Crowding in for charity
Website helps attract, channel donations
It wasn’t exactly the year that Paul Dombrowsky had hoped for, but it wasn’t bad either.
The 45-year-old Ottawa chief executive of Ideavibes announced recently that Fund-change — a website that uses social media to attract and channel donations — raised a total of $55,586 in 2011, its first year in operation.
The amount, which was matched by a $50,000 investment from Telus, helped to fund 13 charitable projects.
“It’s less than we expected. We’re a startup and we learned quickly,” said Dombrowsky. He added that a number of people attempted to raise $5,000 for their project but raised only $2,500. Nevertheless, he said, “they were happy with that and took the project down. That’s where we started.”
While Dombrowsky’s project is focused on raising funds for charities, it highlights the quickly expanding market for services that help businesses to raise funds through social media. The government in the United States has already passed legislation allowing the practice and other governments are reviewing their laws about investments in order to figure out a way to allow for crowd-sourced funding.
Partnered with Telus, Fundchange helps small, community-based charities raise small sums for various projects. The idea draws on the power of social media such as Twitter and Facebook, allowing people to use their social networks to spread the word about the project in question.
It’s all about casting a wider net. “The real power of crowd funding is that people can actually share that project with other people,” said Dombrowsky. “There is the crowd you know and then there is the crowd you don’t know. The crowd you don’t know can be equally as valuable.”
Charities involved with Fundchange include the Canadian Cancer Society, the Ottawa Hospital Foundation and Sierra Club Canada.
Fundchange runs on the Ideavibes Crowd Engagement platform, an online crowdsourcing payment aggregator Dombrowsky created. While the platform may be cutting its teeth on charitable contributions, he hopes soon to see it help small startups collect the seed capital they need to get their ideas off the ground.
“The idea of crowd-sourcing was really of interest to me,” he said, explaining why he was spurred to start Ideavibes a little over two years ago. “We built the platform so it would amenable to different models.”
Using social media to raise money for businesses is a growing trend. In Washington earlier this month, U.S. President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act that calls for new crowd-funding provisions. The latter allow small startups to bypass financial markets and traditional methods of attracting investment and sell small amounts of equity in their businesses to large pools of individual investors.
Companies are free to raise up to $1 million annually through crowd-funding methods.
In this way, an early stage company that needs $100,000 to expand should be able to reach out on the Internet and collect $1,000 from 100 average Americans, instead of trying to attract money from banks or other investors.
Those who invest in the new startups will be given shares in a business that could become the next Facebook or Google. Investors would be free to sell their shares at a later date should the company seek additional investment or move forward with an initial public offering.
U.S. Senator Scott Brown, one of the bill’s key backers, said changes to investment laws are overdue. “Investment capital is the grease that keeps the gears of the economy turning. (This) has the potential to be a powerful new venture capital model for the Facebook and Twitter age and its potential to create jobs is enormous,” Brown said during a congressional hearing in December. “But crowd funding is currently illegal because of obsolete regulations, some dating back to the 1930s.
“Imagine that. The next Steve Jobs is being held back by rules written during the age of the typewriter.”
There is a growing call for Canada to adopt similar legislation, allowing Canadian startups to raise funds more easily and preventing the best and brightest new companies from moving to the U.S. to attract cash.