Could you crowdfund Wonga? Top four threats to crowdfunding

Last week I chaired an RSA Event about crowdfunding on the day we launched the RSA’s area on Kickstarter. Here, Alex Watson, RSA Catalyst Programme Manager, reflects on the talk and why the RSA are getting involved.

We’ve heard much about the benefits of crowdfunding. Here, RSA Fellowship Council member Ed Whiting extolled its virtues and noted the projections for its growth. But as is always the case with RSA Events, last Monday’s panel debate with commentators, successful crowdfunders and crowdfund-platform-builders helped identify and articulate some of the threats to, hidden-biases within and trends of the sector. Matthew prompted the panel to ask “what is the one biggest thing that could stop the momentum of crowdfunding or turn it in the wrong direction?” Here were some of their answers and I’ve added to include what we the RSA think we’re doing to counter them in using crowdfunding to tackle social problems.

Scams and frauds. Whilst crowdfunding had its first public failure in the UK – “a victim of the economic downturn” – further failures, particularly those where bad intentions are involved, could undermine trust in the ideas that go up on crowdfunding platforms.

We knew before we chose them that Kickstarter have a rigorous process for verifying identity. But in addition, the Fellows that we’re selecting all have a donor history with us and people can only become Fellows in the first place if we approve or select them for their professional achievements or potential to achieve, or they are selected by other Fellows.

People not delivering. Bobbie Johnson, who successfully ran a campaign that raised $150,000, admitted that despite raising more than his target, 18 months on he is still struggling to deliver some of his rewards. He said that failure or delay to deliver on rewards, through lack of ambition to go for a target that was really needed to deliver, or through failing to foresee the hard-work and barriers to follow-through could also burn the hands of those first-time crowdfunding backers.

There is a no doubt a reputational risk when encouraging RSA Fellows and the RSA’s wider audience to back projects on our curated area. But in addition to the above selection of our Fellows we have two extra factors to increase the likelihood of successful delivery. Firstly, the Fellows up there have a track-record of delivering with either a grant or non-financial support already awarded through Catalyst. In addition, we ensure that Fellows looking to run crowdfunding campaigns hear from other Fellows with experience of running a successful campaign and then delivering, as well as others who help assess the feasibility of what is proposed.

“Could you crowdfund Wonga?” The panel debated whether crowdfunding will be used for funding highly-profitable business that doesn’t serve much social good (e.g. Wonga) or ideas with social impact that need ‘the crowd’ because they can’t prove to existing investor that there is already a market. Our curated area will only be putting up ideas that tackle a social problem. But we’re also doing our best to encourage those backing a project to shout about it. This public (micro-)patronage is another reason why we’re more likely to get people to back projects they think will help, not hinder, others rather than make them a quick buck.

How democratic is “the crowd”? Even among the ideas that profess to have a socially-beneficial aim, one panellist said that you have to invest quite a lot of time on Kickstarter to “spot the breakthrough ideas [vs] someone getting support from one of their friends.” Social media is not immune to bias and those campaigns that get a tweet from a celebrity friend might not be the best ideas.

We hope that by putting the ideas that Fellows come up with to our 27,000 Fellows we can get some early momentum behind ideas that have real potential. Fellows aren’t all friends with one another, but we hope that they have sufficient ties to be able to get them interested-enough to take a look.

Visit the RSA’s crowdfunding area here.  The RSA will match fund (to a maximum of £10) the first 200 RSA Fellows who back RSA crowdfunding projects.  Find out how to claim your match here