1

Crowdfunding public projects a Simplify project

2

Published by the Department of Environment, Water and Natural Resources

Government of South Australia

30 March 2015

Head Office

Chesser House

91-97 Grenfell Street

ADELAIDE SA 5000

Phone +61 (8) 8204 9000

Web www.environment.sa.gov.au

ABN 36702093234

Report prepared by

Performance and Strategy Branch

Strategy & Advice Group

Department of Environment, Water and Natural Resources

Copies of the report can be obtained from

Phone +61 (8) 8204 9365

Email jen.stjack@sa.gov.au

Web http://yoursay.sa.gov.au/simplify_ideas

3

Contents A Simplify project 5

Acknowledgments 5

WHAT IS CROWDFUNDING? 6

A brief history 6

Different types of crowdfunding 6

It’s about more than just money 7

It’s not easy money 7

WHAT MAKES A CROWDFUNDING CAMPAIGN SUCCESSFUL? 8

WHY SHOULD GOVERNMENT SUPPORT CROWDFUNDING? 9

Democratised funding 9

Empowers more people to be altruistic 9

Lower business costs 9

Fills a gap left by traditional finance 10

Targets niche public needs, rather than mass public good 10

INVESTMENT-BASED CROWDFUNDING 11

INVESTING IN PUBLIC PROJECTS 12

A note about bonds 12

WHAT ROLES COULD GOVERNMENT PLAY IN DONATION-BASED CROWDFUNDING? 13

Campaigner – running our own projects 13

Facilitator – helping projects that support our goals 13

Investor – directly funding projects 14

Platform – owning the whole process 14

OPPORTUNITIES FOR SOUTH AUSTRALIA 15

For investment-based crowdfunding 15

For donation-based crowdfunding 15

What kinds of projects should government support? 16

What kinds of projects are not suitable? 16

What else do we need to consider? 16

Where to from here? 17

WHAT ABOUT CROWDSOURCING? 18

What’s the difference between crowdfunding and crowdsourcing? 18

A note about alternative government investment models 18

Which crowdsourcing approaches are government using? 19

WHERE CAN I FIND OUT MORE? 20

4

Crowdfunding is part of the online

collaborative economy, which is growing

exponentially and constantly evolving.

Crowdfunding happens when a project is funded by raising many small

amounts of money from a large number of people in an online community.i

But it’s not just about the money. Crowdfunding allows project campaigners

to simultaneously obtain investment, test the market, gain exposure, and build

their customer base. It allows funders to invest financially and emotionally in

what they think is worthwhile, democratising decisions about which projects

happen.

The great promise of crowdfunding is that it offers advantages that other

forms of finance do not. It enables a very personalised value exchange. A

project will be funded if it taps people’s motivations and interests – and they

will pay what it is worth to them. Using an online platform, it unlocks new

interactions between the producers of goods and services and the people who

want them.

So what does this have to do with government? The public sector is shifting –

we are moving from representative to more participatory and deliberative

democracy. Through implementing Building a Stronger South Australia: A

Modern Public Service and Better Together: Principles of Engagement, the South

Australian Government is bringing government closer to citizens, business and

communities. This includes finding new ways to deliver better outcomes with

finite government funds and assets. It includes unlocking the capacity of

individuals and the private and third sectors to contribute to the public good.

Crowdfunding presents opportunities to help us do this.

"The power of crowdfunding isn't

in the funding, it's in the crowd."

- Mari Kuraishi

Co-Founder & President

GlobalGiving

Almost US$2.7 billion was raised

to fund more than one million new

crowdfunding projects in 2012,

and by 2014 it was already a

US$6 billion industry.ii

This paper highlights government’s interest in leveraging crowdfunding to bring new resources to public projects. It gives

a brief overview of what crowdfunding is, the benefits it brings, and the roles that government could play in supporting it.

This paper starts the conversation, and puts forward suggested applications for further exploration.

We focus on reward crowdfunding, but also touch on related online tools which help to raise investment and create jobs,

and to bring community and government closer together – investment-based crowdfunding and various forms of

crowdsourcing.

5

A Simplify project

‘Simplify: a red tape reduction initiative’ gathered ideas from South Australian citizens on what government can do to be

better. One of the top 20 ideas endorsed by Cabinet in August 2014 for further development and investigation was to

‘establish opportunities for leveraging community participation through co-funding new ventures’. DEWNR is the sponsor

agency for the idea, and has produced this report to facilitate further action.

