You might know crowdfunding as a tool for private individuals to invest small amounts in new or local ventures. But crowdfunding may also serve as a litmus test, delivering useful insights to investors.
Perhaps more importantly, crowdfunding doesn't only attract small investors. By scaling up, crowdfunding can have global impact.
In the past week we have seen two examples of how this can be done. The first one is laid out in European Venture Philanthropy Association's (EVPA) new report on crowdfunding platforms.
Crowdfunding platforms are trend-sensitive and can provide crucial input to policymakers to help forecast the future traction of a product or service, according to EVPA's report.
The EVPA goes on to note that crowdfunding can be a powerful instrument to deliver impact. The report recommends crowdfunding platforms team up with institutional investors, such as foundations, impact funds or financial institutions for long-term partnerships.
“Crowdfunding platforms play a key role in creating positive societal impact and can be a catalyst for new forms of collaboration with different impact players,” said EVPA CEO Roberta Bosurgi in a statement.
“Other investors for impact must be part of this process, to leverage the opportunities that crowdfunding platforms bring and collectively contribute to a sustainable, fair and inclusive future.”
Team up with the crowd
Institutional investors can team up with ‘the crowd’ in different ways. A foundation can for example step in as anchor investor in a crowdfunding campaign to improve its chance of success, or match the contribution of the crowd (match-funding).
Platforms can also collaborate by sharing deal flows with impact funds and financial institutions that support social enterprises with different repayable instruments, such as debt or equity, EVPA suggests.
Attract big investors
Another way for crowdfunding platforms to increase their impact is to attract institutional investors. One recent example is Dutch Lendahand.
They specialise in funding for SMEs in developing countries that are too big to qualify for microfinancing but too small to apply for a bank loan. Investors can support projects aimed at, for instance, extending loans to house 35 families in Phnom Penh, Cambodia, or mobile banking facilities for small companies in Ecuador.
Last week Lendahand announced that they have raised €100mn in investments for business owners in developing countries since the platform was set up in 2013. British UK Aid and the American foundation Virgin Unite are two of the institutional investors that have invested in social enterprises via the platform.
As crowdfunding platforms are maturing, trend watchers, policymakers and professional impact investors are taking notice. These platforms may not just offer the wisdom of the crowd, but also an efficient delivery system and crowd-tested reporting.
More on crowding for impact
On the 10th of June and 7th July you can join EVPA's online discussions on crowdfunding for impact
CrowdAboutNow found out that impact is more important than profit to their investors