagement. It can
be stressful at times with all the uncertainty. And plenty of surprises will pop out of
nowhere along the way. Get ready for the adrenaline rush of depending on the
actions of others for your ultimate success!

June 12th, 2011

Creating the “Killer Product”
A good story has substance. It is about doing something meaningful. So it is
essential that the shared purpose you advance leads to an impactful outcome. What
you choose to do together is a major influencer for why people choose to get
involved.

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 Works

Successful crowdfunding campaigns are designed for impact. This is what the
“Killer Product” represents – creating something profoundly valuable that requires
collaboration 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;
June 12th, 2011

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 a
deep-rooted need among social entrepreneurs for a micro-scale financing model
that builds community and attracts intellectual and monetary resources to social
change efforts. As a burgeoning field of practice, we are all learning together and
have benefited greatly from the valuable insights of social impact investors,
bloggers, online community organizers, and collaboration designers throughout the
writing process.

At the end of the day, (hopefully!) a useful handbook will be created that is licensed
for collective ownership by all members of this dynamic community of change
makers. And it will be easy to share in digital form for activists and campaign
designers 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 design
process:

Is there a common roadblock that hinders everyone?
Identifying a shared need and offering tools to address it will be highly valued by
your community. We often ask ourselves what is holding people back. Is there
something that gets in the way of bringing solutions to scale? Are there
recognizable obstacles that are obvious to everyone?

In the case of this manual, we observed that all-too-often the most important work
doesn’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 for
activities that keep falling through the cracks, yet are widely acknowledged as vital
for 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 that
responsibilities tend to align with the goals of specific organizations. As a result, no
one is responsible for increasing capacity across the entire community. Getting to a
killer product means finding something that everyone needs, but no one is
responsible for delivering.

We set out to create this manual because the venture capital model doesn’t work for
small-scale social enterprises and philanthropic institutions remain entrenched in
silos defined in a previous era, unable to bridge across domains in this vital period
of global transition. No one has taken responsibility for socially networked
communities to collaborate across institutional boundaries where it is most needed.

June 12th, 2011

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, and
creating new hybrid organizations that change the institutional landscape—all
require diverse inputs from people with many kinds of expertise. So we ask
whether the crowd can bring vital resources to the effort. Does cross-cutting
knowledge need to be applied in a novel way? Is the solution an emergent
phenomenon that arises only after a significant portion of the population adopts
new behaviors?

For this manual, we didn’t presume to know ahead of time what would be useful for
readers. This is why we created a Google Group to host online discussions about
content for major sections of the manual—to get the crowd’s input into the writing
process 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 a
desirable tool or resource that many members of your crowd feel strongly about
seeing to completion. You will be more likely to get recognition for your strategic
thinking 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 personal
commitment from members of your crowd who will help make your project a
success.

June 12th, 2011

Carrying The Conversation
Okay, so by now you’ve learned how to map out your crowd and design a killer
product 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 into
the patterns that are commonplace in unfolding peer-to-peer dialogue across the
digital landscape.

Let’s start with a simple schematic. The following picture shows how an idea
spreads 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 the
email over time.

Without dialogue this increase quickly comes to an end as the number of emails
opened gets saturated. The number of people engaged will decrease if
communication continues to be directed toward all the same people who were
approached the first time around. Reaching more people will only happen if the
idea 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 on
Facebook or through a blog post to a website that gets a stream of new visitors. Or
individuals you reached out to may share your idea by forwarding the email or
linking to online materials using a social media platform.

Sounds simple enough, but the skills involved in creating an “echo chamber” where
the conversation spirals to new communities are not the same as traditional skills

June 12th, 2011

from mass media—which are tailored for a one-to-many conversation that is
essentially a monologue. Social media requires that you engage in interactive
dialogue 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 ongoing
discussions throughout the entirety of your crowdfunding campaign.

It may sound a bit trite that using social media requires you to be social. But the
power of social media comes with the ease of sharing information and making it
visible for others to share again. As you begin reaching out to potential
contributors, you’ll want to prepare yourself for ongoing engagement that includes
repetition and novelty—reposting the same information to remind people what
you’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 previous
page repeats itself. Each time the conversation begins to wane you’ll want to
stimulate new discussions, create content others can link to and share, and invite
participation 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 you
don’t feed it continuously throughout the entire campaign. Many projects fail
because this follow-through doesn’t happen. The key to your success will be
navigating the conversation so that it grows more engaging and inclusive over time.