Acknowledgments

This paper was prepared by a small team of committed DEWNR staff, all passionate about finding ways that government can

do better. Special thanks go to the research and writing team, Jen St Jack, Noriko Wynn, Nerida Buckley and Lynn Newman.

Extra help came from Liz Barnett, Paul Dearden, Tarnya van Driel, Cindy Flower, Jennie Fluin, Lauren Heritage-Brand, Liz

Millington, Aaron Osterby, Katrina Pobke, Andy Raymond, Michelle Read, Carol Schmidt, Kieran Squire, and Jodie Woof, who

attended a workshop or reviewed the draft paper.

Crowdfunding is a relatively new and constantly evolving phenomenon. We are infinitely grateful for the papers and generous

support from Dr Rodrigo Davies, Nesta (Peter Baeck, Liam Collins and Stiam Westlake) and Dr Daren Brabham, whose research

has heavily informed our thinking and content.

6

What is crowdfunding?

Crowdfunding is a way to finance projects through small contributions from a

large audience (the crowd), rather than large amounts from one or a few

sources.ii

It happens online, via a crowdfunding website or ‘platform’.

A project idea is pitched on the platform, stating what the campaigner hopes

to achieve, how much money they need and how it will be spent. The

contribution may be in the form of a donation, loan, equity purchase, or pre-

ordering of a product or service. Most platforms operate an ‘all-or-nothing’

model – if a pre-set target is not met in a given time period, funding does not

proceed and investors are not charged. Progress towards the target and the

number and names of contributors are publicly available.

A brief history

Public subscription was used for centuries to fund projects like the Statue of Liberty plinth or Shinto shrine torii gates in Japan,

appealing to widely held motivations like nationalism or religion. Now, thanks to the internet, modern crowdfunding is

connecting projects that need funding with people motivated to fund them with increasing ease, no matter how obscure their

motivation.

Since the launch of the first crowdfunding platform for music in 2000, ArtistShare, crowdfunding has rapidly become a

widespread form of alternative finance. Donation and lending crowdfunding took off in the mid-2000s, with platforms like Kiva

and Prosper enabling micro-financing and peer-to-peer lending.ii Reward-based crowdfunding exploded between 2006 and

2010 and now accounts for about 40% of the market,iii with platforms popular in Australia including Pozible, Kickstarter and

Chuffed.

The past decade has seen crowdfunding expand in both scope and scale, funding the arts, movies, tech start-ups, gaming,

scientific research, disaster relief, and civic projects. 70% of projects raise less than $10,000,iv but amounts have run to more

than $10 million for the five most successful campaigns of all time.

Different types of crowdfunding

Most crowdfunding can be defined as fitting into two types – donation-based and investment-based – each with two

variations. Importantly, each variation relies on funders being intrinsically and socially motivated to contribute. Beyond those

motivations, each contribution offers a different return.

Type Variation Contribution Return

Donation-based

crowdfunding

Charity Donation Intangible benefits only

Reward Pre-purchase Products, perks or rewards

Investment-based

crowdfunding

Lending Loan Repayment of loan, with (peer-to-peer) or without

(micro-financing) interest

Equity Investment Stake or shares in the venture

Key features

- Small $ from many

- Online

- Project-based

- Sense of urgency: time-

bound funding target

- Mutual visibility

- Platform as mediator

7

It’s about more than just money

There are many more benefits to this exchange than purely financial.

Crowdfunding allows project campaigners to simultaneously obtain investment, test the market, gain exposure, and build their

customer base or community. It allows funders to invest in what they think is worthwhile, democratising decisions about which

projects happen.

Some of the non-financial benefits of crowdfunding are listed below, noting that they vary depending on the model. Benefits

for the wider community will be explored further on page 10.

For the campaigner For the investor For the wider community

- Connecting with the interested

community, beyond location and

personal relationships

- Promotion

- Market testing, particularly for

riskier ideas

- Improving projects by engaging

with customers

- Cheap, rapid transactions

- Minimal commitment altruism,

helping to make something you

care about happen

- First access to a product or service

- Connection to campaigner and

community

- Democratised funding

- Empowers more people to be

altruistic

- Lower business costs

- Fills a gap left by traditional finance

- Targets niche public needs, rather

than mass public good

It’s not easy money

Running a crowdfunding campaign takes a lot of hard work. Campaigners need to do a great deal of preparation, and

constantly communicate and promote throughout the campaign as well as after the target is reached and the project is being

delivered. Gaining investors is like building a community around a cause. People need a reason to come, and a reason to stay.

