Four reasons why Latin America is ahead on crowdfunding

Here at the RSA, we want to increase the power to create; our belief that all should have the freedom and power to turn their ideas into reality. Crowdfunding is a technology that helps people to get funding to launch their ideas. So I thought I’d share how four variations of crowdfunding technology are being used to launch ideas: 

• Beyond "£x0,000 pledged from x,000 backers so far" and "Joe Bloggs backed us"

• Corporate social responsibility made easy

• We know crowdfunding can be used to help make films, but it can also make audiences too

• Crowdsourcing crowdfunding (what do these words even mean??!).

1. beyond "£x0,000 pledged so far from x,000 backers" and "Joe Bloggs backed us"

Two well-known factors in persuading any prospective backer of crowdfunding campaigns to invest are a) crude numbers of how much has been raised to date and from how many backers and b) who has backed you so far, with campaigns often giving a fanfare to mentions by celebrities or press outlets. Artha is working with The Inter-American Development Bank (IDB) on a platform where investors don't simply display whether or not they have backed a venture and with how much, but for them to also detail what work they have done in scrutinising a particular venture.

Artha was a platform designed in part to help investors in India share information about due diligence (work an investor does to scrutinise different aspects of a company they are thinking about investing in such as financial forecasts, legal and intellectual property status and the track-record of the team). The aim of the platform was to save multiple investors from doing the very same due diligence. This is because, particularly in places far away from the investor, the costs of doing this due diligence would mean they would need to make that much more money from the investment for it to be profitable. In essence, high transaction costs mean investors tend to look for bigger deals and so the SMEs enterprises lose out when it comes to getting funding. The IDB estimate that there is a $250bn gap in financing Latin America's SMEs.

So the IDB set up the Inter-American Investment Corporation (IIC) to lend to SMEs, and has proven itself to be pioneering when it comes to its catalytic role for other financiers keen to enter the smaller end of the spectrum. So Artha worked with IIC to launch Invest Americas in Costa Rica, Colombia, Uruguay and Trinidad & Tobago, which will create a closed platform for selected investors to signal interest, initiate diligence, and share transaction costs for (both equity and debt) deals in the range of $50,000-$3m.

It’s certainly not a crowdfunding as we know it where the “crowd” is the public at large. But Invest Americas is breaking up the tasks required for an investment of a certain scale to take place by making visible the different scrutiny that has been cast over a business by a carefully selected community. I think this is something crowdfunding platforms can learn from so that prospective backers are shown not just which of their friends have backed it, but how much thought their friends put in to backing it.

2. corporate social responsibility made easy

Latin America’s biggest crowdfunding platform Catarse sends Red Bull's CSR programme Wings For Change (WFC) some of its best projects. WFC directors then convene and pick which of the projects should go on their area on Catarse. For any project that reaches 80% of its funding target on this area, Wings for Change automatically funds its final 20% requirement.

They are so happy with the quality of projects that they've backed that not only have they increased their budget, but they have persuaded Telefonica to commit budget too. For any prospective crowdfunders not sure quite how the mechanics work; at the regular meetings organized to get the projects collaborating with staff at the company, drinks at the bar are 80% paid for by the project leader and 20% by Wings for Change. Here’s one project they collaborated on; Pimp my Carroça (English version) is a project that aims to shed light on the lives of and provide people a way of helping catadores – people who collect recyclable materials from waste in bins and sell it for a living.

3. we know crowdfunding can be used to help make films, but it can also make audiences too

Kickstarter shout about their success in part through examples of crowdfunded films making it into established channels of film distribution. But Catarse have been trying to reinvent the film distribution business altogether. Working with Canal EU MAIOR a documentary about film about self-knowledge and the pursuit of happiness, Catarse set up different crowdfunding campaigns for the different city cinemas. It was a massive success (English version) with 31 cities organising screenings. I've since seen this trend continue with fans recently raising £150,000 to persuade the Foo Fighters to do a gig in Birmingham.

4. crowdsourcing crowdfunding (what do these words even mean??!)

In plain English, rather than the task of creating the crowdfunding campaign page being down to one person (with demands on their time to boot), Catarse invented a preview function by which people can leave comments on a draft campaign page. This means campaigns can distribute the labour involved in preparing a crowdfunding page, further lowering the barriers to raising money. The project Passanela wanted to make a footbridge in the center of São Paulo to make it more attractive for pedestrians and the campaign was built by 16 people from all around the world who participated on a webinar. So in sum, lots of us are using comment/chat technology to share jokes with a group of mates (on Facebook, whatsapp), Diego Reeberg, one of the co-founders of Catarse, helps people use this same technology it to help friends make a project together.1

Here at the RSA, we've been using the power of crowdfunding to support our Fellows’ social ventures. Read more about this or apply for support for your venture

Alex Watson is former Catalyst Programme Manager at the RSA – follow him @watsoalex

(1. Since lots of other platforms now have adopted this preview function I'd gladly be corrected in the comments section as to which crowdfunding platform first used this technology and can prove it!)