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Why Donation-based Crowdfunding Is Here to Stay (and Growing)

Equity crowdfunding has stolen the spotlight lately, but there are still tremendous opportunities in donation-based crowdfunding waiting to be leveraged.

Submitted by: Guest Contributor

Posted: Oct 08, 2013 – 09:30 AM EST

Tags: crowdfunding, equity crowdfunding, donations, philanthropy, investors, nonprofits, csr, cagr, giving, uruut, social innovation

 
Mark_feinberg_uruut

By Mark Feinberg, CEO and Co-founder, Uruut

The market loves equity crowdfunding.

It's clear, however, that significant roadblocks lie ahead, not in the least, the Securities & Exchange Commission's unwillingness to regulate the sector as CSRwire’s Senior Editor Francesca Rheannon recently reported – "Equity Crowdfunding: Why Did The SEC Leave It Out Of New Rules?"

So while the term receives 400 times the number of Google searches than “donation based crowdfunding” each month, market opportunities still continue to favor crowdfunding’s first model – donation-based giving.

Modern crowdfunding first emerged in 1997 when British rock band, Marillion, used online fan donations to fund a $60,000 reunion tour. In 2000, ArtistShare became the first official crowdfunding platform. Today, Crowdfunding.org’s Industry Research Report predicts that the market will accelerate rapidly, reaching $16.6 billion by 2014.

Of this growth, donation-based crowdfunding willcrowdfunding comprise the majority of giving, growing at a compounded annual growth rate (CAGR) of 444 percent compared to equity crowdfunding, which is growing at a rate of 168 percent.

The Future of Donation-Based Crowdfunding

The rapid adoption of donor base crowdfunding has been spurred by the viral nature of crowdfunding and its social networking-like platforms, which make giving attractive to individual donors. But there are several other trends that will continue to spur the donation-based crowdfunding market.

Until now, donation-based crowdfunding platforms have only harnessed the giving power of individuals. However, each year businesses and foundations donate nearly $60 billion to nonprofit organizations. Corporate social responsibility (CSR) officers and private foundation boards are always seeking nonprofit projects that align with their missions, and crowdfunding offers these entities a highly-searchable, easy-to-use model for sourcing and vetting worthwhile causes.

Why then have crowdfunding sites failed to fully tap this market opportunity? I believe it can be achieved by building platforms that support funding from not only individuals but other audiences as well. It’s URUUTthis belief that led me to launch Uruut in July 2013 – the first crowdfunding platform that helps nonprofits harness donations from individuals, foundations and businesses.

The Equity Revolution

As Rheannon noted in her article, equity crowdfunding is gaining momentum and poised to experience exponential growth in the U.S. thanks to the JOBS Act. Websites like Seedr, CircleUp and AppsFunder are springing up, promising to give crowd investors a share of the profits if projects are successful.

According to EquityNet’s latest research, the odds are enticing. Fifteen percent of companies seeking equity funding are already lucrative and 90 percent of the remainder say they will be profitable in three years or less.

The Marriage of Equity and Donation-Based Models

The outlook for both equity and donation-based crowdfunding is clearly bright, but I believe the two models can coexist and support each other into the future. Just as the Internet didn't exactly put brick and mortar stores out of business, the industry’s new darling – equity crowdfunding – won't put donation-based crowdfunding out of business any time soon.

More importantly though, there are opportunities for equity platforms and donation-based platforms to work together.

For example, imagine a community that wants to revitalize one of its neighborhoods. An infrastructure project ofURUUT-model that size would require commercial and residential real estate projects that could be equity based. To complement these efforts, the neighborhood could support the creation of new parks, community gardens and education programs through donation-based crowdfunding. Together, a blend of both equity and donation-based models can help this neighborhood revitalize in less time and with broad support.

In time we might see more platforms that support both crowdfunding models, or that create partnerships between the two. Together, I’m optimistic the crowdfunding community can solve the world’s most pressing issues and spur social innovation for years to come.

About the Author:

Mark L. Feinberg is a 15-year veteran of Atlanta’s investment and business communities. He left his investment management career in 2012 to launch Uruut, a crowdfunding platform for individuals, businesses and foundations to support nonprofit and civic organizations. Through Uruut, Mark is able to blend his business, technology, investment and entrepreneurial background with his desire to improve the nonprofit fundraising landscape.

Uruut developed the first crowdfunding platform built from the ground up to support donations from all three non-profit funding sources – individuals, businesses and foundations. Find Uruut on Facebook at facebook.com/get.ruuted and on Twitter @Uruut.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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