Recently (October, 2013), InfoDev, a program of the World Bank, commissioned a study on crowdfunding’s potential for the developing world. This is an important report because, to the best of my knowledge, it’s the first on crowdfunding as a tool for development commissioned by the World Bank or any entity of similar international authority. While this report will act as a much needed catalyst for a very important and lengthy conversation to come, I believe there is additional research and analysis warranting the World Bank’s immediate attention and resources.
The report analyzes a sample of known crowdfunding portals (CFPs) from around the world like Kickstarter or Indiegogo. It admittedly includes an “over-weighting of western attributes in the model.” In order to secure a large sample size, a disproportionate number of English language North American and Western European platforms are included in the analysis. Furthermore, the analysis assumes the number of crowdfunding portals (supply) is a “reasonable proxy for [the] level of crowdfunding engagement in a given country” (demand). Finally, the report invites developing countries to “leapfrog” to crowdfund investing (CFI), evoking the potential based on the West’s performance. Overall, I strongly agree with most of what’s proposed in the report because I believe that the democratization of finance stands to benefit the developing world to an extent not realized since the proliferation of micro-finance. But before anyone can make that claim, we need to see evidence collected with a more granular and less biased study.
First, we could get a closer look at how crowdfunding is performing and the potential it might have in the developing world. Future studies could do this by only looking at the performance of crowdfunding platforms in countries in the 75th percentile of overall wealth, measured by GDP per capita (PPP). This would exclude countries like the United States and the United Kingdom, preventing an oversampling of their crowdfunding platforms and focusing the analysis on the less developed world. When we include crowdfunding taking place in the United States, for example, we include hundreds of crowdfunding portals and thousands of crowdfunding campaigns that skew the data. This methodology would be appropriate if crowdfunding wasn’t already taking place in the developing world, but there are platforms and successful campaigns we can analyze outside of the U.S and Western Europe.
Crowdsourcing.org, the self-proclaimed largest online repository of information on crowdfunding, contains a directory of approximately 926 crowdfunding platforms from 66 different countries. Enough of those countries are in the 75th percentile to conduct a survey or at the very least, several relevant case studies. This methodology would lead to a greater focus on crowdfunding taking place in Latin America or Eastern Europe instead of Western Europe or the United States.
One drawback of this proposed methodology is that excluding crowdfunding portals from the countries with the highest 25% GDP per capita (PPP) results in a smaller sample size. To counter this, the World Bank should analyze the actual crowdfunding campaigns/projects hosted on platforms instead of just the number of platforms themselves. The World Bank report assumes that the presence of crowdfunding portals (supply) proves there is demand. However, it doesn’t allow us to explore the outcomes realized by entrepreneurs using those crowdfunding platforms.
Pooling individual campaigns/projects together from across multiple platforms creates a larger sample size overall, as well as a more granular analysis of crowdfunding’s performance. Information about the average amount of funds successfully raised through perks/rewards and donation or debt-based crowdfunding (peer-to-peer lending) would allow us to begin comparing crowdfunding’s potential as a financial vehicle to the performance of micro-finance in the developing world. This type of analysis will illuminate best practices and statistics of successful crowdfunding campaigns in the developing world by asking essential questions: How much was raised, on average, from successful campaigns? On average, how many backers/contributors gave to a successful campaign? What was the average and/or median contribution amount? How many successful crowdfunding campaigns used video? How many used Twitter, Facebook, or other social media platform? How many perks/rewards were offered on average?
These are important questions to answer if we want to set realistic expectations for the developing world about what they can reasonably expect from crowdfunding. Due to the significant difference in scale, we have to be careful what information we extrapolate from the United States and Western Europe and apply to the developing world.