Crowdfunding Platforms and NGOs: A Match Made in Heaven

Published by Irfan Bashir on March 1, 2021March 1, 2021

In India, online crowdfunding has emerged as an effective mechanism for many NGOs to raise funds for their operations. It has allowed them to raise funds through the social networks of both the platform and its donors. Often, the people who contribute to a campaign make their contributions known to their social networks, informing their friends, acquaintances, and family members about the projects they are supporting. This encourages participation from their social networks and further compounds the networking effect. Combined with social media, online crowdfunding allows nonprofits to reach a much wider audience and establish deeper connections with their donors.

One of the options online crowdfunding platforms provide their donors is the ability to comment on a campaign and express their views about it. It allows creators to post-campaign updates in the form of videos, pictures, and messages to keep their donors informed about their progress. Even after the campaign has ended, campaigners tend to post updates and success videos to increase the trust factor between them and the donors. This has a positive effect on how the donors see the nonprofit organization. For example, when a donor donates to a nonprofit campaign that aims to build a school in a remote village of Maharashtra, and after six months they receive a notification showing them how their donations are being used, the donor will feel good about their contribution to the campaign. Such interactions not only develop trust between the nonprofit and the donor but also makes the donor feel that their contribution to the nonprofit has had a tangible effect that will positively transform people’s lives. They are more likely to form a positive mental association with the nonprofit and make a repeat donation. Sometimes, when the campaigner doesn’t post any updates, it is not rare for donors to demand one via the platform’s campaign page, thus introducing accountability.

Donor retention is another issue that many nonprofits struggle with on an ongoing basis. It hurts nonprofits’ revenues, affects their ability to keep their programs funded, and leads to wasteful spending in an attempt to find new donors. It usually costs less to retain and motivate an existing donor than to build new donor relations. The 2018 AFP Fundraising Effectiveness survey report that summarized data from 13,601 nonprofit organizations found that the most significant losses for NGOs in terms of donors came from lapsed new donors. The report found that the average donor retention rate in 2017 was 45.5 percent, and over a span of 10 years (between 2007 and 2017), dollar retention rates remained consistently weak, averaging below 50 percent. Part of the reason for low retention rates is the poor quality of service and poor relationship between the NGO and its donors. For instance, the NGO may be bad with customer relations and fail to respond to queries or they may wrongly identify donor interests and target them with wrong communication. They may fail to build a meaningful and sustainable relationship with the donors, communicate too much or too little, or simply fail to keep the donor interested.

Many nonprofits don’t compartmentalize their donors based on their interests and other parameters like age, nationality, sex, location, or language. They end up sending irrelevant communication to their donors as they fail to leverage the power of data analytics. Mostly, this happens due to a lack of resources. It often leads to donor disenchantment, wherein donors decide to divert their funds elsewhere. For most NGOs, taking positive steps to reduce donor losses is the least expensive strategy for increasing net fundraising gains. Crowdfunding platforms can help solve some of these problems.

With their dynamic and interactive user-campaign interface, online crowdfunding platforms allow nonprofits to build trust with their donors. Platforms regularly update their users on WhatsApp, Facebook, Instagram, Snapchat, Twitter, texts, and even email. Platforms also provide expert toolkits (resources most small to medium NGOs don’t possess) to help NGOs better connect with and understand their existing and potential donors, hence improving overall relationship quality.

Crowdfunding platforms offer donors the ability to browse for a nonprofit cause that best matches their interests. They collect a lot of data to study user behavior on their website and understand which campaigns tend to do well. This, in turn, helps the platforms better match campaigns with potential donors. With thousands of campaigns to analyze user preferences, online crowdfunding platforms have a tacit knowledge about content and strategy that allows them to develop nonprofit crowdfunding expertise. The Big Data reveals patterns, trends, and associations that platforms can use to help nonprofits identify and connect with groups of people who share the organization’s interests.

The donors also play a significant role in screening campaigns to establish campaign quality control. The ‘hive mind’ of the crowd— its collective intelligence— screens campaigns for the value and quality they provide. Trending campaigns that have a large number of supporters appear more commonly to potential donors on crowdfunding platforms. Moreover, the trending mechanism on most platforms operates by identifying the number of backers as opposed to the amount the project has already raised. Such a mechanism ensures that projects that have been favored by the crowd continue to trend instead of projects favored by just a few large donors. Thus the ‘hive mind’ of the crowd regulates the quality of campaigns and, in the long run, acts as a signal to the NGOs regarding what type of projects they should be working on.

Research suggests that nonprofit status on online crowdfunding campaigns provides a much higher success rate than for-profit campaigns on similar crowdfunding platforms. A study of 50,000 crowdfunding campaigns found that nonprofits receive higher average pledges and are more likely to reach their funding goals. It’s no surprise then that online crowdfunding has become the new avenue of fundraising for nonprofits. Online crowdfunding helps nonprofits build meaningful relations with their donors, publicize their work, reach out to potential volunteers, raise awareness about their cause, and expand their donor base. Through its grassroots approach to fundraising, volunteers and donors can prompt their social networks to join them in contributing towards a specific cause.

One of the greater challenges for small scale and regional nonprofits is to reach a wide audience and target relevant donors who agree with their cause. The problem arises due to a lack of social media strategies and networking options. Small/regional NGOs are not well connected to CSR opportunities in comparison to more influential national/ international level NGOs; they are also less likely to land government grants and foreign donations due to their young age and lack of visibility. Moreover, they are less likely to be connected to media and PR channels due to budgetary constraints. Lack of feedback and social support because of limited social reach also deters their growth prospects since they cannot identify how to best tailor their projects according to the public’s wishes.