Once they’re in, they’re a part of it and need to be treated accordingly.

8

What makes a crowdfunding campaign

successful?

Success depends on a range of factors, but most campaigns that meet their

funding target have these things in common:

Novelty: the project is something that wouldn’t happen otherwise

Excitement: it means something to people – it has an emotional pull

Community: there is a strong existing community around the

campaigner or project, or an ability to quickly build one

Return on investment: desirable returns are on offer

Actually planning and running a campaign which achieves these factors is

another matter. Advice on how to run a successful campaign, like creating a

compelling pitch and crafting great rewards, is willingly provided to

campaigners by crowdfunding platforms, and is widely available online.

"If the person running the

crowdfunding campaign does not

recognise who their audience is,

what their relationship with their

audience is or what the potential

for these relationships holds, then

the tool is redundant. The

platform, like much of technology,

is a structure or model that

without the content, passion and

real-life human networks at its

core, will not succeed."

- Hen Norton

Co-Founder, WeDidThis

9

Why should government support

crowdfunding?

Crowdfunding can have benefits for the wider community that align with government goals. For example, crowdfunding can

align with the Premier’s economic priorities of South Australia being the best place to do business, small businesses having

access to capital and global markets, the knowledge state, growth through innovation, and Adelaide being the heart of the

vibrant state, as well as the strategic priority of creating a vibrant city. Importantly, crowdfunding increases citizen participation

and involvement in decision-making. It puts the power to make a difference in the hands of the community.

Democratised funding

In crowdfunding, people vote with their wallets – it’s a powerful way of identifying what projects people want to go ahead. If a

project meets its funding target, the campaigner has validation that there is a market for the product or service. Importantly,

crowdfunding provides an avenue for assessing real, not indicative, demand before capital is committed. This is in contrast to

traditional funding models, where a few investors are tasked with committing capital based on their assessment of the

preferences of many potential customers. This benefit is similar to those obtained through participatory funding models, but

uses cash as the avenue for decision-making. Crowdfunding also has high levels of transparency and communication between

funder and recipient, adding to its democratic nature.

Empowers more people to be altruistic

In traditional investment models, large amounts of money are sought from a small number of investors. People who can’t

afford such significant investments are excluded from investing. In traditional fundraising models, the same applies – only

significant donations are celebrated, limiting the social benefits of making smaller donations. In crowdfunding, investors

choose how much to contribute, and every contribution is celebrated. With smaller amounts invested and a transparent outline

of exactly how the funds will be used, the risk to the individual of investing is lower. These factors empower more people to be

altruistic – people feel they can make a difference, even if they can’t spare significant funds or volunteer hours, and

participation rates improve.

Lower business costs

Crowdfunding is a cheap way to get capital to entrepreneurs and boost innovation. Reward crowdfunding allows interested

customers to pre-purchase, rapidly bringing in cash flow before production begins. Marketing is driven by social media,

making it cheaper to engage a broad audience. The platform is the only middle man, and the funders play the lead role in

undertaking due-diligence – the crowd decides collectively, based on the information provided, what is worth funding. Much of

the process is automated, so transaction and mediation costs are relatively cheap, averaging 5 percent.

10

Fills a gap left by traditional finance

Small-to-medium-enterprises and start-ups often face difficulties in accessing finance. Some Australian banks have confirmed

they decline approximately twice as many loan applications for start-ups as those involving established companies.v This can be

due to gaps in information between lenders and borrowers, or borrowers having insufficient evidence of past performance or

ability to forecast their prospects for success. Sole lenders may not be willing to bear the risk, but with smaller amounts funded

by many, risk to an individual is lower. Smaller markets can also be served by crowdfunding – there is no need to scale or serve

large markets to obtain funding. There are no limits to how much or how little funding is sought. This means that more diverse

and niche demands can be met – crowdfunding enables worthwhile projects to happen that wouldn’t otherwise.

Targets niche public needs, rather than mass public good

For government, investment is limited to what will provide the greatest public good – essential services cannot address every

need. Crowdfunding can help to bridge the gap between what governments can provide and the demands of niche interests,

thereby providing a mechanism to promote social equity. Crowdfunding also provides an avenue to launch small businesses

that address these interests – a key focus for South Australia.

11

Investment-based crowdfunding

Investment-based crowdfunding is a growing market that connects

entrepreneurs with a broader base of investors for financial and other

motivations. It includes peer-to-peer lending and equity investment.