June 12th, 2011

Spreading Like A Virus
In the last section we described how a conversation waxes and wanes, making it
necessary to actively keep it going. We suggested two strategies for doing this: (1)
Routinely renew the conversation by generating new content and reposting links to
social 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 of
engagement for online interaction suggest that 80% of the work is done by less than
20% of the people who participate. In the campaign we ran to fund this manual, a
few thousand people saw our project and 87 people contributed money to it—a rate
of roughly 3%. So it is helpful to increase the number of people who interact with
your crowdfunding project to reach those precious highly engaged individuals who
will actually step up to the plate.

A useful way to think about the spread of ideas across a community is with the
model of a virus.7 Just as a contagion spreads through the physical contact between
individuals until it infects a critical percentage of the population, an idea can spread
through social contact until it becomes highly visible as a hot topic of discussion.
The practice of viral marketing takes this epidemiological model as inspiration for
reaching large audiences through peer-to-peer conversations in existing social
networks.

7The authoritative introduction to viral marketing is Unleashing The Idea Virus by
Seth Godin (2000).
June 12th, 2011

The two most important considerations for viral marketing are (1) is the idea virus
worthy; and (2) who are the super sneezers that will spread it far and wide?

Features of an Idea Virus
An idea can go viral if it is:
Easy to remember;
Easy to explain;
Something that fills an existing void;
Cool enough to share with friends;
Pre-packaged in a way that makes it easy to pass along.

This is why we mentioned hyperlinks in the section Carrying the Conversation.
Creating content that is easy to repost helps others share it more easily. It is more
difficult to make a killer product that is “sticky” in the mind and instantly appealing,
but the benefits of aspiring to these ideals should be self-evident. More eyes will
tend to see web content that is provocative, memorable, and appealing.

Features of a Super Sneezer
Ideas don’t spread on their own. People have to pick them up and pass them on.
And not all people are created equal for this task. Extending the vernacular of
viruses, those who spread ideas around may be called “sneezers”. Individuals who
make exceptionally good sneezers are:
Highly visible in the community;
Well respected opinion leaders;
Connected to a diverse community of people;
Eager to share new discoveries with their friends.

An introverted roommate with 19 Facebook friends is less likely to influence as
many people as your charismatic co-worker with 700 friends and a finger on the
pulse of emerging trends. By reaching out to such influential people, you can get
your project before the eyes of a large number of strangers. And their public
endorsement will elevate your reputation among those who haven’t yet formed an
opinion about your capabilities.

This is where those design considerations we talked about in Creating the “Killer
Product” become vitally important. If you are able to inspire a few Super Sneezers
to put out a good word with an exciting proposal, it will get before a much larger
audience than you have direct access to.

And the more people who see your project, the more likely it is that you’ll attract
enough supporters to reach your fundraising goal.

June 12th, 2011

Keeping It Real
We’ve now walked through all the steps of the fundraising part of the campaign.
You are ready to:
1. Identify who your crowd is and gauge your sphere of influence for
mobilizing them to take action;
2. Craft a powerful story that gets to “yes we can” and invites collaboration;
3. Create a killer product that only the community can build together;
4. Use social media to carry the conversation forward throughout the entire
fundraising period;
5. Increase your chances for success by seeking influential “sneezers” to spread
your idea virus across social networks you don’t have direct access to.

If all goes well, you will engage enough people to reach your crowdfunding goal.
Let’s say everything works out and you’ve got a bunch of committed investors and a
check in your hand. Now what do you need to do?

Remember that crowdfunding is a social process, so you’ve got to keep the
conversation going and fulfill your promises. Better still, you can keep it real by
making it easy for supporters to help build your killer product and get the word out
when its ready for distribution.

Perhaps you’ll want to create an email list for all our contributors and keep them
informed about how things are progressing. You might even want to invite them
into the design process by asking research questions to gauge how they’d like to see
the content develop. Regardless, you’ll want to keep the conversation going so that
your funders know that you are acting in good faith and delivering what you
promised.

June 12th, 2011

Crowdfunding manual june 12 draft

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