Crowdfunding Rebooted: It’s Not Just for Startups Anymore

By Seth Oranburg,  Law Professor Chicago-Kent College CrowdFundBeat contributing Guest 
Neil Armstrong’s historic space suit isn’t in such great shape, and there aren’t public funds to fix it.

The Smithsonian Institution recently launched a novel solution. Its “Reboot the Suit” campaign is using crowdfunding to finance the suit’s restoration. But this isn’t just another charity drive. Online backers will receive unique and limited rewards, and the fundraising campaign itself is part of the marketing. This new style of public crowdfunding has exciting implications for the future of charities, and it could even be applied to democratize tax policy and local government affairs.

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Crowdfunding began as a way for independent musical artists to raise a few thousand dollars to rent a recording studio and release a record. It evolved distinct “rewards” and “donative” models. Rewards crowdfunding promotes consumer projects ranging from the niche (a casebook about zombie law) to the ubiquitous (the Pebble smartwatch). Donative crowdfunding promotes new charitable projects like micro-lending and cancer research. Public crowdfunding is a new model, where mature nonprofits are using portals to fund public goods by offering rewards and challenges.

Public crowdfunding is different from traditional charity fundraising in at least three important ways. First, public crowdfunding is an open call to action on the Internet to all people, not a targeted charity campaign to visitors or former donors. Second, public crowdfunding uses gamification principles like challenges and rewards to attract backers in real time. Third, public crowdfunding highlights and advertises a specific public-good product, instead of promoting a non-profit generally. These three factors, harnessing the power of the Internet, make public crowdfunding a powerful new tool to democratize charities.

Democracy involves voting. People vote with their feet (by moving to another state), with their money (by shopping at certain stores or donating to certain candidates or charities),  and with their vote (on Election Day or at shareholder meetings).  But this sort of voting can be costly, abstract, and infrequent. Crowdfunding is an easy, specific, and real-time way to vote with money. The “Reboot the Suit” campaign allows backers to pledge as little as $11 to restore the famous moon-landing space suit. Donors receive detailed information on exactly when and how their money will be spent, and this transparency comforts donors. Donors are incentivized Donors are incentivized to contribute by offers of unique gifts, like an invitation to visit the factory where the suit was made.

But, most importantly to the success of public crowdfunding, donors have real choices about what specific projects to back. Each campaign lasts only 30 days and a charity can run multiple campaigns simultaneously. Backers can signal to nonprofit managers which campaigns are the most valuable simply by funding them. This is a powerful way to transform even the largest and most mature nonprofit organizations from top-down hierarchies, where managers raise funds and pick projects, to a bottom-up “democratized” nonprofit organization, where funders pick the projects that will succeed.

Democratized funding of public goods could also be applied to government activities. The traditional top-down approach is where public officials decide to build a road or water treatment facility, then sell municipals bonds or increase taxes to cover the cost. But the “Reboot the Suit” campaign proves that crowdfunding can be used to democratize fundraising for public goods as well as consumer goods. In the future, a city could appeal to its citizens on Kickstarter instead of just on the campaign trail. This would make politics far more democratic by giving citizens real-time influence over government activity. It would also make pet projects and bridges to nowhere a thing of the past. Maybe public crowdfunding campaigns like Reboot the Suit will even pay for our ticket back to the moon and beyond.

IIT Chicago-Kent College of Law Professor Seth Oranburg is the author of “Bridgefunding Is Crowdfunding for Startups across the Private Equity Gap.”

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