The proliferation of crowdfunding platforms has created new avenues for small-scale and regional nonprofits to increase their visibility, strengthen their reputations, and establish a trustworthy relationship with their donors. Smaller NGOs can tap into the vast donor network of the platforms to expand their networks. Association with a big crowdfunding platform can also increase their chance of being covered by the media and hence increase their visibility. To help NGOs create better campaigns, most crowdfunding platforms have dedicated videographers, editors, photographers, and content writers, who help the NGOs shoot donation appeals, write proper campaign descriptions and create success videos to thank the donors after the project’s completion.

With the help of tools and expertise provided by online crowdfunding platforms, smaller NGOs can create dynamic marketing plans to increase their campaign’s chances of success. The NGOs can customize the user experience from start to finish. They can create branded campaign pages for any need or audience and tailor their email appeals as per their requirements. The platform provides everything from registration and ticketing solutions to webinar decks, 3rd party integration tools, UTM codes to track donations, video tutorials, and other management tools. While large scale NGOs often have their tools, smaller ones can’t afford them. Access to the platform’s expertise, resources, donor network, PR support, and campaign tools can significantly improve small NGOs’ chances of success.

Today, crowdfunding, in the form of online peer to peer fundraising, provides NGOs another alternative for door-to-door fundraising. Gone are the days when NGOs relied on traditional fundraising practices such as direct mail, phone calls, or door-to-door fundraising drives. Greater internet penetration and proliferation of social media platforms have opened new doors for nonprofits to raise money through online crowdfunding. Some Indian NGOs after making the switch from door-to-door fundraising to online crowdfunding have been able to increase their revenues and cut back on operational costs. Bhumi, one of India’s largest independent youth volunteer nonprofit organizations, which has over 30,000 volunteers in more than 12 cities, states that switching from door-to-door fundraising to online crowdfunding has helped them trim their operational costs by 10% and increase their donation share by as much as 30%.

While in the past, NGOs used to mobilize their volunteers to organ­ize face-to-face fundraising drives, today, volunteers are encouraged to use online crowdfunding platforms instead. Consider the case of U&I, a nonprofit in India committed to social change through education. The organization teaches 2000 children every week through their after-school Learning Centers and ‘In School’ programs across 20 cities in India. Through free, personalized tutoring and individualized mentorship, they help underprivileged kids— some of them being school drop-outs — perform better academically and stay in school. The NGO started a centralized online crowdfunding drive by creating a microsite on the crowdfunding platform Ketto, asking thousands of volunteers to create their campaigns and raise funds for the drive. All the volunteers used the hashtag #HeroUp for their campaigns and tapped into their social networks to raise funds. The online peer to peer fundraising drive was a phenomenal success as 2,700 volunteers started their crowdfunding campaigns, raising Rs 1.9 crores (19 million) with the help of 24,000+ donors.

Today, countless NGOs raise funds for various events and initiatives through online peer to peer fundraising. The lack of funding and volunteers is a persistent problem for many nonprofits. Under such circumstances, NGOs must dedicate their human resources wisely. Unlike door to door fundraising, which is a time-consuming affair for volunteers, online peer to peer fundraising allows volunteers to set in place an automatic fundraising mechanism through which they can share their campaign with their target audience without having to frequent physical locations, saving them valuable time that can be divested to other volunteering efforts. Furthermore, volunteers can transcend geographical limitations through peer to peer fundraising, allowing regional NGOs to solicit funds at a national and even international level.

Fuel A Dream, an Indian crowdfunding platform specializing in reward-based crowdfunding, has a long history of working with schools and students to raise funds for social projects. During the pandemic, the platform collaborated with the Chirec International School in Hyderabad to support one of India’s largest NGOs, the Akshaya Patra Foundation, with their COVID-19 relief efforts. The massive crowdfunding drive raised over Rs 1 crore (10 million) in just two weeks.49 The drive was part of a unique school crowdfunding vertical initiated by Fuel A Dream, aiming to teach crowdfunding across India’s schools as a life skill. One hundred and ninety students from the Chirec International School in the 13-17 age group across Grades 9 and 12 came forward to fundraise for Akshaya Patra’s COVID-19 feeding program. Their campaign page featured personalized donation appeals and extensive information about Akshaya Patra’s efforts during the pandemic and general information about the NGO’s history and achievements.

For many years now, Fuel A Dream has been working closely with students to teach them the art of crowdfunding and has backed some phenomenal student-led nonprofit projects over the last few years. In one of their crowdfunding drives, five 8th graders from Banglore’s Vidyashilp Academy raised Rs 8 lakh to revive a lake spread over 4.5-acres in Bangalore. The students were later invited to present their project at the UN headquarters in New York in February 2020.

In other cases, crowdfunding can help nonprofits maintain independence and stay unbiased. Due to their nature, nonprofits, such as watchdogs, may have to be skeptical of corporate practices and even maintain a high level of financial independence from large donor institutions to preserve credibility and unbiasedness. As such, these nonprofits may find online crowdfunding a better alternative for staying consistent with their brand image. Over-dependence on CSR and other forms of institutional funding may also induce the risk of ‘NGO capture’ by businesses and governments, resulting in a loss of trust in the nonprofit sector and a loss of identity for NGOs. To limit such risks, nonprofits can look at crowdfunding as a means to both raise funds and improve their brand image. From micro-events to yearlong fundraising drives, crowdfunding provides additional options for nonprofits to address funding problems and human resource allocation. It saves time, is scalable, and helps nonprofits connect better with their donors through an open feedback mechanism. For many small to medical scale NGOs, online crowdfunding has become a default choice for revenue generation.