Crowdfunding in Latin America
Editor’s Note: Much has been written in English about the use of so-called “crowdfunding platforms” in civil society, but there is relatively little information about the growing phenomenon in Latin America, despite several successful examples of crowdfunded projects. Last week in Mexico City, for example, a group of urban cycling activists that were fed up with their government’s lack of investment in bicycle lanes, raised $13,500 pesos to cover the costs of their own “guerrilla cycling lane.”
In this article Peruvian blogger and Información Cívica author Juan Arellano takes us on a tour of crowdfunding platforms designed for Spanish-speaking users, and shares some analysis from Latin America bloggers.
Anyone who has ever developed a project, or generally works in civil society, knows that fundraising can be time-consuming, stressful and discouraging. Organizations must frequently adapt their own vision to that of their funders.
With the recent global economic downturn, fundraising has become more difficult still, but a network-enabled alternative to traditional fundraising is spreading around the world, supporting the work of filmmakers, musicians, activists, and even beer brewers. Usually referred to as Crowfunding, I personally prefer the term “collective funding.”
is the collective cooperation carried out by persons who have created a network to get money or other resources, often using the Internet to finance the efforts and initiatives of other persons or organizations. Crowdfunding can be used for many purposes, from artists seeking support from his followers, political campaigning, funding the creation of companies or small businesses.
Two features make crowdfunding attractive for both parties. On the side of those seeking funding, they are able to publicize their project on the relevant platform in addition to traditional social networks. On the financing side, there is the satisfaction of joining a community of small scale supporters to enable a project that appeals to you. There is typically a deadline to reach a particular funding goal; if that goal is not met then the committed donations are returned to the funders.
There is a history of projects that have been developed based on this type of financing, from touring rock bands, to movies and pretty much anything you can think of (fashion or journalism, for example). To accomplish this many platforms have emerged on the Internet that help connect the entrepreneur in need of cash and philanthropists willing to fund ideas that are to his liking. The best known of these platforms are: Kickstarter, IndieGoGo, ChipIn, Venture Bonsai, Crowdcube, RocketHub and many other platforms. There also platforms that are oriented toward social entrepreneurship of which one can mention Globalgiving, Pifworld, the very well known Kiva and Donorschoose.
To choose just one example that demonstrates the social aspect of collective funding, “a Harlem grocery store opened after collecting just under $25,000. These individual investors were re-paid ” not in shares, but with signed kitchen books, tickets for the holiday fundraising party and the loyalty card to the market,” writes David de Ugarte of La Sociedad de las Indias Electrónicas :
The key lies in the strong sense of identity embedded in the proposal (organic food, cooperative decision-making), its strong social dimension (the workers are young boys “at risk of exclusion” and the business will be located in Harlem) and especially in the very nature of “crowdfunding ‘ (by providing small amounts the donor feels that each contribution is more than monetary).
So far I have focused on platforms and examples from North America, but what about the Spanish-speaking world where civil society has traditional depended on large private donors from the United States and Europe? There are several collective funding platforms geared toward Spanish speakers, though most are currently based in Spain.
One of the best known is Lánzanos (“Launch Us”). In their FAQ they state: “We look for projects of all kinds: art, film, music, literary, design, dance, and all other projects or events that can be imagined.” An article from El Pais explains:
In Lanzanos.com the creator retains ownership of his work. In exchange for the money (from one euro up to 1750 euros) they offer unique experiences as a reward to the Internet users who make contributions, which they call support. “We aspire to be the platform for the Hispanic crowdfunding public regardless of where they live,” said Hervas, who has a degree from business chool. Instead of linking the contributions to a checking account, as Kickstarter does, monetary donations are made through PayPal.
One of the most outstanding features of SeedQuick is that when an entrepreneur uploads his new project, it must go through a process that should receive user feedback for product improvement. Once the “test” has been passed, the project can start receiving support from people interested in becoming investors. All users that participate in this phase get reputation points. There will be regular rewards for those users with the best reputations.
