Why is Crowdfunding and Crowdsourcing Important To Your Neighborhood?
The adoption of crowdsourcing and crowdfunding is growing rapidly because of the success of websites such as Wikipedia and Kickstarter. Crowdsourcing is the practice of obtaining needed services, ideas, or content by soliciting input from a large group of people. Crowdsourcing has been around for centuries. Many consider the Bible as being crowdsourced. Tens of thousands of volunteers sending definitions of words on slips of paper to create the Oxford English Dictionary is another example of crowdsourcing. Participants can receive recognition, gifts or financial compensation for their input. Many times people participate in crowdsourcing to show their expertise on a subject or to gain influence, experience or exposure.
Crowdfunding is the process of soliciting funds from the general public to develop projects and fund business ventures. Even though the term is relatively new the process has been around for centuries. The Statue of Liberty’s pedestal and grounds were crowdfunded. Hundred of school kids and other proud Americans donated their pennies, nickels and dollars for the construction of the pad and site where the Statue of Liberty now resides. Equity and reward are the two types of crowdfunding. Equity crowdfunding is when an investor receives payment or an ownership interest in a business or real estate. Kickstarter is an example of reward crowdfunding. An individual receives recognition or a product for their contribution. I am referring to equity crowdfunding in this article.
So what’s new? The Internet! The internet has put crowdsourcing and crowdfunding on steroids by allowing groups of people with similar interests to interact each other. The internet allows people with diverse backgrounds and interest from around the world to come together on a single platform to engage, collaborate, solve problems, create products and fund projects. It is estimated over $5.1 billion in projects were crowdfunded in 2013. (Go to http://www.entrepreneur.com/article/231638 for an infographic showing the incredible growth of crowdfunding.
In a recent tweet @crowdthesquare I wrote, “Crowdfunding will be as important to community economic development as tax credits”. To those in the world of community development who have done an impressive job of developing housing and economic development using Low Income Housing Tax Credits (LIHTC) and New Market Tax Credits (NMTC) this sound far-fetched. Crowdsourcing and crowdfunding will become a critical part of the community economic development toolset for the following reasons:
- Increased community engagement;
- The government is losing interest in using tax dollars for housing and economic development;
- Tax credits can be hard to get and even harder to sell; and
- Crowdfunded projects will better identify the best projects for economic development dollars.
When communities provide input into local projects and support a crowdfunding campaign, it indicates that these residents feel the project is needed in their neighborhood or the project is a good investment. This is a much better way to identify where to provide community investment dollars than federal, state and local officials informing communities which projects are viable through the current allocation process. Neighbors will discuss, evaluate and fund projects based on their knowledge of the project owner and the need for the project. Other funding will follow the lead of local residents.
Low income advocates could say crowdfunding is not fair for low income areas. Government agencies, foundations and lending institutions seeing local residents getting involved, discussing and supporting a project (at any funding level) will catch their attention. As for the technology divide, i.e. low income individuals don’t have computers or internet access. Crowdsourcing and crowdfunding activities such as commenting in a forum taking photos and videos can be done on cell phones. More and more low income individuals now own cell phones. Community development sites similar to Crowd The Square make it easier for all residents to be involved in community economic development.
My name is Bruce Canedy, a community champion at Crowd The Square. Our team provides real estate developers, private businesses, city planners, and public/private organizations the platform to become part of the effort to make a difference in their community. Feel free to reach out or connect with me at @crowdthesquare or www.crowdthesquare.com.