Awareness and Attitudes Towards Crowdfunding in the Philippines

Transcription

1 Awareness and Attitudes Towards Crowdfunding in the Philippines Raymond Vergara Assistant Professor De La Salle University Abstract: Crowdfunding is the practice of asking the public or "crowd," typically through the Internet, for funding for a specific cause, project or venture in exchange for a reward. This relatively new fundraising concept, widely practiced in the United States and Europe, has only been recently practiced in the Philippines. Crowdfunding seems a good fit in Philippine business and culture, as it is a complement to the Filipino trait of bayanihan. Furthermore, crowdfunding has proven to be an efficient vehicle to fund certain projects and ventures, as manifested by the many examples of crowdfunding success. Despite this, there is very little research regarding crowdfunding, even more so about crowdfunding in the Philippines. The aim of the study is to measure awareness and attitudes towards crowdfunding in the Philippines. The results of the online survey reveal that awareness of crowdfunding is low, with only less than half know and understand what crowdfunding means. There is also a significant gap between crowdfunding awareness and actual participation, with only four percent (4%) of the crowdfunding-aware have ever participated as a backer and none to have ever participated as a fund seeker. The survey also reveals that there is very low awareness of Filipino-oriented crowdfunding platforms, despite the existence of four such platforms. Expectation on future participation is also low, with a plurality of respondents expressing the need for more information about crowdfunding. Keywords: Crowdfunding, Crowdfunding awareness INTRODUCTION Crowdfunding is a relatively new fundraising concept that taps into the financial resources of the public, or the crowd hence, the name. It is currently considered as an alternative funding source to finance short-term projects, and has become a popular fundraising vehicle in the United States and Europe. In crowdfunding, a project owner, or the fund seeker, initiates a project on a crowdfunding platform or website. Those who pledge financial support for the project are called backers. In return for monetary support, backers typically receive something in exchange for their support, called a reward. There are three general types of crowdfunding models: donation model, reward model and equity model, defined by how differently the rewards are given to backers (BALLE, 2012). In the donation model, campaigns gather hundreds of small donations to achieve a financing goal. The support given by backers receives no reward. In the reward model, supporters make a monetary contribution in return for a reward of some sort. This reward can be intangible, such as being identified publicly as a supporter or tangible, such as a shirt or the product that the company is seeking funding for. Finally, in the equity model, investors receive an interest in the profits of the business that they are helping fund. The rewards model is the most popular and widely used crowdfunding model. Massolution (2013) and Sally Outlaw (2013), however, assert a fourth type of model: the lending model, where crowdfunding platforms connect project creators with different types of lending sources. According to a 2013 Massolution report, crowdfunding platforms across the globe, led by the US, raised US$2.7 billion in 2012; funding is expected to increase to US$5.1 billion in Currently, North America has $1.6 billion in funding volume, while Europe has $945 million allowing both regions to control 95% of the total market, according to the same report. Massolution (2013) estimated that the donation- and reward-based models are the most popular at $1.4 billion, followed by the lending-based models with $1.2 billion and, finally, equity-based funding at $116 million. Social causes are the most active crowdfunding category, driving close to 30% of crowdfunding activity, followed by business and entrepreneurship at 16.9%. The arts also remain popular in crowdfunding circles, with films and performing arts claiming 11.9% of the pie, while music and recording arts is at 7.5% share. Crowdfunding projects in energy and the environment controls 5.9% of the market and is considered an emerging category. Some notable products successfully funded by a crowdfunding campaigns are the Pebble and the Coolest Cooler. The Pebble, a smart watch developed by Eric Migicovsky in Crowdfunded on Kickstarter, the Pebble campaign raised more than US$12 million in 2012, and is now a full-pledged company with 130 employees and 8 collaborative partners, including Mercedes-Benz, ebay and the Weather Channel. On the other hand, the Coolest Cooler, a concept cooler that includes a built-in ice-crushing blender, a waterproof Bluetooth speaker and a USB charger, broke

