Crowdfunding and other models of crowd-based finance are often hailed as a method of democratising business finance, letting the public instead of traditional funders decide which products and projects should (and shouldn’t) get funding. However, as private sector adoption is continuing to grow rapidly, public institutions are beginning to experiment with what this new type of finance means for them. This is beginning to show both the future opportunities and challenges in using these new platforms and models in the financing of public goods.

One of the biggest challenges for public services is ensuring that spending decisions reflect the needs and wishes of taxpayers. As public purses are tightening and citizens seek more influence and transparency about where their money goes, crowdfunding is likely to grow in popularity.

As illustrated below, there are a number of potential benefits to citizens and public service funders partnering on crowdfunding platforms. In the case of projects that focus on improving public spaces or benefiting local communities the most obvious benefit is the potential to leverage more money towards worthy public projects. In the case of match funding schemes, crowdfunding also has the additional potential to help public institutions make smarter spending decisions through crowd-selection, and increase community ownership and participation in public projects. Building on this, the opportunity to pitch ideas to the crowd could also help increase the diversity and potential for innovation in public projects.

In addition to leveraging money and knowledge to make spending decisions and getting projects off the ground, the opportunities beyond the short term lie in getting more civic engagement and ownership in their local areas and the urban projects within these.

Citizen funded public projects through civic crowdfunding

The most popular and established type of civic crowdfunding, is where citizens identify the projects they would like to seek funding for and seek to raise the full amount from a crowd of independent backers.

Some crowdfunding platforms have been setup with a specific focus on launching civic projects. Spacehive in the UK is a platform dedicated to helping launch anything in a public space – or somewhere the community can freely access, have pioneered much of the work in this area. It has helped launch projects such as one transforming the city of Bristol into the UK's first Edible City, which raised £4,183 from 102 local backers. This enabled the organisers to plant three highly visible edible gardens in the centre of the city and help people use the gardens to grow their own produce. Other similar platforms include Neighbourly and Ioby (in Our Back Yard).

The role of public services in these projects is in many cases minimal and often reduced to allowing the crowdfunded projects to go ahead in public spaces.

Civic crowdfunding campaigns enabled by public services

While some of the platforms mentioned above rely on public authorities permitting the projects to go ahead once the funds are raised, other models give public institutions a much more active role in deciding which projects can seek funding. This aims to engage citizens in crowdfunding projects that the public institutions would otherwise not be able to fund. One such platform is US based Citizinvestor, which requires that any project on the platform comes directly from cities or official city partners. This is based on a ‘back-and-forth model’ which allows for citizens to begin petitions for a civic project that they would like the city to initiate. Once a project has been vetted by representatives from the city, the project can begin its crowdfunding campaign on Citizinvestor. The city also has the opportunity to post projects it would like citizens to fund. One example of the latter is how Central Falls in the US couldn’t afford investing in new bins to keep the local park clean, and instead used Citizinvestor to raise $10,044 to fund a local non-profit to install and maintain a new bin system.

Hybrid models – match-funding between public institutions and citizens

In other cases, public institutions have experimented with matching public money with contributions from the crowd. The match funding model provides an interesting evolution of the civic crowdfunding model, combining the ideas and small donations from citizens with institutional funding from public institutions to get more and potentially larger projects off the ground. Similarly, unsuccessful campaigns can be a good indication of what projects hold little value to people.

In Plymouth the City Council have set aside £60,000 for projects on Crowdfund Plymouth – where local projects launching as part of Crowdfund Plymouth will be eligible for match funding from Plymouth Council, covering up to 50% of a project to a total of £5,000. The aim of the match is to raise £250,000 for community projects, charities, social enterprises and businesses. Another interesting example is the London pocket parks programme, where the city match funded small park projects initiated and partly funded by citizens.

Potential challenges

While there is a rapid growth in the different civic crowdfunding models these are still very small scale and affect very small amounts of public spending. As they continue to grow and become a more integrated part of how central and local governments as well as citizens think about funding projects and making spending decisions, it needs to overcome a number of challenges, particularly around equality and participation.

Participants on civic crowdfunding platforms, from the people who pitch ideas to those who donate money, tend to be those who are online and understand how crowdfunding works. In situations where there are competing uses of a public resource, crowdfunding the development of the resource may not always be a fair option that delivers the most value to the community.

Building on this, people and communities that are wealthier and more adept at running successful crowdfunding campaigns, are in a position to benefit the most, through being able to fundraise from their networks. And for projects in the public space, this gives them increased influence in determining what the usage of the space should be, even if that doesn’t represent the wishes of less digitally savvy or well off parts of the community.

Linked to this is the issue of products versus services. Crowdfunding works really well for one-off campaigns, such as an event or setting up a community garden, where one off funding is needed. Most public good projects, such as playgrounds, are services rather than products that need to be maintained long after the crowdfunding has finished. The challenge will be to keep the crowd engaged beyond short funding windows to fund the ongoing maintenance of services or to get public services or other organisations to take on the baton.

Finally, civic crowdfunding risks encouraging traditional public service funders to withdraw from funding services that should be paid for by the taxpayer, giving those with less disposable income an opportunity to influence public projects.

What could the future look like

• Most local authorities and cities will develop active partnerships with existing platforms to operate local crowdfunding and match funding schemes, and a minimum 5% of investment budgets will be used to fund proposals identified via participatory budgeting or match funding schemes.
• Civic crowdfunding officer will become a job function in most local governments.
• Governments will develop tax incentives for people to support public/civic projects in similar style to Gift Aid.
• Local governments will set up schemes allowing citizens to spend a small percentage or their local authority tax on civic crowdfunding projects endorsed by the local authority.