Different ways of funding new ideas

Regular readers of the blog will be in no doubt as to my skepticism about the usefulness of loans in funding innovative new social projects and my disappointment at most of the social enterprise sector’s disinterest in equity finance.

All that said, I understand that one of the drawbacks of raising equity finance is that if – as will be the case for many social enterprises – you can’t find anyone who wants to put in a big investment and you’d like to get lots of small investments from supporters then, even with the exciting work that’s been done recently on community share issues, it’s still a relatively complicated and potentially expensive process.

One new option is what Sponsume describe as viral funding. The basic idea is that people with ideas for projects put the details on Sponsume (there are a number of US-based equivalents such as Kickstarter) and ask people to pledge their financial support by buying vouchers. These vouchers don’t constitute an equity investment but – if enough vouchers are sold and enough money raised for the project to go ahead – they entitle the purchaser to products or services related to the project (so if it’s a theatre show, vouchers could be a for a ticket to the show). The insurance for supporters is that if the project doesn’t raise the money it needs in the specified time, they get their money back.

As a social entrepreneur in my day job and literature development entrepreneur in my spare time, I can see big potential for this kind of funding in sectors that are goodwill rich but cash poor. While I think what they’re doing is very exciting, I don’t entirely share Sponsume’s belief that this kind of funding needs to be entirely generated online and through social media.  There’s a danger that this reduces the potential support from older people, who are the most supportive demographic in terms of community shares, but the idea of getting social enterprises up and running by getting the buying public to pledge to by your goods or services is definitely a good one and I’m sure there are possible approaches that would enable pledges to be made both online and offline.

Is there anyone else in the UK currently doing this kind of thing?

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3 Comments

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3 responses to “Different ways of funding new ideas

  1. Useful to know David.

    There’s something I found which offers the benefit of placing donation directly into an orgs bank account, without any handling charge.

    http://www.betterplace.org/projects/3931-kamapala-junior-team

    These things tend to work when there’s already an established interest group without a formal org handling the overall project, I find.

  2. Dear David,

    Hello from Buzzbank! We are setting up a crowd-funding website, starting in the UK, for social ventures (charities and social enterprises) to raise funds, both in terms of raising money for donations (with and without gift-aid) and pre-sales of goods and services but also loan finance.

    We are targeting to launch Sept. 30th and I would be happy to talk with you about what we are doing. We are working with over 30 social ventures to prepare for launch and 7 of them are currently testing their crowd-funding offer “off-line”, so they will be seeking to raise finance via several channels.

    We ourselves are funded 58% by charities who made equity investments in us as well as private individuals and our own social purpose is to help develop the social investment sector. In addition to the 58% ownership by charities (and thus 58% of our profits go to those charities) we will also donate up to a further 20% (dependent on certain thresholds being meet) to a charitable fund to promote and develop social enterprise.

    All the best, Theresa

  3. Dom Potter

    David,

    Great post as always. I think generating funding through a ‘little, many and often’ approach like sponsume and buzzbank are great idea. I wonder if the potential is diluted when there are more offers for the individual donor to choose from on these kind of sites, however.

    Where there is potential – particularly in relation to the online/offline nexus – is in peer-funding from your existing networks. I like the example of London Creative Labs who have raised seed funding from peer funding – http://londoncreativelabs.com/peer-fund/ . Worth a look.

    Dom

    Internocracy/Social Enterprise London

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