2 crowdfunding records by raising more than US$13 million in 2014, thanks to a social media campaign that went viral. The Coolest Cooler is the most funded project on Kickstarter to date. What are the benefits of crowdfunding? Crowdfunding provides funding to the financially marginalized organizations, which would not otherwise have access to traditional funding sources. Financial capacity and financial sustainability are central to organizational function and success without enough funding, organizations will be hard-pressed to maintain and expand services within the organization while developing resilience to occassional economic shocks in the short term (Sontag-Padilla, Staplefoote & Gonzalez- Morganti. 2012). Unfortunately, startup businesses, social enterprises and non-profit organizations (NPOs) find financial sustainability a challenge because of limited funding resources (Cosh, Cumming, & Hughes, 2009; Lehner, 2013; Sontag-Padilla et all 2012). NPOs face a host of funding challenges. Traditional investors shy away from NPOs because of motivation disjoints: while the latter look into the impacts and outcomes of projects developed for a social cause, the former are more concerned with long-term financial returns (Lehner, 2013). This is compounded by the fact that overseas development assistance and foreign donations, the traditional sources of funding for many NPOs, have been dwindling for years. These challenges affect the NPOs ability to sustain work and retain personnel, prompting many to seek alternative and innovative funding mechanisms (Anand & Hayling, 2014; and Sontag-Padilla et al, 2012), such as tapping into social networks to collect money (Wojciechowski, 2009). Similarly, small firms and startups without significant assets a consequence of their size and age, find difficulty in seeking funding from traditional sources (Cosh et al, 2009). And even if these financially marginalized organizations find access to traditional funding, the amount is inadequate to start and sustain growth (Agrawal, Catalini & Goldfarb, 2011). In the Philippines, MSMEs (Micro-, Small- and Medium-Sized Enterprises) face many contraints, primarily stemming from lack of and access to funding, despite its collective economic contribution, as acknowledged by no less than the Philippine government (Habito, 2010 and Pamaos, 2012). Traditional investors are apprehensive about the long-term vialibility of Philippine MSMEs (Palabrica, 2011). This creates a vicious cycle that works against growth, as long-term viability is dependent on financial capacity. Without funding, MSMEs will be hard-pressed to acquire new technology (Habito 2010), a requirement to improve productivity (Pamaos, 2012), and which, ultimately, determines future viability. Through crowdfunding, MSMEs can raise seed money for a new product, or expand the distribution of a new one. Crowdfunding s merits, however, extend beyond monetary benefits. Belleflame, Lambert and Schwienbacher (2014) contend that crowdfunding can help firms introduce a new product, learn market insights, or even create a consumer-developed product or service. Furthermore, crowdfunding can be an effective marketing tool its use of social media resources provides the ability to share and spread the word to different social networks (Prive, 2012). As an alternative to traditional marketing, crowdfunding significantly benefits startups, small firms and NPOs, which do not have the financial capacity to conduct expensive market research or extensive marketing campaigns. What is the state of crowdfunding in the Philippines? Crowdfunding in the Philippines has yet to gain traction the way it has with the rest of the world. There are currently 4 Filipino-oriented crowdfunding platforms: ArtisteConnect, PhilAmTHropy, The Spark Project, and Social Project PH. Established in 2011, ArtisteConnect is the largest platform of the three and supports artistic, cause-driven or entrepreneurial projects. Many of ArtisteConnect s projects are artistic in nature, a majority of which belongs in the film and music categories. The Spark Project, on the other hand, was founded in 2010 and officially launched in February 2013 (Edquilang, 2013). Its objective is to showcase Filipino talent and ingenuity by focusing on local education and social entrepreneurship projects. Social Project PH, on the other hand, is a registered US LLC company, operating primarily in the Philippines by screening and vetting project partners. The platform, created in 2012, focuses on community projects that increase the impact of social good. PhilAmTHropy is based out in the US. They, however, focus on Filipino projects that involve any of the following categories: art, animation, community service (for registered non-profit organizations), dance, design, education, events, fashion, film/video, food, games, green design/environmental, health, home/lifestyle, made in the Philippines, music, photography, publishing/journalism, sports, technology, theater, web/mobile apps. PHILIPPINE CROWDFUNDING: RESEARCH AND DATA CHALLENGES While the concept of crowdfunding has gained popularity owing to many fundraising success stories (OnlineMBA, 2012), much is still not known about crowdfunding itself (Lehner, 2013). Much of the current research on crowdfunding involves understanding the success determinants of crowdfunding campaigns in the Western context, specifically the US and Europe. These studies range from the anecdotal (Corl, 2013 and Holm, 2013) to the empirical (Belleflame et al, 2014; Huili and Yaodong, 2014; Kuppuswamy and Bayus, 2013; Mollick, 2012; Ward and Ramachandran, 2010). Some studies, on the other hand, focus on understanding what motivates both fund seekers and backers to participate in