Crowdfunding is accelerating ‘angel’ investing and creating an entirely

new market, with previously untapped investors supporting startups

and small businesses.vi

In recognition of this, the United States Government adopted the

Jumpstart Our Business Startups Act (JOBS Act) in 2012. The aim of the

legislation is to encourage peer-to-peer investment in small business

and startups via crowdfunding, by loosening securities regulation while

deterring fraud and non-disclosure.vii Other governments including

New Zealand, UK and Canada have pursued similar legislation.viii

Australia’s current regulatory environment does not support widespread access to equity and debt crowdfunding. The

Australian Government is now exploring options to address this, having released their discussion paper Crowd-sourced Equity

Funding in December 2014.ix Regulation of investment-based crowdfunding is primarily an Australian Government matter, but

the South Australian Government could advocate for any federal legislative change to support economic priority 10, ‘South

Australia’s small businesses have access to capital and global markets’.

Meanwhile, there may be alternative models for state governments to improve access within existing frameworks. Any

improvement in this area could substantially improve the ability of our state’s small businesses to access capital, and is

therefore worth further, proactive exploration by the State Government.

The purpose of this report, however, is to explore how new capital can be brought to public projects. Investment-based

crowdfunding has significant potential, but, with the exception of bonds, this is for private business. The remainder of this

report therefore focuses on donation-based crowdfunding of public projects.

"It is possible that within three

years, crowdfunding could provide

around £15 billion of finance per

year in the UK. With the right

frameworks and standards, this

could grow even further, and a day

could come where crowdfunding

replaces a large portion of the

£115 billion financial services

industry."

- Nesta

12

Investing in public projects

There is a growing and particularly successful niche in crowdfunding for civic

projects. These projects produce public goods – they have positive social and

environmental benefits for the wider community, not just investors.

Civic crowdfunding is diverse, and has included projects like seeds for local

community gardens, tracking devices for migratory birds, educational

documentaries, a pedestrian bridge, and even a new city tram line.

The rise of civic crowdfunding and other forms of open innovation have

unlocked the potential for the community and government to work together,

making things happen that wouldn’t be possible within the finite resources

and mandate of government. Civic crowdfunding can help to fill the gap

between tax-funded essential services and the many and varied wants and

needs of citizens.

Public projects involve the direct or indirect use of government funds, assets

or sponsorship.x Civic crowdfunding has the potential to involve even greater

citizen input and decision-making into how these resources are used.

Crowdfunding provides funding for specific, time-bound, projects, rather than

day-to-day operational costs. It is not a sustainable source of cash flow, and

most projects pull in less than $10,000. It is therefore not generally suitable for

large-scale projects like infrastructure developments or for creating assets that

require significant investment in operation or maintenance.

There are still questions to be answered through application and research on

whether civic crowdfunding will deter public investment or encourage it, and

whether it will widen wealth gaps.xi For example, cities ostensibly have greater

access to large ‘crowds’ than rural areas, and wealthy suburbs more access to

disposable income

A note about bonds

Municipal bonds have been used for over 200 years in the US, allowing individuals to invest in improvements to their city, while

receiving predictable, tax-free returns every year, and, at the end of the bond (often 5-10 years), getting their money back.xii

The Municipal Association of Victoria launched the first Australian municipal bonds program in November 2014.xiii

Social impact bonds are a relatively new concept, based on the same theory but investing in programs to address social

problems. The South Australian Government released a discussion paper on social impact investment, Building a Stronger

Society, in December 2014.

Bonds have the potential to bridge the gap between the small, project-based investments from crowdfunding and the larger-

scale, longer-term investment needed by governments to deliver significant public benefits. The combined use of both

crowdfunding and bonds could powerfully involve citizens in shaping our public services, while contributing new resources.

Focus on civic crowdfunding

- Median amount raised is

$6,337 (72% of all projects

raise <$10,000)

- Success rate on Kickstarter is

81% (across all projects,

success rate is 40%)

- 29% are park and garden

projects

- Events, training and education

are also popular

- Projects are concentrated in

cities

In September 2013, the new

Australian Government cut $1.6

million annual funding to the

Climate Change Commission.

Former chief commissioner Tim

Flannery created a crowdfunding

campaign and made $1 million

back in 72 hours, forming the not-

for-profit Climate Council.

13

What roles could government play in

donation-based crowdfunding?

There are four models for organisations to engage in crowdfunding. Each model carries very different risks and potential

rewards, and there are examples of governments experimenting with all of them.

