In 2008, as many financial instruments dissolved stranding their investors in seas of debt and spasms of panic, a new instrument appeared at the intersection of the crowd and the web: crowdfunding.
Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people. This new approach harnessed the ubiquity of the Internet to give financial power to the masses instead of the few—coming into public consciousness with the launch of Indiegogo and Kickstarter in 2008 and 2009, respectively.
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Since its introduction, crowdfunding has seen unprecedented growth and is expected to surpass venture capital in annual funding levels within the next decade. Today, there are an estimated 2,000 crowdfunding platforms globally, up from 700 in 2012, funding a broad array of activities, from filmmaking to video game development. A 2015 study found that individuals invested a collective $34 billion in crowdfunding projects across 1,250 crowdfunding platforms worldwide, marking over a 100% increase from 2014, and a 1,000% increase from the crowdfunding industry’s value in 2009.
With increasing funding demands for projects addressing environmental issues, crowdfunding could be an attractive alternative to highly competitive grants from government or philanthropy and elusive venture capital funding. Since many crowdfunding platforms operate primarily by aggregating small contributions, it is unlikely that crowdfunding users will raise millions. Nonetheless, crowdfunding can provide crucial funds to entrepreneurs, startups, NGOs and others during the ideation or early ramp-up phases of projects as well as providing exposure of an idea to a mass audience of potential backers.
To help harness this potential, ELI’s Technology, Innovation, and the Environment program surveyed the types of crowdfunding platforms available for funding environmental projects to determine which projects and platforms had higher success rates, and identify factors that contribute to better funding outcomes for environmental projects.
Already, the environmental community has started using crowdfunding to support important environmental projects, which include solar panel installation, environmental research, educational programming, and the development and production of sustainable technologies. Some examples include WorthWild, We the Trees, Mosaic, and Oneplanetcrowd.
Environmental projects are still not as common or as profitable on general platforms as technology or design projects, but they have been growing in popularity in recent years. In a 2015 interview with the Australian Broadcasting Corporation, Prashan Paramanathan, CEO of Chuffed.org, an Australian-based crowdfunding platform for nonprofits, noted that environmental campaigns had more than doubled over five months.
The recent rise of environmental projects on both general and environmentally focused crowdfunding platforms could also be attributed to increased awareness of environmental issues in recent years. With more and more natural disasters, which have been predicted by climate researchers as side effects of climate change, crowdfunding platforms have simultaneously provided aid through fundraisers and awareness of issues related to climate change through the actual project descriptions themselves.
A third factor contributing to the popularity of crowdfunding was the economic recession that began in 2008, which caused a shortage of funding opportunities for startups and new projects. Among environmental projects, those focused on renewable energy were hit particularly hard because of the large upfront costs of installing solar panels and other renewable energy technologies, and the low rewards that they produced.
Indeed, crowdfunding can potentially help overcome a key challenge for clean energy and environmental projects, which are often seen as relatively risky investments. By aggregating small contributions from a range of investors, crowdfunding can help realize these payoffs by widely distributing risk.
For example, in 2013, the lending-based crowdfunding platform Kiva started the Kiva Labs Clean Energy Initiative to fund exclusively clean energy projects. Discussing the Initiative, Kiva’s co-founder and president Premal Shah said,
Kiva’s crowdfunded loans provide a unique opportunity to increase access to products and services that have a high potential of success and impact, but are seen as too risky among traditional lenders. Through Kiva Labs we can prove what works, share what we learn with a global audience, and ultimately deliver new solutions into the hands of people who need them.
ELI’s study of crowdfunding platforms found that environmental projects have a higher success rate than the overall success rate for other kinds of projects. For example, Oneplanetcrowd, a German-based platform dedicated to projects “that have a significant and positive impact on people and planet,” has an overall success rate of 70% among completed projects. Kickstarter, a platform focused on “creativity and creative projects,” has an overall success rate of 36% among completed projects. Overall, the environmental platforms had an average success rate of 53%, while general platforms had an average success rate of 48%.
Environmental projects also fared better compared with other projects on general platforms where they have to compete with a range of options, ranging from art to fashion to technology. Kickstarter attaches the tags “go green” and “science” to projects focused on addressing environmental issues. Projects with these tags had a success rate of 85%, compared to the platform’s overall success rate of 36%.
However, ELI’s study found environmentally focused platforms have fewer backers than the general platforms. Platforms serving a niche market are likely to attract a smaller following than platforms with a broader range of projects, so this is not surprising. Moreover, environmentally focused platforms are not yet as well-known as general platforms, and many lack the reputation or resources that larger platforms have to sustain their site’s activity and underwrite outreach efforts.
As the industry continues to grow, crowdfunding may offer a promising avenue for mobilizing the enormous resources required to overcome challenges in the area of climate change, for instance, or to meet our commitments to the sustainable development goals.
David Rejeski is the Director of ELI’s Technology, Innovation, and the Environment program. 2016 Research and Publications intern Lorentz Hansen worked on the report, as well as former Research Associate Jessye Waxman.