3 crowdfunding campaigns (Gerber & Hui, 2013; Gerber, Hui & Kuo, 2012; Ordanini, Miceli, Pizzetti & Parasuraman, 2011). There is, however, a dearth of research that focus on crowdfunding in the Philippines. Many of the studies focusing on the determinants of crowdfunding success are difficult to replicate here in the Philippines, owing to a small data set to work with. This author estimates that there are only about 66 completed crowdfunding campaigns initiated in any of the four Philippine crowdfunding platforms listed above, compared to 78,941 successfully funded projects on Kickstarter alone. Furthermore, crowdfunding participation in the Philippines is significantly low. The Spark Project s 10 successfully crowdfunded projects, for example, raised close to PhP1.3 million, a paltry amount compared to Kickstarter s US$ 1.32 billion in total funds raised for all of its successful projects. RESEARCH QUESTION Initially, this study focused on factors that drive crowdfunding participation, patterned after Gerber & Hui (2013). Unfortunately, a preliminary informal survey revealed a significant lack of understanding of what crowdfunding means, particularly about what it is for and how it is carried out. Given the lack of research on Philippine crowdfunding, the study shifted its focus to carrying out a baseline study to establish the level of crowdfunding awareness, understanding and participation in the Philippines. In particular, this paper ventures to answer the following questions: 1. How aware are Filipinos about crowdfunding? 2. How actively do Filipinos participate in crowdfunding? METHODOLOGY This study is an exploratory empirical research that aims to develop initial evidence on awareness and attitudes towards crowdfunding in the Philippines. Patterned after a similar crowdfunding awareness study conducted through an online survey in Canada (Seeding Factory, 2012), the study intends to establish a useful baseline for future theory building (Eisenhardt, 1989). Similar to Mollick (2012) and Gerber & Hui (2013), it follows a grounded theory approach that does without formal hypotheses testing, which can constrain emergent frameworks, given that research on this domain is almost nil (Glaser & Strauss, 1967). Research was conducted using an online survey questionnaire on a 3-day period in early November 2014 using purposive and snowball sampling methods. A total of 108 respondents participated in the survey. Given the web-based nature of crowdfunding, an online survey was found suitable. There are three major sections of the survey. In the first section, respondents were asked whether they have ever donated money, invested their money and put up their own business. In the second section, respondents were asked about their awareness and understanding of crowdfunding in general. In the final section, respondents were asked whether they have ever participated in a crowdfunding project and how their experience was. They were also asked about their willingness to participate in future crowdfunding projects, whether as a fund seeker or a project backer. RESULTS What are Filipinos donation, investment and business habits? Since crowdfunding participation can be likened to donating and investing (by funding a project) or putting up a business (by initiating a project), this study sought to find out whether the respondents have taken part in these activities in the past. Survey results reveal that almost all respondents (96%) claim that they have donated money in the past. On the other hand, 65% claim that they have bought an investment instrument bonds, foreign currency, time deposit, commodities, derivatives and similar for the purpose of generating income. Around 41% of the respondents claim that they have put up a business of their own. These respondents were further asked how they funded their business. Bootstrapping, or making use of one s own funds, remains as the most popular source of capital funds at 51%. Others sourced funding from family and friends (37%) and from debt (12%). The data supports Cosh et al s (2009) argument that traditional funding sources banks and investors remain elusive to startups and small firms. Given significant participation rates in donation and investment activities, there is a significant potential for many Filipinos to become active backers in crowdfunding campaigns. Furthermore, while startup business funding remains limited to bootstrapping and funding from family and friends, there may be potential for crowdfunding as a source of seed capital funding, especially when traditional funding sources are inadequate or when startup entrepreneurs have no access to them. How aware are Filipinos about crowdfunding? In the survey, respondents were asked to choose among the following three statements which best described their understanding of crowdfunding. Statement 1: I understand what crowdfunding is. Statement 2: I have heard of the term crowdfunding but don t understand what it means. Statement 3: I don t know what crowdfunding is.

