Crowdfunding isn’t a new idea—the Statue of Liberty’s plinth is an oft-cited early example—but lately it’s been climbing the newsometer, stoking plenty of buzz both inside the charity sector and out. This heightened interest is borne out in the stats: crowdfunding raised about £1.7bn in 2012 for a variety of projects, and this is expected to rise to nearly £3.3bn for 2013. Platforms are springing up like mushrooms, with over 530 online in 2013.

For the uninitiated, the basic idea is that people list a project on a chosen website, with a target for funding within a set time (usually  no more than a couple of months). People can browse projects and make a contribution—£15 on average—in the form of a donation, loan or even investment, depending on the project and the type of funding sought. Some platforms charge a fee, others take a proportion of the funds raised.

So far, news stories have focused on the different types of crowdfunding, the variations between platforms and how to go about a crowdfunding campaign. But what are the pros and cons for the charity sector?

With the exception of a few well-established charitable platforms such as Kiva and JustGiving, arts and creative projects have been the most active in using crowdfunding (Kickstarter is perhaps the most famous platform in this area). But  there is now a growing interest in how charities can make crowdfunding work for them too. NESTA, for example, is funding several crowdfunding initiatives through its Innovations in Giving Fund (including Solar Schools, BuzzBnk), and hopes that crowdfunding could provide as much as £4.7bn in funding to the charity sector each year.

My impression is that crowdfunding works best for finite projects, as these tend to do well in a time-limited competition, whereas ongoing costs are less appealing. This might offer charities another way to finance capital spending and other one-offs. As well as the potential financial benefits, some platforms allow people to donate time and skills, which could help charities to draw in specialist assistance or general volunteering support. Many people have also pointed to the increased transparency crowdfunding can bring to the charity sector by allowing people to choose exactly where their money goes. But is it the right kind of transparency?

It might seem an odd question to ask: transparency is surely a good thing. And I certainly don’t want to sound pessimistic—crowdfunding presents an exciting opportunity for the charity sector, particularly in exploring how forms beyond pure donations might work (for example, equity crowdfunding models for social enterprise).

But my fear is that the kind of transparency crowdfunding offers at present—emphasising short-term, specific projects—might end up feeding into popular cynicism and suspicion of charity running costs, reinforcing the idea that funding a project is much better than funding a charity’s core operations. While restricted funding is useful, at NPC we encourage funders  to support an organisation’s core costs, as purely restricted funding makes it difficult for an organisation to respond flexibly to changes in its environment.

The struggle to end the often unhelpful fixation with fundraising ratios and charity overheads rumbles on. It’s important for charities to keep proving the difference they make to people’s lives, regardless of how the budget is divided, by measuring their impact and reporting the results. As Anne pointed out in her blog last week, many crowdfunding platforms don’t include detailed information on impact or an organisation’s track record— to me (as a predictable NPCer), this is exactly the kind of transparency we should be encouraging.

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