Reverse crowdfunding

Published on May 6, 2016


crowdfundingMost of my blogs seem to be devoted to private companies (as well as rugby, obviously) even though a significant amount of our time is spent working with not-for-profits.

Last week I attended Grant Thornton’s NfP Interchange, which convenes two or three times a year to debate matters of the moment. This time the question was whether the sector needed disrupting?

It seems not.

Although fundraising now has a code of conduct, which reduces their ability to mass market, over half of all donations are already collected by organisations that have signed up to regulation by the Fund-raising Standards Board, which in essence asks that mailing lists are verified and street collectors are licensed. The CEO of the RNLI noted that it will cost money in implementation and reduced income but not enough to disrupt their activities: by working locally to identify what funds were required for, and concentrating efforts to raise those funds in the locality would maximise the effects of fund-raising.

You would expect a long-established, extremely well run charity (which has NO public subsidy) to be effective in its fund-raising and distribution. But what about the smaller charities, often set up with a mission born out of a traumatic event such as the death of a child? I wonder if the costs of administering such charities actually reduce their attraction because a significant portion of the gifts doesn’t reach the intended beneficiaries?

We discussed such matters at the previous Interchange where the rational argument for reducing costs debated with the emotional pull of a charity’s specific mission. Back in the same hall considering similar issues I came up with a possible solution: rather than grantequal legal status  to all charities could we create two types, Large – with the same powers and rights as currently exist – and Small – licensed to raise funds but not to spend them? Any charity that has, or raises, funds less than, say, £1million would have to donate its funds to a charity with the infrastructure necessary to disburse the funds effectively. This would reduce overhead costs of charity. So long as the Small charity can get recognition of its contribution then it could be satisfied to watch a larger charity put its funds to good use. And it may be more successful in its efforts because of its very low overheads.

Then the only question that would remain is, which charity to pass the funds to? Hence my suggestion of reverse crowdfunding: an on-line auction site where existing charities with appropriate resources, would bid to use resources to best effect for the Small charities, including how the contribution of the Small charity was recognised.

What we need, which can’t be said, is some very large charities with significant overheads that use economies of scale so that  costs of management, infrastructure and compliance as a proportion of the amount spent are as small as possible. But I fear that would be too disruptive.