4 Figure 1. Crowdfunding Awareness Base: total respondents Results reveal that 27% of respondents are not aware of crowdfunding. On the other hand, about 31% said that they have encountered the term but don t know what it means. When asked about their knowledge of existing crowdfunding platforms, most crowdfunding-aware respondents (80%) can name at least one crowdfunding platform without being aided with a list, while only 29% could name two or more platforms without being aided. However, about 13% could not name a crowdfunding platform even when aided. This confirms that most of the respondents only have a rudimentary understanding of the concept of crowdfunding, but don t necessarily understand its processes how to carry out, how to initiate one or how to back a project. Kickstarter is the most recognized crowdfunding platform among crowdfunding-aware respondents at 80% (aided and unaided). On the other hand, 18% could recognize at least one Filipino-oriented crowdfunding platform, the most recognized of which is The Spark Project (only 16% of crowdfunding-aware respondents). Figure 2. Most popular crowdfunding platform (Aided and unaided responses) Only less than half (42%) of respondents claim that they are aware of crowdfunding and know what it means. This is significantly low compared to 87.2% awareness in Canada (Seeding Factory, 2012). Crowdfunding-aware respondents were further asked to explain what they know about crowdfunding. The cursory responses of more than half (67%) of these respondents revealed a very basic understanding of the concept. Examples of responses include: Getting funds online. It is when you ask money from a large number of people to support your project or cause. People pitch business ideas to people, who fund the starting capital needed. Still, some 30% of those aware of crowdfunding exhibited a complex grasp of the concept: One indicated knowledge of different types of crowdfunding models. You put up your plan on Internet and then you get funds from different people, an example of which is Kickstarter. There is also (another) type (of crowdfunding model) wherein you get funds through personal loans (also from different people) but can't remember the site. One pointed out how crowdfunding contributes to innovation. Your project/business is funded by a group of people, mostly people you don't know personally. You explain your project and its objectives, your target amount to be funded and the benefit/s the people who funded your project will get. Basically a crowd puts up the funds for you. While another acknowledged that risks are involved. Crowdfunding means (l)etting the general public join in a project via cash infusion. Funders may enjoy later on the early-round incentives, though there are project risks. Base: total respondents About 58% of crowdfunding-aware respondents can recall (unaided or otherwise) at least one crowdfunding project. Responses were very diverse, with respondents recalling 41 different projects. The Pebble Smartwatch, an Indiegogo campaign, is most recognized at 22%. However, very few (9% of crowdfunding-aware respondents) could name a Filipino-oriented crowdfunding campaign, of which Gouache: Waxed- Canvas Goods, a campaign hosted in The Spark Project, is the most popular (only 7% of crowdfunding-aware respondents). Other Filipino-oriented projects named were The Silver Album by Color It Red, Jacinto and Lirio and Project for Yolanda Victims. These results reveal that while a plurality of respondents is aware of what crowdfunding means, their understanding of the concept is generally superficial and facile. This suggests that Philippine-based project owners or fund seekers will find launching and carrying out a crowdfunding campaign to be very challenging, more so than their counterparts in the US or Europe. Fund seekers have the added responsibility of educating potential backers about the salient details of crowdfunding if they are to encourage a larger audience to back their projects. However, more than project owners and fund seekers, crowdfunding platforms have a larger responsibility of increasing crowdfunding awareness both of potential fund seekers and potential backers, since doing so will benefit them the most. Increasing awareness improves

