||Looking to Turn a Profit -- One Good Cause at a Time
Using Niche Crowd-Funding, Entrepreneurs Help Charitable Projects Raise Money
A wave of entrepreneurs are trying to turn a profit by helping good causes find donors to back them.
The tool they use is called niche crowd-funding. Entrepreneurs set up websites for very specific types of charitable projects, like supporting small farmers in developing nations or helping victims of natural disasters. People who need backers can put fund-raising pitches on the site -- and the entrepreneurs take a cut of whatever money they raise.
The sums involved are usually modest. Users generally donate about $20 to $100, and most projects don't have big funding goals. Still, many of the site owners aren't looking for a big payoff -- they see themselves as social entrepreneurs whose first priority is helping others.
And some site owners say that over time their efforts can bring reasonable returns. "The social-business model isn't meant to make a lot of money," says Michael J. Greene, founder of WorldPennyJar.com, which focuses on natural-disaster relief. "But it all adds up."
Every Little Bit
For instance, visitors to GreenFunder.com, a Venice, Calif., site that launched in March, recently gave more than $5,000 to Forè Bamboo -- a group of Haitian farmers who want to help their countrymen grow bamboo as an earthquake-resistant building material. The site collected a 5% service fee.
"We're already really close to recouping our start-up costs, which were very low," says Molly Rasmussen, who pooled her savings with a partner to get the site up and running. As with other entrepreneurs in the field, she says, their goal was to do some good, and make money at the same time.
Helping people raise funds for relatively small projects isn't an entirely new idea. A number of popular sites -- such as Kickstarter and IndieGoGo -- already let people in need of money connect with potential backers.
But those sites aren't devoted to single themes; people with all sorts of projects in need of backers can put up requests for money. The owners of the niche sites are betting that people want smaller, more focused venues where they don't have to compete for attention with thousands of unrelated projects.
Crowdsourcing.org, a Dallas-based site that tracks the crowd-funding industry, has identified more than 400 websites around the world geared toward raising cash for a variety of needs and causes -- up from just a handful of sites a decade ago.
The sites are relatively cheap to set up; some established crowd-funding operations have started licensing their online platforms for as little as $17,500, says Carl Esposti, founder of Crowdsourcing.org.
Where Is Everybody?
But, he cautions, niche sites require tons of legwork to grow. For one thing, he says, entrepreneurs must develop a critical mass of fund raisers and potential donors to give the site value.
One way to do that is to tap into an existing network. Patrick Donohue, co-founder of Hoopfund.com, says the San Francisco-based site has grown to more than 4,000 members in less than a year. The strategy, he says, is to give donors another way to support people whose goods they already buy in stores.
Launched in August 2010, the site lets users make interest-free loans of $25 at a time to help suppliers in developing countries who produce everything from chocolate to vodka. Donors usually know the products from chains like Whole Foods or smaller markets. "Each brand we bring on board brings along their own social network," says Mr. Donohue. "Since these networks tend to have an affinity for one another, we're creating a large community out of all these smaller networks."
Once their money is returned, lenders typically use it to buy the borrowers' products (which are for sale on the site), or lend it to another project or both. The site takes a 15% to 25% share of all sales.
Mr. Esposti says crowd-funding sites can also help themselves by giving funders a personal connection to projects. For instance, he says that donors are more likely to support a project when they can interact with fund raisers in venues like online forums or video chats.
Some sites specialize in making causes personal. FitFunder.com, which is based in Thousand Oaks, Calif., lets users connect their fitness goals with charitable causes. People who want to run a marathon for charity, for instance, can use the site to link up with a cause in need—and then solicit donations. The site charges 5% of funds raised.
The site, launched last month by the broad-based crowd-funding site Invested.in, appeals to people who support the charities as well as people who support the user with a fitness goal, says co-founder Alon Goren.
"It's a win-win situation," Mr. Goren says.
(Source: The Wall Street Journal, 08/22/11)