Tags
Crowdfund Investing, crowdfunding, Economic Development, Infodev, International economic development, Lance McNeill, LBJ School of Public Affairs, World Bank
Recently (October, 2013), InfoDev, a program of the World Bank commissioned a study on crowdfunding’s potential for the developing world. This is a very important report because, to the best of my knowledge, it’s the first ever report on crowdfunding as a tool for development commissioned by the World Bank or any entity of similar international authority. Yet, although this report will act as a much needed catalyst for a very important and lengthy conversation still to come, I believe there is additional research and analysis warranting more of the World Bank’s immediate attention and resources.
The report analyzes a sample of known crowdfunding portals (CFPs) from around the world Crowdfunding portals, like Kickstarter or Indiegogo are the online platforms that enable crowdfunding. Admittedly, the report 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 crowdfunding and crowdfund investing (CFI), evoking the potential based on the West’s performance. Overall, I strongly agree with about 95% of what’s proposed in the report because I believe that the democratization of finance does stand to benefit the developing world to the 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 by looking only 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 more on the less developed world. When we include crowdfunding taking place in the United States, for example, we bring in hundreds of crowdfunding portals and thousands of crowdfunding campaigns that skew the data when our goal is to make predictions about the impact of crowdfunding on the developing world. 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.
At the time of this writing, 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, for example, instead of Western Europe or the United States.
One drawback of this proposed methodology is the smaller sample size that would result from excluding crowdfunding portals from the countries with the highest 25% GDP per capita (PPP). To counter this, the World Bank should look into 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. For example, information about the average amount of funds successfully raised through perks/rewards, 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 also illuminate best practices and statistics of successful crowdfunding campaigns in the developing world: How much was raised, on average, from successful campaigns? How many backers/contributors, on average, 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, used Facebook, used some other social media platform, etc? 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 we extrapolate from the United States and Western Europe and apply it to the developing world.