5 participation. Given that platforms earn a percentage from every successful campaign, more funds raised means more revenue earned. How actively do Filipinos participate in crowdfunding? Given low crowdfunding awareness, it is no surprise that survey data reveal very few have ever participated in a crowdfunding campaign, either as a project backer or a fund seeker. In fact, only 4% (2 respondents) of crowdfunding-aware respondents have ever backed a crowdfunding campaign. The projects backed were The Plastic Tides and Leonard and Church, both film projects hosted on Kickstarter. It is notable to mention that these are not Filipino-oriented projects. On the other hand, none of the respondents have ever sought funds through crowdfunding. At the end of the interview, all respondents were asked about the likelihood of participating in future crowdfunding projects. In the case of the group of respondents who claimed that they are unaware of crowdfunding (those who claimed that they don t know anything about crowdfunding and those who ve heard of the term but don t know what it means), they were given a brief explanation about what crowdfunding means prior to being asked. Among the crowdfunding-aware, 47% said that they will likely back a crowdfunding project and 7% said that they will likely seek funds through crowdfunding. However, 38% said that they still needed more information before they could make a decision and 9% said that they will unlikely participate. Among those who are unaware of crowdfunding, only 16% said that they will likely fund future crowdfunding projects, while 10% said that they would likely participate as a fund seeker. About 29% said that they also needed further knowledge before making an informed choice; while 3% said that they would unlikely participate. Figure 3. Likelihood of participating in a crowdfunding campaign Base: total respondents Overall, almost half (44%) of the all respondents (both crowdfunding aware and otherwise) stated that they require more information about crowdfunding before they participate, either as a fund seeker and a backer. These results indicate a significant need for crowdfunding platforms to educate the market about crowdfunding. Potential backers and fund seekers are largely unaware of what crowdfunding is. Given the latent benefits that startups and NPOs can reap from crowdfunding, it is sensible for platforms to conduct informational campaigns to boost awareness and increase participation. After all, crowdfunding activities are similar to activities many Filipinos are already familiar with donating, investing and putting up a business. Combine this with the Filipino value of bayanihan and the Filipino s entrepreneurial spirit, crowdfunding may possibly bridge funding gaps experienced by many startup and NPOs. Nevertheless, beyond explaining how crowdfunding works, platforms also have the responsibility of explaining the risks involved in crowdfunding and how to mitigate them. By doing so, platforms may help calm hesitation that potential fund seekers and backers have about the credibility of the platforms and the crowdfunding process. Both Kickstarter and Indiegogo, for example, have special sections that address what backers and funders can expect and what all parties can do to ensure a safe and secure experience. These Trust and Safety pages also detail what the platforms can do should funders and backers run into disputes. SUMMARY AND CONCLUSION Survey results affirm that crowdfunding is still in its early stages in the Philippines. Crowdfunding awareness in the country is low (42%). About 80% of crowdfunding-aware respondents can recognize a crowdfunding platform. Despite the existence of Philippine-based and Filipino-oriented crowdfunding platforms, Kickstarter is the most recognized in the country. Only 58% can recall a crowdfunding campaign, and even fewer (9%) can name a Filipino-oriented crowdfunding project. Crowdfunding participation is also low (4%). Nevertheless, the survey revealed high rates of donation (96%), investment (65%) and business startup (41%) participation activities that can be likened to crowdfunding participation. This, coupled with the Filipino value of bayanihan and our entrepreneurial spirit, indicate that there is a potential for crowdfunding in the country. There is, however, a need for more information 44% of all respondents claim that they need more information about crowdfunding. Given better understanding of crowdfunding, what it is and what it brings, crowdfunding participation rates in the Philippines may significantly change. Increasing crowdfunding awareness is a responsibility that should be taken on by all parties who have and will benefit the most from crowdfunding crowdfunding platforms and fund seekers.

