Are Social Investors Made, or Born?

Every day, it seems like there's some new crowdsourced funding platform out there. Sometimes they come in the form of competitions like Pepsi Refresh. Sometimes they're permanent platforms, like the new Grow VC that's been getting buzz in the last couple days. All of them beg the question: is there actually any real demand for crowdsourced funding platforms?

First, I think it's important to break demand into two categories: 1). Demand from companies or nonprofits looking for funding, and 2). Demand from the small donors or investors who are putting money into those groups.

It's clear that there is demand among companies and nonprofits for alternative sources of funding. In the nonprofit and social ventures spaces, this demand results largely from a deficit of startup capital, and unrestricted capital in general. In the venture space, I imagine many companies that are excited about things like Grow VC only believe they need small injections of capital to make their models work, and are wary of the time and difficulty of institutional investor relationships.

To me, it seems like people behind crowdsourced funding initiatives are interpreting the demand from receiving organizations as indication of broader market demand. But what about the donors or investors? Are they actually hungry for this type of funding relationship?

Let's take a look at some of the platforms out there. Kiva is arguably the most successful crowdsourced funding platform. In fact, even yesterday's TechCrunch post about Grow VC likened the new company to Kiva's microfinance funding model. But while Kiva has been a success, they had to manufacture their own demand. Before Kiva, the donors who ended up supporting the projects on their site weren't sitting around the table, anxiously awaiting an opportunity to donate to developing world entrepreneurs. In fact, it took a perfect storm of Muhammad Yunus winning the Nobel Prize and important celebrities like Bill Clinton latching onto Kiva for its incredibly exciting model to penetrate the mainstream.

What about GlobalGiving? GlobalGiving allows people to support development projects of many different types, and allows the same sort of "direct to beneficiary" relationship between the donor and the project that people love about Kiva. It is a successful platform, but it seems to me that -- just like Kiva -- its central challenge has been figuring out how to manufacture demand among donors. What they've learned is that just putting your project on the site is not enough. People don't sit around waiting to give. It takes active donor cultivation, and more than anything, GlobalGiving is a platform where a project can establish legitimacy to dig deeper into its own community of dollars.

What all this suggests to me is that there is, in fact, not an inherent donor demand that isn't being met. This puts every new action platform in the challenging position of having to manufacture that donor demand. New efforts can try and outsource this role to the companies or nonprofits raising money, but I sense a growing fatigue among donors in the nonprofit sector who are repeatedly being asked to vote for and donate to nonprofits participating in competitions. Like Kiva and to an extent GlobalGiving, new platforms can also try and find ways to actually expand the pool of potential donors -- for example, with marketing or matching funds. So much of that is luck, though, so it makes for a tough business model.

What about in the for profit sector? Are people who have never been venture investors sitting around waiting to get in on the action? I highly doubt it. I'm deeply invested in the venture space, but I'm still not clamoring to buy into a tiny piece of the next big thing.

Or maybe I am interested, and I just don't know it yet. The real trick for any platform like Grow VC is to create a compelling enough experience that it actually creates its own demand. That's hard, but Kiva alone shows it isn't possible. In any case, there is so much energy and passion around startups to be captured that I'm glad people are trying.

Photo Credit: timsamoff