Campaigner – running our own projects

This role involves government proposing a project and asking the community

to donate.

Benefits – projects that meet government’s goals can be funded when they

otherwise wouldn’t – these would be desirable, rather than essential, projects.

Government ownership of the created asset, if permanent, would provide an

avenue for ongoing maintenance.

Risks – the most common criticism is “I already pay my taxes”. Until

crowdfunding and other forms of participatory government become more

widespread and accepted in South Australia, this public perception is likely to

continue to pose a political risk and prevent the success of government

playing this role.

Facilitator – helping projects that support our goals

This is the most recommended role for the South Australian Government.

Public projects generally require some form of involvement by government.

Government can help projects that align with their goals to clear any

regulatory hurdles before they launch, and help to promote projects.

Government could also partner with private or third sector organisations to

develop projects, and provide support and advice to small businesses and

not-for-profits on how to run successful crowdfunding campaigns.

Benefits – puts the control in the hands of the community, while addressing

government goals. Proactive government support of a particular focus area

could unlock community action to address it. Knowledge that government

supports and will allow for a project to occur (eg. provide planning approvals)

can add credibility to the project, helping with peer influence. Building the

capacity of organisations to crowdfund would help to diversify funding

streams, reducing the reliance on government funding and the impacts of

changing government priorities.

Risks – any use of public assets, including land, has some risk, but government

is generally well equipped to manage these within existing arrangements.

Creation of public assets may result in ongoing costs to government.

The Victorian Government

provides crowdfunding advice to

small businesses at

www.business.vic.gov.au.

San Fransisco’s Living Innovation

Zones program aims to reactivate

under-used spaces along Market

Street. A government partnership

provides the mandate and all

approvals to make use of the

space, then it’s up to partner

organisations to propose concepts

and crowdfund to make them

happen.

The Mansfield District Council

(UK), in partnership with local

businesses, successfully raised

£36,850 to install free Wi-Fi

hotspots in the town centre.

However, the vast majority of

funds came from business and

government – only 13 individuals

donated.

14

Investor – directly funding projects

In this role, government could provide matched funding or the first

contribution (seed funding) to a campaign.

Benefits – gives projects a head-start. Because everyone wants to back a

winner, and crowdfunding is dependent on peer influence, projects that

achieve 20% of their target are 79% likely to succeed.xiv It is ultimately the

crowd who decides which projects get funded. If a project doesn’t reach its

target, the government funds are not provided.

Risks – due diligence and other requirements around the use of public funds

would need to be investigated further and managed. There is less

accountability for the project to succeed, and no reporting requirements

beyond good practice communication with funders. This would be a major

change in approach for government funding models and also requires further

exploration. Platforms take a percentage of all donations, and this could be

perceived as a misuse of government funds.

Platform – owning the whole process

There are a huge number of crowdfunding platforms, and some are location

or cause specific. In this role, government would set up its own platform and

project criteria, and be responsible for filtering projects, selecting which to

promote, and mediating communication and transactions.

Benefits – picking criteria and filtering projects could help to direct efforts

towards government goals. A well-used platform that is location or cause

specific can help to build the crowd, allowing for an increased sense of

community and repeat donations. The platform could charge a 0%

commission, removing that cost to campaigners as well as a barrier to

government acting as investor.

Risks – a new platform may actually inhibit crowd-building. Running a

crowdfunding platform is not core business for government. A partnership

with an existing platform may be an alternative that could address these risks.

Glyncoch, a small Welsh village

dominated by social housing, used

crowdfunding to top up

government funding for a new

community centre. They raised the

last £40,000 they needed, with the

flood of community support

encouraging additional corporate

investment.

Arts Tasmania’s Crowbar program

offers seed grant funding to

eligible arts projects, on the

condition that recipients raise the

rest by crowdfunding on the

program’s Pozible page. In the

2014 pilot program, 95% of

projects were successful, and they

quadrupled the seed funding.

The People’s Solar is an Australian

platform that helps establish

community-owned solar energy

projects that have flow-on social

benefits, such as reinvesting power

savings in sustainability education

programs for schools.

The city of Bristol has set up their

own ‘hive’ on the platform

Spacehive, encouraging locals to

add their own projects and get

involved in deciding which go

ahead.

15

Opportunities for South Australia

With our focus on small business, vibrant Adelaide, Digital by Default and

participatory government, the time is right for the South Australian

Government to leverage crowdfunding to bring new resources to public

projects.

