Wednesday, March 26, 2014

Can governments support crowdfunding?

This is a topic quite close to my heart at present, as I'm running a Kickstarter crowdfunding project myself - at www.kickstarter.com/projects/socialmediaplanner/social-media-planner (please check it out!)

It's teaching me a great deal about the challenges involved, and I'll be reporting back on this at the end of the process.

A broader question is whether governments in Australia are able to support crowdfunding, whether simply backing a project they wish to see funded or as an approach for investing money in new projects with community backing.

The first scenario is potentially the hardest for agencies under existing procurement frameworks.

Except in NSW and soon Victoria (which have the notion of unsolicited proposals), governments across Australia have quite a rigid process for buying 'stuff' (goods or services).

First they must identify that they need it. Next they must try to figure out if they can afford it. Then they have to go to market to buy it.

Within these constraints there is a fair bit of flexibility - there's many ways to identify the need, fund the 'stuff' and even to buy it.

As part of this process governments even buy 'stuff' which hasn't yet been developed all the time - such as when they ask someone to design new software, build a custom ship, develop a road or provide a structural review.

Crowdfunding generally works this way - people back a project that hasn't yet been completely developed in order to fund final development.

However governments often struggle to 'buy with friends' - to join in a joint purchase process as just one of the participants. They always want custom assurances and contracts, have specific requirements and otherwise make it difficult for themselves to participate in group processes - such as via crowdfunding.

Despite this, several Australian governments have found a way to participate in crowdfunding exercises, with both WA and Tasmanian governments now actively involved in the process.

Arts Tasmania has teamed up with Pozible, Australia's leading crowdfunding service for the Crowbar funding initiative. The initiative offers approved art projects the opportunity to receive up to $2,000 in funds from Arts Tasmania (capped at 50% of the funds raised) if these projects are successfully funded on Pozible.

On top of simply matching cash, Arts Tasmania is also offering one-on-one campaign development support, additional promotional opportunities from Arts Tasmania and having their projects presented in the Arts Tasmania Collection on Pozible.

It's a great opportunity for artists, who only have to find funding for 50% of their project, and for Arts Tasmania, which gets to support more projects (as the public funds part of them), as well as gets a community view on whether a particular project is worth funding.

The initiative also opens the door to new artists with new ideas that don't necessarily fit into other grant programs.

So far Crowbar has only supported one project, the Cranky Ladies of History. This has exceeded it's Pozible target, which is great to see.

I hope to see more projects funded in the same way - though I appreciate there may also be a learning curve for artists, who are not used to pitching their ideas to the public in this way.

ScreenWest in WA has run a similar program for film makers called 3 to 1.

Also involving Pozible, the program offers three dollars in funding for every dollar contributed by the public to crowdfunded film projects, up to an overall cap of $250,000.

This project has seen almost 30 projects try to raise the funds they need to proceed - with mixed success.  Overall it is achieving the same thing for ScreenWest as Crowbar is for Arts Tasmania - helping them to prioritise projects that have significant community interest while allowing them to stretch their grants funding further.


Besides these approaches in Australia, the UK Government has become a significant supporting of the crowd loan scene. The UK government has partnered with a number of crowd loan services including Funding Circle and Crowdcube through its Start Up Loans initiative to provide up to 20% of the funds from the government.

Essentially organisations looking for a start-up or business development loan can use a crowd site to tell their story and provide their numbers. Individuals then loan money in small amounts, setting the interest rate they want to receive.

Once a loan reaches a certain threshold (80-95%), the government will provide the rest of the funds at the average interest rate.

The loan is then managed as any other and paid back over an agreed term.

The benefit of this system is that it reduces risk for government, by ensuring that the community supports a loan before they put money in. It also is very low cost, even profitable, for government, as they get their money back plus interest and can choose to reinvest it each year.

This is, in my view, a very strong model for businesses, and I can personally testify to its effectiveness as Delib used this last year in the UK for additional product development funds.


We're also beginning to see crowdfunding supported by governments in the US as a way for businesses to raise money beyond the equity or debt models.

Washington State recently passed a very interesting bill (through one house at least) allowing businesses to raise up to a million dollars per year via crowdfunding.

Some other US states are also considering legislation.

Australia is a bit further behind, but the Australian Government is starting to make interesting noises in this area.

As reported in the Saturday Paper, Federal government encouraged to free up crowd funding,
Malcolm Turnbull recently wrote on his blog: “Crowd funding has become an increasingly popular way of promoting financing for innovative projects, allowing start-ups and rapidly growing companies to access diversified sources of capital … however, regulatory arrangements in Australia are not particularly tailored to this type of capital raising. The government is determined to see if we can match the regulatory environment that’s present in the US, here in Australia.”

Of course noise is one thing, changing financial regulations and laws is quite another - and can take some time.

However as the Arts Tasmania and ScreenWest examples show, there's opportunities right now for government agencies to consider crowdfunding, if they're prepared to think outside the square.





3 comments:

  1. Selective Financial Services is an investment and advisory firm that strives to provide expert solutions to create lasting values, for investors, in transactions in which we invest funds, or our financial expertise, and for the companies and individuals.

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  2. Don’t waste your time & effort creating
    promote crowdfundingcampaign unless you fully know and sincerely understand your target audience.

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  3. I believe most crowdfunding campaign should be targeted at investors who know how to value a start-up business, and who appreciate the risks involved and that they could lose all of their money.

    ReplyDelete