Crowdfunding Diplomacy: The Next Frontier for Government


By Daniella Foster, Guest Contributor,
A common mantra among entrepreneurs is that failure is good; the key is to fail fast and fail cheap. If you applied this mantra to diplomacy the objective would be to test new approaches, with the goal of positively impacting communities abroad and adding new tools to a diplomat’s tool belt, all while leveraging limited resources and responding to increasing demands. The challenge is that trying something new requires risk, and risk is not a trait synonymous with government. How do you encourage innovation in government and mitigate risk? The answer: develop strategic partnerships with partners who know how to innovate and manage risk and who have built-in platforms and systems to do so.

One area ripe for this type of partnership is crowdfunding, an alternative form of finance where money can be raised online through a crowdfunding platform (CFP) from friends, family, extended networks, and—thanks to Title III of the Jobs Act passed last year—investors. Hailed as the democratization of finance, individuals, non-profits, and companies have turned to crowdfunding to fund new projects, engaging their networks in the process, and enabling the community to curate ideas and fund over $2.6 billion in 2012, according to Massolution’s 2013CF Crowdfunding Market: Software and Solutions Report.

If you combined government’s ability to convene and accelerate projects globally with the crowdfunding platform’s ability to engage local communities and investors in projects, you would have a potentially game-changing impact on grassroots diplomacy and development. Why? Because in an era of budget cuts, the value that government brings to the table has shifted from funder to partner. And crowdfunding provides the ultimate platform for government to convene partners in the private sector and civil society around locally driven solutions that need financing. The model of government as the primary funder for social good initiatives is evolving as public-private partnerships, where corporate or non-government partners bring their resources and expertise to the table, are stepping in to provide pro-bono technical assistance, infrastructure, distribution channels and training to help address complex challenges such as youth unemployment, access to education, and global health.

There are three ways government can test-drive crowdfunding (and see if the democratization of finance is all it is cracked up to be).

1. Crowdfund a government innovation fund

Savvy diplomats have started to test the waters and cull collective intelligence, creativity, and knowledge through crowdsourcing efforts like USAID’s launch of Grand Challenges for Development and prize competitions. The next step in engaging the crowd and leveraging resources is to pilot crowdfunding through one of the government’s innovation funds. The idea is simple, partner with a crowdfunding platform to leverage government investments, engaging the community, donors, and subject matter experts to make government funds more catalytic. For those seeking funding, making it through a government-vetted competition lends credibility to projects that need an additional round of funding from other investors. While there is no shortage of viable projects that seek support from government innovation funds, there is a shortage of capital. Crowdfunding platforms provide a solution, and a market, for those great ideas.

2. Reach beyond the United States

Crowdfunding is not new. Artists, entrepreneurs, students, philanthropists, and caused-based groups have been tapping into their networks and online platforms for years to help finance their efforts. What diplomacy can do is help take this phenomenon global. While crowdfunding originated in the U.S. and is on the rise in the region (over 72 percent of crowdfunding in 2013 is predicted to stem from the U.S.), the real potential is to provide alternative financing to projects and businesses in emerging markets. The World Bank’s preliminary estimate of the potential crowdfunding market in developing countries could reach over $95 billion in the next 25 years. If the platforms that have democratized funding in the U.S. can scale globally, we will see more locally driven solutions to regional challenges that take projects and businesses global, potentially loosening up billions of dollars in capital and spurring economic growth.

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