For investment-based crowdfunding

At the federal level, the Australian Government is exploring avenues to

support greater use of investment crowdfunding. Meanwhile, we should take a

cue from the Victorian and Queensland Governments and provide information

for small businesses and start-ups on what is currently possible, keep a

watching brief on changes as they occur, and proactively pursue options for

peer-to-peer lending and equity investment models that are possible within

our existing frameworks. The Department of State Development is well-placed

to lead this work.

For donation-based crowdfunding

We recommend that government focus its attention on facilitating crowdfunding – supporting crowdfunding projects that

contribute towards government goals. Government can add value in this role by providing:

Encouragement and education, helping our communities to develop the capacity to try crowdfunding

Focus on particular outcomes, giving campaigners the mandate to pursue projects

Permission for projects to make use of public assets, such as Crown land and planning approvals

Promotion of suitable projects, lending our networks and adding social proof.

Government could also help citizens to leverage additional funds by investing in projects directly. A joint approach, like that

taken by Arts Tasmania (Department of State Growth) for their Crowbar initiative, would help citizens to leverage additional

funding from a small government grant. Crowdfunding will not be suitable for every kind of project, and investment in

crowdfunding should be seen as one element of a diverse, outcomes-based government investment portfolio.

Localisation of crowdfunding for public projects is a growing trend. Cities like Bristol, New York and San Fransisco are all

encouraging greater adoption of crowdfunding by their residents. Adelaide City Council has already started supporting

crowdfunding through educational workshops under its Enterprise Adelaide program. With a strong appetite for innovative

temporary place-making initiatives, through their Splash Adelaide program, Adelaide City Council would be a prime candidate

for following this trend.

At this stage, it is not recommended that the South Australian Government act as a project campaigner or a platform.

"Some of the most interesting

developments in crowdfunding,

which are expected to grow in the

months and years ahead, include:

investment crowdfunding

(becoming a shareholder in a

company), localization (funding

focused on participants in specific

cities and neighbourhoods),

mobile solutions, and group-

based approaches."

- Chance Barnett

CEO, Crowdfunder

16

What kinds of projects should government support?

The kinds of projects government should engage with are:

Community-led, and preferably community-identified

Supported, having the potential to tap into a large and strong audience

Once-off or temporary, not requiring ongoing funding

Beneficial, with tangible outcomes for the public good

Small, targeting around $10,000 or less

Novel, so wouldn’t otherwise be funded

Aligned with our business, although the concept may be niche.

What kinds of projects are not suitable?

In most cases, it will not be appropriate for government to support crowdfunding for:

Large-scale projects like infrastructure developments

Projects with ongoing operation or management costs that cannot be borne by the campaigner

Projects that are eligible for other funding, including from the market

Core government business or essential services.

In some cases, such as the Glyncoch Community Centre in Wales, crowdfunding has helped to demonstrate the public demand

for a particular outcome, which can help government decide how it should invest. This can also encourage additional funding

from previously unavailable sources, such as the private sector. Government should not dismiss this, but should be realistic

about the funding levels that are achievable through crowdfunding.

What else do we need to consider?

The difference between core government business and civic business is not always clearly defined, particularly in this

time of government transformation. Whole-of-government guidelines on how to make this decision, and who in the public or

political spheres is entitled to do so, may be needed. Otherwise, it could be left to the market to decide. This approach will

come with the associated political risks, which could be managed by first experimenting with the more clearly defined areas

and only advancing in step with community-driven projects.

There are some crowdfunding platforms based in Australia, but many are based overseas. Almost all take a cut of the funds

raised. Should government invest in projects via a platform, this may be considered as misuse of taxpayer funds. It is not

recommended that government place any restrictions on or even guide which platform campaigners should use, as each offers

specific benefits and helps to tap into particular crowds. However, government partnerships with platforms can result in lower

commission rates. Examples are Bristol’s partnership with Spacehive and Arts Tasmania’s with Pozible.

There are still questions to be answered through application and research on whether civic crowdfunding will deter public

investment or encourage it, and whether it will widen wealth gaps. There is no evidence to suggest that either are true, but

governments should keep a watching brief on global and Australian research on these matters.

17

Where to from here?

It is recommended that the South Australian Government considers the following actions to leverage crowdfunding to bring

more support to public projects:

For immediate action:

o Seek options for pilot programs from agencies and local government.

o Undertake a pilot program with government acting as facilitator, which addresses and evaluates all or

most of the value-adding factors listed above.

o Provide businesses with online information to encourage them to use crowdfunding, for example on

the Department of State Development website.

