Crowdfunding is a form of financing projects and businesses through many small donations from a large group of people
Projects are financed by “the crowd” - rather than by large contributions from a few traditional funders. Dedicated websites or online platforms facilitate the funding process. Nesta has been involved in the alternative finance sector since 2010, working to understand how new methods of finance can be used to bring innovative ideas to life.
Crowdfunding as an innovation method
The majority of crowdfunding platforms typically operate an ‘all-or-nothing’ model where a target amount is set out at the beginning of the fundraising campaign and if this is not met in a given time period, backers get their money back. Participants can also get non-financial rewards for donating to a project.
Modern crowdfunding started in the early 2000s as a new way of financing music and culture. It started to grow rapidly in 2008 in the aftermath of the financial crisis. Advances in technology have also contributed to its popularity - the internet has made it radically easier to connect potential funders with people looking for funding, whatever the cause.
It should be primarily seen as an innovative method for financing new projects, rather than a method for funding innovation.
Our work on crowdfunding
Nesta has been involved in the alternative finance sector since 2010, working to understand how new methods of finance can be used to bring innovative ideas to life.
We have sought to support and inform those using crowdfunding, through research and practical programmes - creating typologies, practical guides and tools.
In 2013, Nesta launched both the UK’s first directory of crowdfunding platforms ‘CrowdingIn.com’ and a guide called Working the Crowd to provide practical advice on what crowdfunding is and how to develop a campaign.
Our earliest research reports explored the emergence of different crowdfunding models and expansion of peer-to-peer (P2P) lending, and considered the potential policy interventions to support their growth. The Venture Crowd (2012) analysed the UK equity crowdfunding market and Banking on Each Other (2013) subsequently looked at the emerging field of P2P lending for small businesses, drawing on data from Funding Circle.
We have also examined the scale of the potential opportunities and pitfalls of this approach to investment, loans and donations in a wide range of sectors. In 2016, Crowdfunding Good Causes explored opportunities and challenges in crowdfunding for good causes, focussing on the needs of charities, community groups and social entrepreneurs. In the same year, a study of 94 crowdfunding and P2P lending platforms - Pushing Boundaries - was launched at the University of Cambridge. Supported by KPMG and the CME Group Foundation, it tracked both the size and shape of the wider crowdfunding sector in the UK between 2012-2015.
Through our practical programmes and experiments, Nesta has also sought to support innovation in the market, specifically with a focus on how crowdfunding can be used to fund projects with a social purpose.
In 2013, through the Innovation in Giving Fund, Nesta supported three organisations that were using the crowdfunding model to increase levels of charitable giving. In 2017, Nesta also ran the Arts and Heritage Matched Crowdfunding Pilot to explore how institutional funding can be matched with funds raised from the crowd on a crowdfunding platform. This pilot was delivered in partnership with the Department for Digital, Culture, Media and Sport, Heritage Lottery Fund, Arts Council England and Crowdfunder.
Our ongoing work in this space looks at crowdfunding for philanthropy and good causes, and at how to combine the approach with institutional funding.
Innovation in Giving Fund
Nesta backed a number of UK based crowdfunding platforms through the Innovation in Giving Fund, supported by the Cabinet Office. These included buzzbnk, which specialises in social venturing, Solar Schools which helps schools fundraise for renewables, and Peoplefundit which supports a range of projects and start-up ideas including creative projects.
Matched Crowdfunding for Arts and Heritage Pilot
59 projects were funded through the Nesta-run Matched Crowdfunding for Arts and Heritage Pilot (2017) with support from 4,970 backers. The pilot largely attracted new supporters and finance for arts and heritage organisations, rather than drawing from existing philanthropic sources. Case studies of projects in London, York, Exeter and Plymouth are detailed as part of the wider study about the pilot in: Matching the crowd - Combining crowdfunding and institutional funding to get great ideas off the ground
Nesta tools and resources
- Understanding Alternative Finance (2014)
- Pushing Boundaries (2015)
- Crowdfunding Good Causes (2016)
- How to find the right crowdfunding platform for your good cause: This blog provides advice for charities, community groups and social entrepreneurs on how to find the right platform for their campaign and a list of the main platforms in the UK.