Background CROWDFUNDING 101
Crowdfunding is a novel method for funding a variety of new ventures, allowing individual founders of for-profit, cultural, or social projects to request funding from many individuals, often in return for future products or equity (Mollick, 2014). Crowdfunding provides an alternative funding strategy for entrepreneurs and organizations that typically have difficulty gaining access to traditional funding sources. Entrepreneurial success and organizational function rely on financial capacity and sustainability. Organizations need funding to maintain operations, expand services, or build up resources to develop economic resilience term (Sontag-Padilla et al, 2012). Unfortunately, social enterprises, nonprofit organizations (NPOs), and startup businesses face financial sustainability challenges because of limited funding resources (Cosh et al, 2009; Sontag-Padilla et al, 2012).
Current literature contends that crowdfunding provides these three key non-financial benefits: (1) consumer insight, (2) market exposure, and (3) a product development mechanism (Agrawal et al, 2011; Belleflame et al, 2014; Lehner et al, 2015; Mollick & Kuppuswamy, 2014). These benefits incentivize project owners to not only participate in but also, more importantly, succeed in crowdfunding (Agrawal et al, 2013).
There are four general types of crowdfunding:
- Donation. This is when the crowd gives money to a campaign, company or person without receiving anything in return.
- Rewards: This is when donors receive a reward in exchange for their money.
- Lending. The crowd lends money to a campaign, company or person that must be repaid with interest by a set deadline.
- Equity: This allows small businesses and startups to give away a portion of their business in exchange for funding.
There are three actors in the crowdfunding model: fund seeker, funder, and crowdfunding platform. The fund seeker, also called the project owner or crowdfunding campaigner, launches a campaign in a crowdfunding platform. The funder, also known as the donor or campaign backer, pledges funds to the campaign. The crowdfunding platforms earns revenue through fees, such as but not limited to listing fees, platform fees, and add-ons.
Company Profile THE SPARK PROJECT
Established in 2013, the Spark Project is the longest standing donations- and rewards-based crowdfunding platform based in the Philippines. To date, over 120 projects launched on The Spark Project, raising close to PhP21 million in funding from over 3000 backers.
They follow a keep-it-all funding model, wherein the fund seeker gets to keep all of the funding it has raised, whether or not it achieved its funding target. This is opposed to the all-or-nothing model that Kickstarter follows, wherein the fund seeker must achieve or exceed its funding target to receive the pledges.
How they define themselves
The Spark Project is a platform and community for those who see entrepreneurship differently. It’s for founders, creatives, and changemakers who are passionate about using their creative talents to build sustainable businesses. It’s for everyone who believes that making conscious choices, no matter how small, when done together can change the world.
Mission
Their mission is to promote creative consciousness by enabling entrepreneurs and changemakers, and giving them access to tools, resources, and a community that will help them transform their awesome ideas into reality.
Strategic Focus
The Spark Project’s strategic focus is in helping social entrepreneurs, creative entrepreneurs, and changemakers to raise funding and to promote their products and services.
Projects at The Spark Project must be fundable through a donations-based or a rewards-based, are beyond idea stage, show creative and conscious qualities, and must fall under one or more of these categories:
- social enterprises
- small local businesses
- art, music, and video
- product design
- heritage and culture
- food and beverage
- publishing
- community projects
The Spark Project does not allow projects that have a political or religious agenda, contain drugs and promote any illegal activity, and advance personal causes.
Supporting Sustainability
The Spark Project’s beliefs and core values include Go Slower, Closer, and Deeper and Creative Consciousness, which aligns with their mission to build sustainable businesses.
As their work involves creating and nurturing an inclusive ecosystem that supports social enterprise development, they support all 17 SDG goals.
Crowdfunding Revenue Model
The Spark Project charges the following fees:
[1] Listing Fee
For both donations and rewards-based projects, the fee is P2,500. This is paid before the campaign is published.
[2] Platform Fee
Rewards-based projects: 10% of the total gross funds raised if the campaign is successful, or 15% of the total gross funds raised if the campaign is unsuccessful. This is paid at the end of the campaign.
Why charge different fees? According to them:
“We have a different fees based on the project turnout to 1) encourage project creators to estimate properly and 2) motivate the project creators to campaign passionately for their projects. We owe it to our potential backers to feature well thought of projects by passionately committed creators through the site.”
Donations-based projects: P1,500 for every month that the campaign will be running on the site. This is paid along with the Setup Fee before the campaign can be published.
Competitor Profile GO GET FUNDING
Established in 2011, it is a donations- and rewards-based crowdfunding platform based in the UK that labels itself as the #1 crowdfunding platform for personal causes.
Strategic Positioning: Differentiation
It claims to provide the superior product over the top global crowdfunding platforms. It has a global reach, and anyone in the world can put up a crowdfunding campaign on the website. It offers the greatest number of features for fund seekers, including fundraising coaches.
Revenue Model
Transaction fee of 6.9%, comprised of 4% platform fee and 2.9% payment processing fee. There is a 0.30c handling fee for each donation made.