In the longer-term:

o Develop a whole-of-government policy on crowdfunding for public projects, integrated with innovation

or investment policies. As part of the policy, identify how due diligence and accountability measures can be

taken without adding red tape to the crowdfunding process, to ensure appropriate use of government funds

when acting as investor.

o Scan for possibilities for government to proactively support bonds (eg. Social Impact Bonds), and

investment-based crowdfunding (eg. SA Micro-Finance Fund).

18

What about crowdsourcing?

The term ‘crowdsourcing’ can apply to a wide range of activities – the division of labour for tedious tasks, a design or idea

competition, or a general search for solutions or information. It is distinguished from outsourcing in that the work comes from

an undefined public rather than being commissioned from a specific, named group.xv

Simply put, crowdsourcing happens when:

An organisation has a task it needs performed

An undefined community, often online, voluntarily performs the task

The result is mutual benefit for the organisation and the community.xvi

What’s the difference between crowdfunding and crowdsourcing?

Some consider crowdfunding to be a sub-set of crowdsourcing,ii others consider the two to be quite separatexvii. Two examples

of platforms that combine the two are ioby (in our backyard – the opposite of NIMBY)xviii, and buzzbnk in the UK, which allow

donors to offer funds, volunteer hours, or both. What is certain though, is that both crowdfunding and crowdsourcing are

avenues government can tap into to enable greater citizen participation.

A note about alternative government investment models

A range of alternative government investment models are being or have been trialled by the South Australian Government.

These include Fund My Idea, which accompanied the Community Cabinets, Fund My Community, the participatory budgeting

pilot program, and challenges and competitions which award a cash prize for what is judged by government to be the best

result, like the Innovation in Ageing Challenge, the D3 Challenge and Unleashed. It may be argued whether some of these

examples are technically ‘crowdsourcing’. Regardless, both crowdsourcing and crowdfunding are part of a larger and more

complex map of activity that is being pursued to test and enable more participatory democracy. Alternative government

investment models are a part of this picture.

19

Which crowdsourcing approaches are government using?

Crowdsourcing is already being used and tested in government, including in South Australia. The following table (adapted

from Using Crowdsourcing in Governmentxv) outlines some common approaches to crowdsourcing, and how they could be and

are being used, with South Australian examples provided wherever possible.

Approach Kind of problems Example of use Potential use

Knowledge

discovery and

management

Information gathering,

organising, and reporting

problems

Citizen science projects like

the Great Koala Count, where

the general public gather data

for scientific research

Reporting conditions and use

of parks and hiking trails;

tracking public transport use;

cataloguing public art projects;

and collecting historical stories

Distributed

Human

Intelligence

Tasking (HIT)

Large-scale data analysis where

human intelligence is more

efficient or effective than

computer analysis

Coo-ee at the State Library,

where volunteers correct

transcriptions and identify

soldiers in WWI photos

Transcribing digital scans of old

handwritten census records;

language translation; data

entry; behavioural modelling

Creating and

selecting creative

or novel ideas

Ideation problems where

solutions are matters of taste

or public support, such as

design or aesthetic problems

RAH design competition;

Unleashed, an open data

competition

Designs for public structures

and art projects; urban and

transport plans; technology

solutions

Solving empirical

problems

Ideation problems with

empirically provable solutions,

such as scientific problems

NASA offered a cash prize for

the discovery of a solar flare

prediction formula, using

InnoCentive

Finding better algorithms for

timing traffic signals

Decision-making

on government

investment

Decision-making problems

where public support is

important to the distribution of

funding

Fund My Idea, where regions

hosting a Community Cabinet

vote to decide which

community-led projects are

funded; Fund My Community,

where citizens decide how to

distribute grant funding for

community services

Identifying community projects

with significant public support;

reducing onerous grant

processes; participatory

budgeting

Development and

decision-making

for government

projects or policies

Decision-making problems

where the success of a policy or

project depends on broad-

scale public support or input

Picture Adelaide 2050, where

members of the public submit

stories to inform ACC about

which places and lifestyle

factors they value

Identifying community values;

public voting on government-

defined options

20

Where can I find out more?

There is a wealth of information on crowdfunding online. It’s available from the platforms themselves, from academia, from

bloggers and online media. Below are some links to resources that we found most useful.