6 RECOMMENDATIONS FOR FUTURE RESEARCH It would be interesting to see a survey of this nature be conducted with a larger base. The author also recommends conducting an annual survey to track the progress of crowdfunding awareness and participation in the Philippines. Several articles and studies, from the anecdotal (Corl, 2013 and Holm, 2013) to the empirical (Belleflame et al, 2014; Huili and Yaodong, 2014; Kuppuswamy and Bayus, 2013; Mollick, 2012; Ward and Ramachandran, 2010), provide insight on what factors contribute to a crowdfunding project s success. Many of these studies, however, only use a single source for their data: Kickstarter. Such findings are limited as it only draws conclusion from a very narrow criteria: these studies only take account of reward-based crowdfunding models from specific geographic areas: the US, the UK and Canada. No such studies exist in the Philippines. It would be interesting to find out if successful crowdfunding projects hosted in other platforms, such as those in the Philippines, share the same success factors as those in Kickstarter. It would also be interesting to know if cultural factors affect success would the same success factors exist in projects outside of North America, for example? Crowdfunding, as a funding source, has its limitations. Crowdfunding campaigns are best suited for one-time projects, which can raise funds that can be used as seed capital for new entrepreneurial ventures (Mollick, 2013). It should not be considered as a sustainable source of funding, but as a springboard that would allow a startup or an NPO to fund activities that could grow and expand their operations. There has yet to be a study, however, to show how crowdfunding can improve long-term viability. An interesting study would be to see how crowdfunding projects fared after successfully being funded. How was their project affected by crowdfunding? For community and social projects, did crowdfunding increase awareness for their causes? For business projects, did crowdfunding help them scale? Did the venture become sustainable? Finally, it is important to see how current laws and regulation can encourage or impede the growth of crowdfunding in the Philippines. REFERENCE Agrawal, A. K., Catalini, C., & Goldfarb, A. (2011). The geography of crowdfunding (No. w16820). National Bureau of Economic Research. Anand, P. U., & Hayling, C. (2014). Levers for Change--Philanthropy in Select South East Asian Countries. Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014). Crowdfunding: Tapping the right crowd. Journal of Business Venturing, 29(5), Briggman, S. (2012). Kickstarter Crowdfunding: How the Predictors of Success Vary by Project Category. Economics, 4198(12/12), 12. Business Alliance for Local Living Economies (BALLE). (2012, April 5). Crowdfunding signed into law under JOBS Act. Corl, E. (2013, April 17). 7 strategies for launching a successful crowdfunding campaign. strategies-for-launching-a-successfulcrowdfunding-campaign/ Cosh, A., Cumming, D., & Hughes, A. (2009). Outside enterpreneurial capital*. The Economic Journal, 119(540), Edquilang, R. (2013, April 16). The Spark Project: Crowdfunding in the Philippines. TechinAsia.com. Gerber, E. M., & Hui, J. (2013). Crowdfunding: Motivations and deterrents for participation. ACM Transactions on Computer-Human Interaction (TOCHI), 20(6), 34. Gerber, E. M., Hui, J. S., & Kuo, P. Y. (2012, February). Crowdfunding: Why people are motivated to post and fund projects on crowdfunding platforms. In Proceedings of the International Workshop on Design, Influence, and Social Technologies: Techniques, Impacts and Ethics. Glaser, B.G. & Strauss, A. (1967). The Discovery of Grounded Theory: Strategies for Qualitative Research. New York: Aldine. Habito, C. F. (2010). An agenda for high and inclusive growth in the Philippines. Asian Development Bank. Holm, J. (2013, September 5). 10 essential steps before launching your crowdfunding campaign. Huili, Y. A. O., & Yaodong, Z. H. A. N. G. (2014). Research on Influence Factors of Crowdfunding. International Business and Management, 9(2). Kuppuswamy, V., & Bayus, B. L. (2013). Crowdfunding Creative Ideas: the Dynamics of Projects Backers in Kickstarter. SSRN Working Paper, ssrn. com/sol3/papers. cfm.

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