How long can you depend on crowdfunding?

Understanding why people give is key to getting more, says expert Daryl Hatton.

Jess Morgan 10 February, 2017 | 6:00PM

The first crowdfunding campaign took place in 1997, when fans of British rock group Marillion raised $60,000 for the band's U.S. tour. To this day, many people typically associate crowdfunding with assistance for musicians, artists and other creators -- even entrepreneurs, to a growing extent. But Daryl Hatton had other ideas when founded his firm.

"Initially, it was very much about emergency funding," says Hatton, CEO of Vancouver-based ConnectionPoint, which operates the crowdfunding platforms FundRazr, CoCoPay and Sponsifi. He says when he and his partners got their start in 2008, typical campaigns on their platforms would raise money for things like cancer treatments or time off from work as the result of serious injuries. "What has happened since then is that it's broadened out a lot. I think we have a few more whimsical and sometimes more trivial types of requests, where it goes from being about an emergency funding situation to a lifestyle funding situation -- 'Help me buy this thing and that thing.'"

But not all lifestyle crowdfunding is whimsical, Hatton says. Some users have come to depend on crowdsourced funds to help them through long-term struggles. The front page of Benevolent features drives for college tuition, transit passes, furniture and interview attire for the poor and unemployed. According to an article in the Canadian Medical Association Journal, the largest percentage of campaigns on GoFundMe -- the Internet's largest crowdfunding platform by online traffic -- are health-related. On GiveForward.com, a Chicago-based platform devoted primarily to medical crowdfunding, the average campaign raises US$2,650, with some raising as much as US$80,000.

Hatton, who serves on the board of the National Crowdfunding Association of Canada (NCFA Canada), says the results of campaigns like this are mixed, largely due to the phenomenon of donor fatigue -- diminished willingness to continue to give after initial donations.

"Friends are not signing up to subsidize someone's costs for a long period," Hattojn says. "When these chronic problems happen, it gets really fatiguing because people feel like they've worked on the problem forever. If it's just 'I can't afford to live because I've got this condition,' it feels like we are picking up the burden for somebody else's life, and people are much less likely to do that."

To avoid this, Hatton says people are likelier to donate on an ongoing basis when they understand exactly what their money will do. "The person with a chronic problem can make it much more tangible about how that's helping. For example, say they have to go to regular infusions, or dialysis because they have a kidney problem. Say they need to take a taxi once a month to do this. That's something people are more likely to fund long-term."

From a creative perspective, Hatton says, video makes a campaign's landing page more compelling than one with just text and photos. "In FundRazr, you can record a video straight off your smartphone into your campaign. Just talk to your phone and let your friends see how emotionally important it is. When you talk, there are many more visual clues about why it matters. Recording a video, even if it's kind of amateur, is great."

Hatton also recommends having a strong social network online. Not only could this give you a ready-made pool of donors, but it puts the mind of the people operating the crowdfunding platform at ease, he says. "We'll check the social media identity of people to try and see if they've got connections. By knowing the strength of their network, we can have some idea of whether or not they are real. Sometimes we'll have professional fraudsters who will have strong fake networks that try and run campaigns; funnily enough, those are easier to catch."

For those crowdsourcing funds to start a business, Hatton says it's not a good idea to expect funding to continue "beyond the initial burst. People don't want to contribute to a business per se because they expect the business to make a profit at some point." Hatton says this may be less of a risk in the case of social enterprises, which sell goods and services with the dual objective of making profits and maximizing public good, such as food exchanges and hiring programs for the long-term unemployed.

"The contributor might be interested in the social impact that they are getting," Hatton says, "and so they would be willing to contribute longer or in a different fashion than a traditional investment model. Some people would be more willing to pay operating costs for that. Even though it's a business, they're liking the social impact of that social enterprise."

In the near future, Hatton expects crowdfunders to have both more responsibility and more control over their campaigns, which today tend to be operated on dedicated platforms. "I think from a business point of view crowdfunding will evolve from being a platform play to where crowdfunding will be available as a service that you plug into your website. You might as well drive them to your own web property and, as a result, have more control over the timing, the messaging, the visual display of your product."

About Author

Jess Morgan

Jess Morgan  Jess Morgan is the associate editor of Morningstar Canada’s website. She began her career as a television producer and freelance writer, often making appearances on TV and radio as a commentator on politics and culture. She holds a BA in communications from the University of Winnipeg and a diploma in Creative Communications from Red River College.