In a recent academic study it was explained that one of the advantages of crowdfunding is that it allows entrepreneurs to overcome the spatial proximity limit and to find investors that may be located even far away from them. However, lately we have also been witnessing the development of crowdfunding that seems to go in the opposite direction: local crowfunding, that is crowdfunding for projects and investors who are located in the same area or neighborhood.
How does local crowdfunding work?
With the number of crowdfunding platforms multiplying fast, there is an increasing need of differentiating the offer. Thus we are now seeing cases of crowdfunding platforms that focus only on a specific community or on a specific area. The modus operandi differs depending on the platform. For example, the US-based Fundrise allows individuals to invest in local real estate properties to obtain a financial return, while actively contributing to build and shape their own city. It is in this way that it was possible to raise $325,000 to transform an empty Washington DC building into a big asian market.
In Italy, where the sense of belonging to a local community is quite strong, there are a few platforms using crowdfunding to help local businesses - both private initiatives and public initiatives - to raise capital from the local population.
Whatever the business model, the logic behind remains the same: connecting local entrepreneurs and small businesses with their neighbors to raise funds from a crowd that supports the idea primarily because it is part of the community in which they live.
Why does it work?
Compared to other existing forms of crowdfunding, local crowdfunding provides a few different advantages to both the entrepreneur and the investors, which makes it unique. For example, on the one side local crowdfunding allows established small businesses - e.g. a small grocery store - to obtain finance in an alternative way to bank loans or family and friends. On the other side, it gives the possibility to the investors to actually meet with the entrepreneur they support, observe his/her progress and form lasting relationships with the business owner. This is in line with “offline crowdfunding”, a trend that has recently taken hold among some leading platforms around the world, which consists in organizing periodic meetings between the entrepreneurs and the local investors community. This offline connection allows to create more meaningful and valuable relationships.
When choosing the platform for the crowdfunding campaign, it is worth asking oneself whether the business could be easily understood and appreciated even by investors located on the other side of the world or it would be better to give up some quantity and opt for fewer but more meaningful relationships with local investors.
Even if it is a recently-born trend, local crowdfunding seems to attract more and more companies and projects. It is, therefore, smart for small businesses looking forward to use crowdfunding schemes to start working on creating a local ecosystem of supporters. Relationships can be started online, through a crowdfunding platform, and deepened offline as the project develops.
References
Ajay Agrawal, Christian Catalini, Avi Goldfarb (2011). The geography of crowdfunding.
Beth Buczynski (2012). Crowdfunsing goes hyper-local. Shereable.
Chance Barnett (2013).Crowdfunding's Future: Local Online Ecosystems. Forbes.
Photo Credit: Erich Ferdinand: https://bit.ly/p/25o3Y
With the number of crowdfunding platforms multiplying fast, there is an increasing need of differentiating the offer. Thus we are now seeing cases of crowdfunding platforms that focus only on a specific community or on a specific area. The modus operandi differs depending on the platform. For example, the US-based Fundrise allows individuals to invest in local real estate properties to obtain a financial return, while actively contributing to build and shape their own city. It is in this way that it was possible to raise $325,000 to transform an empty Washington DC building into a big asian market.
In Italy, where the sense of belonging to a local community is quite strong, there are a few platforms using crowdfunding to help local businesses - both private initiatives and public initiatives - to raise capital from the local population.
Whatever the business model, the logic behind remains the same: connecting local entrepreneurs and small businesses with their neighbors to raise funds from a crowd that supports the idea primarily because it is part of the community in which they live.
Why does it work?
Compared to other existing forms of crowdfunding, local crowdfunding provides a few different advantages to both the entrepreneur and the investors, which makes it unique. For example, on the one side local crowdfunding allows established small businesses - e.g. a small grocery store - to obtain finance in an alternative way to bank loans or family and friends. On the other side, it gives the possibility to the investors to actually meet with the entrepreneur they support, observe his/her progress and form lasting relationships with the business owner. This is in line with “offline crowdfunding”, a trend that has recently taken hold among some leading platforms around the world, which consists in organizing periodic meetings between the entrepreneurs and the local investors community. This offline connection allows to create more meaningful and valuable relationships.
When choosing the platform for the crowdfunding campaign, it is worth asking oneself whether the business could be easily understood and appreciated even by investors located on the other side of the world or it would be better to give up some quantity and opt for fewer but more meaningful relationships with local investors.
Even if it is a recently-born trend, local crowdfunding seems to attract more and more companies and projects. It is, therefore, smart for small businesses looking forward to use crowdfunding schemes to start working on creating a local ecosystem of supporters. Relationships can be started online, through a crowdfunding platform, and deepened offline as the project develops.
References
Ajay Agrawal, Christian Catalini, Avi Goldfarb (2011). The geography of crowdfunding.
Beth Buczynski (2012). Crowdfunsing goes hyper-local. Shereable.
Chance Barnett (2013).Crowdfunding's Future: Local Online Ecosystems. Forbes.
Photo Credit: Erich Ferdinand: https://bit.ly/p/25o3Y
About the author - Irene Tordera
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.
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