SWOT ANALYSIS The Spark Project
Strength A leader in social enterprise development and ecosystem building through nurturing strong relationships with community and impact partners.
“It started with crowdfunding. But over the past decade, we’ve grown into becoming a leader in social enterprise development and ecosystem building. Serving many aspiring and emerging founders who are eager to purposefully grow their business. As a funding and founder development platform, we’ve supported thousands of entrepreneurs and changemakers, and worked with top ecosystem enablers in the Philippines and across South East Asia.”
They harness the resources of the community and impact partners, such as connecting with industry & professional networks, creating crowdfunding awareness, and accessing other resources. Their community is a community of supporters, which include Spark Alumni and industry partners, that support both The Spark Project and Spark Project fund seekers.
It is through this community that the platform can offer mentoring and coaching to current fund seekers. This community provides the resources that allow the platform to offer free training and workshops for potential fund seekers.
Weakness Limited resources
Unlike its global competitors, The Spark Project has a small operation with limited resources. Awareness about The Spark Project is low because of the lack of traditional funding for marketing.
Opportunity There is room for growth!
There is low awareness and adoption for crowdfunding, particularly in the segment that The Spark Project wants to cater to: Philippine-based social enterprises and micro/small creative businesses (Doce et al, 2021; Vergara, 2015).
However, this means that there is opportunity to grow the market. According to one estimate, there may be as many as 164,473 social enterprises in the Philippines, constituting 17% of the 987,974 registered companies. Of these social enterprises, 70% operate as micro, small, and medium-sized enterprises (MSMEs), 23% as nongovernment organizations, and 6% as cooperatives. These figures are based on a definition of social enterprises that includes financially unsustainable entities. Most social enterprises remain limited in size and scale due to critical gaps in (i) access to capital, (ii) innovative financial mechanisms to unlock additional capital, (iii) ecosystem knowledge of social enterprises, and (iv) data on social enterprise impact. (Ito & Shahnaz, 2019)
Threats Alternative Funding Models
Financial-return crowdfunding, equity- and lending-based, provide alternative crowdfunding avenues for small businesses. The Philippine SEC is openly promoting crowdfunding to SMEs as alternative funding sources.
Platforms that use financial return crowdfunding model are regulated by the Philippine Securities and Exchange Commission. The Spark Project does not use a financial return model.
Source: SEC Memorandum Circular No. 14 Rules and Regulations Governing Crowdfunding
KEY DRIVERS Philippine Crowdfunding Industry
Threats of substitute products and services
There is some threat from PH-based lending- and equity-based crowdfunding, which are platforms regulated by and being promoted by the Philippine SEC as alternative funding sources for SMEs.
There is also threat to alternative crowdfunding platforms, such as Patreon, that caters specifically to artists and creators.
Threat of new entrants
There is no imminent threat in the donations- and rewards-based crowdfunding platform space. Other PH-based crowdfunding platforms have stopped operating due to low crowdfunding awareness and adoption.
This low awareness and adoption is seen by previous players as a high barrier for entry as there is a need to educate the market, specifically make them understand the challenges of launching and sustaining a successful crowdfunding campaign.
Rivalry among existing competitors
There are large platforms, such as Kickstarter, Indiegogo, GoGetFunding, and GoFundMe, among many others, that have a global reach and actively competing in the global market. These platforms remain top of mind for Filipinos who are aware of crowdfunding.
Bargaining power of suppliers and bargaining power of buyers
The crowdfunding impact is not limited to funding but also has overarching effects across the entire value chain, and it modifies the relationships between industry stakeholders (Nucciarelli et al, 2017). Crowdfunding modifies roles of & relationships between and among industry players. It does follow a value chain system, but a platform ecosystem. What this means is that it pays for any player in the crowdfunding space to increase the size of the ecosystem as this benefits all players, regardless of their relationship or whether they are in rivalry.
Also, within the ecosystem, players may take on different roles. Crowdfunding platform owners may themselves become fund seekers or funders. Fund seekers may back or pledge in other crowdfunding campaigns, and funders may become fund seekers, too. This is evidenced by the experience of The Spark Project and its community (Vergara, 2015).
TOP CHALLENGES What is the problem?
VICIOUS CYCLE: Limited funding + low awareness & adoption = limited income
The biggest challenge of any PH-based crowdfunding platform is escaping the vicious cycle of limited funding, low awareness and low adoption, which all leads to low income. The reason why previous players, such as Artiste Connect, folded is because they were unable to escape this vicious cycle.
- Low awareness and adoption. Because there is a small market who understands crowdfunding and what it takes to launch and fund a crowdfunding campaign successfully, there is low crowdfunding adoption.
- Limited resources. The Spark Project is a small operation with limited funding for traditional marketing.
- Limited income. As most crowdfunding platforms earn a percentage from pledges, low adoption rates mean low revenue.
STRATEGIC DIRECTION What is the solution?
Build a larger network or ecosystem
In building partnerships, nurturing relationships, and expanding a network, The Spark Project can build a solid brand reputation that will attract social enterprises, creative projects, and changemakers to not only launch crowdfunding campaigns but also use the platform to build their enterprise.
