How to Partner With a Public Authority for Crowdfunding Platforms
Match-funding between public authorities and crowdfunding platforms is a novel practice that involves local communities and civic authorities as an additional source of fundraising for a project.
According to the definition provided by the European Crowdfunding Network and the European Investment Bank,
Match-funding focuses on the combination of different funding sources, rather than on specific sectors. Match-funding can be defined as a funding scheme where resources collected by crowdfunding campaigns in specific areas are topped-up with an additional share of resources coming from the public sector or a private entity.
In this article, we have created a brief guide for crowdfunding platforms to partner with a public authority. And we’ll also look at some of the benefits of such partnerships based on real-life examples.
Steps to Establish a Partnership with a Public Authority
Eurocrowd has created a framework that is primarily directed at the public authorities, however, it can also be used as a reference guide by crowdfunding platform to partner with the public authorities in their region.
Set a budget
There are three essential practices that a portion of the budget must be allocated to:
- The cost of the services that the crowdfunding platform is providing.
- The amount of resources that will go directly towards the project.
- The cost of marketing.
Identify the role that you want the public authority to play in the project
Public authorities can play different roles in a match-funding scheme, and depending on which one you choose the amount of resources and commitment required for the project might change.
- Sponsor – the authority launches a new campaign for an existing project on an existing crowdfunding platform.
- Manager – the authority creates a new crowdfunding platform for the promotion of civic and for-profit projects.
- Curator – the authority supports a range of existing projects after their crowdfunding goal has been achieved.
- Facilitator – the authority co-funds a project before the launch of the fundraising, as regulated by the agreement between them and the crowdfunding platform.
Choose a match-funding scheme that suits your needs
The public authority may follow one of these match-funding structures when supporting a project:
- Booster – the authority provides resources at the early stages, giving the project a head-start and giving it credibility in front of potential investors.
- Bridging – the authority contributes resources at the mid-point between the beginning of the project and the end-goal.
- Top-up – the authority grants support to a project after it’s reached a certain level of success. This can act as both a final boost to achieve the target goal or as an additional financing round after 100% of the required sum has been secured.
- One-to-one – the authority provides resources simultaneously to public fundraising, i.e. for every euro invested by the public, they will also contribute a euro towards the goal.
According to this step, as a crowdfunding platform, you may want to tailor your strategy to fit these match-funding structures if you’re pursuing any partnerships with public authorities.
For that, you may need to develop an additional user role on your crowdfunding platform where a public authority may take part in the offerings. For example, you could also mark certain offerings as “Sponsored” or “Supported” by a public authority and their “Contribution amount”, etc.
Ensure that the project complies with the regulatory frameworks
At the moment all crowdfunding activities in Europe are regulated at the national level (i.e. different in each country of the Union), but starting in November of 2021 a new regulatory framework will come into action – the European Crowdfunding Service Providers Regulation.
Choose the appropriate crowdfunding model for your project
Between donation, reward and investment-based crowdfunding, pick the form of finance you prefer that works best with the match-funding model of your choice.
Reach out to public authorities to arrange partnerships
The crowdfunding platform must identify one or more possible partners that match their ethics and the conditions of the project.
Define core features of the project
From timing and duration of marketing campaigns to the software behind the project, crowdfunding platforms must set the ground conditions both for the public authorities and the backers involved.
Maintain continuous communication throughout the duration of the project
Once the initiative is launched, it’s important to keep a solid communication channel with the authority, being fully transparent about any progress or setbacks.
Partnership Benefits for Crowdfunding Platforms and Public Authorities
Both crowdfunding platforms and management authorities benefit from being in a partnership. For example, a public authority’s image may improve, as by establishing a partnership with a crowdfunding platform they become more transparent about the public budget and increase the sense of community.
Such partnerships also benefit the local economy as they are often involved in the “bigger picture”, being part of the government’s plan for economic and social growth to support the local SMEs and attain a more democratic approach towards the management of public funds. Furthermore, they promote financial literacy in the public, as well as the development of entrepreneurship.
Now, let’s have a look at how different crowdfunding platforms work with public authorities and learn about their experience as well as strategy of such partnership.
Seedrs, established in 2012, was the first equity crowdfunding platform in the UK. The premise is simple – any type of startup can start a fundraiser, and any type of investor can contribute. In addition, the platform offers the opportunity for investors to trade shares among each other.
The platform has been hosting FutureFund UK – a match-funding initiative funded by the UK government to support new businesses. The initiative follows a one-to-one match-funding structure – that is, for each pound that a startup receives from investors via Seedrs, FutureFund will contribute an additional pound. A total of 250 million GBP is available to qualifiable startups, each of which can get up to 5 million GBP if they are successful in their application.
October is a French P2P lending platform that has been operating since 2014. Each project on the platform is a beneficiary of a match-funding scheme, where institutions act as managers, contributing at least 51% to each project’s goal. Since 2018, the platform has funded more than 1300 projects via this scheme, supporting small businesses across Italy, France, Spain and the Netherlands.
FinBee Verslui is another lending platform with their head office based in Lithuania. The platform supports one match-funding initiative through Invega, a state-backed company that was developed to facilitate debt-based crowdfunding projects.
Similarly to Seedrs, the match-funding scheme also works on a one-to-one basis, providing a euro for each euro contributed by the investors on the platform. So far they have funded more than 700 loans to small businesses, worth 14.5 EUR in total.
WeAreStarting is an equity crowdfunding platform for Italian startups and small businesses that was founded in 2015. The platform has seen two match-funding initiatives since the start of operation, raising more than 111,000 EUR from public authorities to fund three select projects.
The platform has strict selection criteria for the kinds of projects that it publishes on the website in order to accommodate the needs of the investors. Through a selective training process and collaboration with public authorities, they have chosen three companies to help become successful units in their respective market niches.
Partnering with a public authority holds many benefits both for the business owner and the local economy. However, it is fair to say that establishing a new partnership is a bureaucratic challenge.
LenderKit is a white-label crowdfunding software provider that can help new and experienced investment businesses choose the technology that they need to create and launch a crowdfunding platform and partner with a public authority. We are happy to support you in both the technological and communication aspects of partnering with an institution.
Moreover, if you are looking to launch and run a crowdfunding platform independently, we have a diverse range of solutions to suit your needs as well.
Use our contact form to schedule a demo or request consultation with a Fintech Strategist.