Extensive research and insights on civic

crowdfunding

Civic Crowdfunding: Participatory Communities, Entrepreneurs and

the Political Economy of Place, by Rodrigo Davies

Invaluable insights into the opportunities of

crowdfunding for the UK’s businesses, charities,

government, and financial system

Crowding In, by Nesta, the UK innovation foundation

A short guide to crowdfunding from the same

authors, for project campaigners

Working the Crowd, by Nesta, the UK innovation foundation

An exceptional paper on government

involvement in crowdsourcing

Using Crowdsourcing in Government, by Daren Brabham

A treatise on contemporary cities and how we

could enable more effective debate about the

future of our shared spaces

Brickstarter, by Sitra, the Finnish innovation fund

References for all of the examples we provided The Climate Council

Mansfield District Council’s Wi-Fi hotspot campaign

San Fransisco’s Living Innovation Zones initiative

The Victorian Government’s business advice

The campaign to redevelop Glyncoch Community Centre

Arts Tasmania’s Crowbar initiative

The City of Bristol’s partnership with Spacehive, Fund It! Bristol,

and an article about that

The People’s Solar

Some civic platforms with an urban focus Spacehive, Citizinvestor and ioby, both US-based

Some social cause platforms Chuffed in Australia, buzzbnk in the UK, and GlobalGiving

A platform distributing municipal bonds Neibour.ly

A platform for investment-based crowdfunding Crowdfunder

What the Australian Government is doing about

investment-based crowdfunding

Crowd-Sourced Equity Funding Discussion Paper from the Treasury

Tips and tricks on how to run a great creative

campaign, or a campaign for social causes

Pozible’s Handbook, GiveNow’s help sheets, and this excellent

webinar from the founder of Chuffed

Advice for Australian small businesses Government advice from the Australian, Queensland and Victorian

governments

Guidance on the legal requirements for

crowdfunding in Australia

ASIC Guidance

21

Extensive guidance for small businesses, and an

excellent overview of crowdfunding in general,

but with a UK lens

Everything micro-SMEs need to know about crowdfunding, by UK

Crowdfunding, TrillionFund and Premierline Direct

More interesting blog and news articles that

have fuelled our thinking and might interest you

http://nextcity.org/features/view/when-were-all-urban-planners

http://www.fastcoexist.com/3031412/pay-for-your-city-

crowdfunding-for-civic-projects-is-unusually-successful

http://laurelpapworth.com/civic-crowdfunding-vs-tax-

collaborative-government-gov2/

http://architectureau.com/articles/crowdsourcing-the-city-

brickstarter-citiniche-and-digital-democracy/

http://www.shareable.net/blog/can-civic-crowdfunding-kickstart-

urban-innovation

http://rodrigodavies.com/blog/2014/04/28/the-digital-pollada-

or-what-i-learned-about-crowdfunding-from-peruvian-

chicken.html

http://rodrigodavies.com/blog/2014/06/06/whats-crowdfunding-

and-whats-not.html

http://www.wired.co.uk/magazine/archive/2013/11/features/built-

by-the-crowd

i http://www.oxforddictionaries.com/definition/english/crowdfunding

ii http://www.nesta.org.uk/sites/default/files/working_the_crowd.pdf

iii Davies, R. 2014, Civic Crowdfunding: Participatory Communities, Entrepreneurs and the Political Economy of Place, available at:

http://ssrn.com/abstract=2434615

iv https://www.kickstarter.com/help/stats

v http://gov.idg.com.au/article/562057/federal-government-signals-support-crowd-sourced-funds/

vi http://www.forbes.com/sites/chancebarnett/2013/05/08/top-10-crowdfunding-sites-for-fundraising/

vii http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups_Act

viii http://gov.idg.com.au/article/562057/federal-government-signals-support-crowd-sourced-funds/

ix http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2014/Crowd-sourced-Equity-Funding

x Davies, R. 2014, Civic Crowdfunding: Participatory Communities, Entrepreneurs and the Political Economy of Place, available at:

http://ssrn.com/abstract=2434615

xi http://rodrigodavies.com/blog/2014/05/09/civic-crowdfunding-four-things-we-know-two-things-we-dont.html

xii http://rodrigodavies.com/blog/

xiii http://www.mav.asn.au/news/Pages/municipal-bonds-launched-14nov14.aspx

xiv https://www.kickstarter.com/help/stats

xv http://en.wikipedia.org/wiki/Crowdsourcing

xvi http://www.businessofgovernment.org/sites/default/files/Using%20Crowdsourcing%20In%20Government.pdf

xvii Personal communication, Daren Brabham, author of Using Crowdsourcing in Government

xviii https://www.ioby.org/about