STRATEGIES
(1) Educate the target market
Why do this? To increase crowdfunding awareness and adoption
One of the biggest challenges for The Spark Project is also one of its greatest sources of opportunity: low awareness and adoption for rewards-based crowdfunding in the Philippines.
Through workshops and events, The Spark Project is helping educate the market about crowdfunding, if a little slowly given its limited funding.
The Spark School https://school.thesparkproject.com/
The Spark School is a learning hub for social entrepreneurs. It offers free online courses to educate potential fund seekers how to run a crowdfunding campaign and to help social entrepreneurs gain access to knowledge of experts, leaders, and fellow entrepreneurs across different industries.
Workshops and Events
Events, such as The Spark Fest, that feature successfully funded projects and symposiums. The first SparkFest in 2017 was crowdfunded.
(2) Strengthen community relationships and impact partnerships
Why do this? To access networks and resources Partnerships and community building help compensate for limited resources. The Spark Project addresses their challenges with limited funding through building and nurturing impact partnerships with industry players, including Globe, Ayala Malls, SunLife Foundation, Cultural Center of the Philippines, among others. These partnerships lead to access to more resources that benefit not just The Spark Project but also their immediate customers: social and creative entrepreneurs.
(3) Vertical integration through Enterprise Building Programs
Why do this? To diversify and increase revenue
The Spark Project continues to support their project owners long after their crowdfunding campaigns have concluded. They have ventured into enterprise development through incubator programs, matching with grants and funding, and access to small business support services. The Spark Project generates more revenue from these enterprise building programs and consultancies than they do from crowdfunding campaigns. This allows them to not only continue operating as a crowdfunding platform but to also provide significant impact as a social enterprise building platform.
Accelerator Programs and Impact Labs
The Spark Her Enterprise (SHE) Accelerator is a program for women entrepreneurs organized by The Spark Project in partnership with the Sasakawa Peace Foundation. The aim of this program is help these micro and small enterprises sustain and grow their businesses.
(4) Partner with social enterprises
Why do this? To generate crowdfunding leads
What was previously lacking was a leads generation strategy, such as partnerships with networks of potential customers, specifically social enterprises and creative micro-entrepreneurs.
They have recently started a partnership with ANTHILL (Alternative Nest and Trading/Training Hub for Indigenours or Ingenous Little Livelihood seekers), a social and cultural enterprise in Cebu and through funding from the Australian Alumni Grant Scheme. They have a Bayanihan Program that seeks to help artisans to fund their micro-enterprises. The Spark Project provides the platform that allows these artisans to tell their story and market their products to a larger audience.
REFERENCES
Agrawal, A. K., Catalini, C., & Goldfarb, A. (2011). The geography of crowdfunding (No. w16820). National bureau of economic research. https://doi.org/ 10.1086/674021
Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014). Crowdfunding: Tapping the right crowd. Journal of business venturing, 29(5), 585-609. https://doi.org/10.1016/j.jbusvent.2013.07.003
Cosh, A., Cumming, D., & Hughes, A. (2009). Outside enterpreneurial capital. The Economic Journal, 119(540), 1494-1533.
Doce, L. J., & Ching, M. R. (2021). Perceptions to Crowdfunding Adoption in Philippines: A Study on MSMEs. In PACIS (p. 141).
Ito, Y., & Shahnaz, D. (2019). Road map for strengthening social entrepreneurship in the Philippines. Retrieved from https://www.adb.org/sites/default/files/publication/514471/adb-brief-112-social-entrepreneurship-road-map-philippines.pdf
Lehner, O. M., Grabmann, E., & Ennsgraber, C. (2015). Entrepreneurial implications of crowdfunding as alternative funding source for innovations. Venture Capital, 17(1-2), 171-189. https://doi.org/10.1080/13691066.2015.1037132
Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of business venturing, 29(1), 1-16. https://doi.org/10.1016/j.jbusvent.2013.06.005
Mollick, E. R., & Kuppuswamy, V. (2014). After the campaign: Outcomes of crowdfunding. UNC Kenan-Flagler Research Paper, (2376997).
Sontag-Padilla, L.M., Staplefoote, L., & Gonzalez Morganti, K. 2012. Financial sustainability for nonprofit organizations: A review of the literature. Santa Monica, CA: Rand Corporation. Retrieved from http://www.rand.org/pubs/research_reports/RR121.html
Nucciarelli, Li, F., Fernandes, K. J., Goumagias, N., Cabras, I., Devlin, S., Kudenko, D., & Cowling, P. (2017). From value chains to technological platforms: The effects of crowdfunding in the digital game industry. Journal of Business Research, 78, 341–352. https://doi.org/10.1016/j.jbusres.2016.12.030
Vergara, R. (2015, February). Awareness and attitudes towards crowdfunding in the Philippines. In 9th Global Business Conference (Vol. 1, pp. 3-5).
Tales from the classroom is a special blog series where I share research and articles I produce in my DBA (Doctorate in Business Administration) program.
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