A third option is Verkami. Like Lánzanos, the creator maintains the rights to his project, and offers investors “rewards in the form of exclusive creations and products, unique experiences, limited editions, merchandising, and access to downloads …”. In the aforementioned article in El País, they also interview the founders of Verkami:
“We are cultural consumers and we believe we can take forward certain projects that would otherwise never see the light.” Joan Hall, a biologist of 52 years, has driven spearheaded Verkami together with his sons Jonah and Adria. They only accept creative projects or social projects, and they establish a period of 40 days to get financing. Payment is by credit card through Caixa Catalunya, which charges between 1.30 and 1.45% for each transaction. They get a commission of 5% if the project goes forward.
A new option that will be launched soon is Goteo, which announces that it will fund “open” projects.
In Latin America, crowdfunding platforms are also emerging. Idea.me is a new Argentine initiative. According to its FAQ: “We focus on creative projects in Latin America. These projects must have a beginning and a definite end. Our platform is neither for ongoing charitable causes, nor business projects that aim to cover overhead costs.” FayerWayer quotes Sebastian Uchitel, the CEO of the initiative:
In Latin America there is an extraordinary source of creative and innovative talent that faces many restrictions in getting financing. Through our platform, we can help those ideas become reality, “says Sebastian. “It’s a paradigm shift in the consumption of entertainment, people have the opportunity to participate in a project, initiative or idea from the moment of conception, development, and then its execution.
Also in Argentina is Proyéctanos, is another recently launched initiative, aimed exclusively at domestic projects. The financing is issued in Argentine pesos and payments are realized through Mercadopago.com. Norte Económico explains how contributors are compensated:
Each project owner shall establish a system of rewards or compensation for people who contribute to their project. These rewards should not be monetary, but intrinsic to the project itself. For example, if my project is to publish a book of short stories, one of the rewards could be appear in the acknowledgments of the book, send an autographed copy of the book, and so on.
Another Argentine crowdfunding initiative is Bananacash a pioneer in these conflicts, which is also active on Facebook. And further north, in Mexico, we find the Fondeadora, the platform of “a civil association with the mission of offering a liaison between artists and creators of creative projects and Mexican society through our Collective Funding platform to create value in our country.” In its fairly extensive FAQ, it comments on something that is often noted as a criticism to crowdfunding platforms, the potential theft of ideas:
we believe that the best way to protect an idea, is to realize it. By nature, this site is to share ideas and work together. If you are not willing to share information about your project because you fear that you steal the idea, it is likely that the Fondeadora is not suitable for your idea. If your project may be protected by copyright or a patent, go ahead. We are not against any step you make to protect your ideas.
Successful use of crowd funding platforms is not as simple as merely submitting a project and sitting and waiting for money to arrive on its own. If you review the project portfolios of the aforementioned crowdfunding platforms, you will find that many here fail to meet even half the suggested amount. So how do you make a project attractive and successful? Jorge Toledo’s blog La Cajita gives us some tips about what is needed:
- The existence of a trained and competent individual or team that, beyond the proposal itself, is able to convey confidence in the success of the project.
- The relevance, desirability and quality of the proposal itself.
- The openness, transparency and intimacy in dealing with the communication to recipients via email, comments, social networks, the official website, etc. Maintain smooth, continuous information on the progress of the project, be open to suggestions and contributions, accept criticism and appreciate the participation.
- The existence of concrete objectives, tangible, deadlines, forms, applications …
- The possibility of a return on investment.
This establishes a new system of responsibilities between creator / promoter – receptor /co-producer / co-author. A relationship in which transparency and accountability are key to the success of the model and proposals. Community is key, but so is transparency and accountability.
In some cases it transforms the concept of authorship as well as the expectations regarding economic performance. Some projects incorporate a concept of distributed ownership, opening up the process of creating a community intervention. In this case, crowdfunding goes beyond an economic microfinance mechanism to become a philosophy to recover the concept of shared culture.
The question arises whether it would be possible for government to employ similar mechanisms to allow citizens to participate more actively in the use of public spending. In fact it is a dynamic already in place in some cases, participatory budgeting, and it opens up a path to explore a possible model of administration that is more open, participatory and transparent.