Earlier this week I gave a talk at Stanford's Center for Philanthropy and Civil Society, publishers of the Stanford Social Innovation Review, on civic crowdfunding. I was excited to share how my research into crowd-based community finance has evolved, and how Neighborly's launch this summer will make impact investing a local reality for the first time in the US. Here's the talk.
Here's the transcript of the video above.
Hey I’m Rodrigo. I’m an on leave PhD candidate here at Stanford in Management Science and Engineering. The reason I’m on leave is that i’m currently head of product at Neighborly, a community investing marketplace. I'm going to talk more about that later.
Now some friends have sent me various pieces of internet history that suggests I was, along with my former advisor Ethan Zuckerman, responsible for popularizing the term 'civic crowdfunding’ and definition. So you can blame me if you don't like it.
So I'm going to start with the story of why I came to care about this topic in the first place.
Back in 2011, I got interested in the idea that technologically-supported crowds could overcome problems that offline communities have in accessing and building services and infrastructure that they need. The digital version of what Elinor Ostrom called public entrepreneurship.
I was in Mumbai at the time, helping to launch Conde Nast’s digital business in India. Mumbai is place with significant infrastructural challenges, and many separate examples of community-based cooperation. I saw some of the earliest examples of young middle-class Indians reimagining the cities in which they lived, through art, fashion and especially technology. They weren't about to remake India's physical infrastructure, but they were creating their own social infrastructure.
Meanwhile, late in 2011, I heard about the story of the town of Glyncoch in South Wales, a mining community about 20 miles west of where I grew up, in Newport. A group there was trying to build a new community center. The existing one, a 1970s creation, was falling apart, despite its popularity.
The South Wales valley region is in some ways the UK's Detroit – once dependent on a single industry, coal mining, its economic fortunes haven't recovered since the 1980s, when the industry’s decline began.
So the Glyn Coch community needed to raise $1.2 million for the project, and they were $40,000 short. It may sound like a small gap, but it was enough to put the whole project in jeopardy. At that point, with not too many options left, the community was put in touch with Spacehive, a 4-person startup trying to apply the donation-based crowdfunding model popularized by Kickstarter to civic projects.
No one in the Glyncoch group had heard of Kickstarter. Nevertheless, the community took a chance on the new idea of crowdfunding. They listed their project on Spacehive.
Amazingly, in five weeks, the Glyn Coch group raised the money and the project went ahead. This is the center in 2014. To me this was a striking example of how to reimagine civic engagement and empower communities to marshal the resources they need, even in the most challenging circumstances.
I was so inspired by Glyn Coch that in 2012, I decided to work pro-bono with Spacehive, collaborating with community groups, council leaders and members of parliament, such Green Party MP and former leader Caroline Lucas. She was one of many politicians excited about the idea. And what I saw was many public agencies and communities connecting for the first time to talk about how to build better towns and cities. Everyone around the table was struggling with financial constraints, but the chance to cooperate opened up new possibilities to get things done.
My time at Spacehive was cut short only because I had agreed to take up a place in a masters' program at MIT's Center for Civic Media.
And I decided to spend the next two years looking at this emerging trend of technologically-supported crowds funding public goods. By the time I got to Cambridge, a range of platforms like Spacehive had sprung up in the US, Spain, Brazil and Finland.
At this point, I didn't meet with universal approval from professors. For a start, the term civic crowdfunding didn't exist. But I believed that what I had seen at Spacehive was emergent and powerful. So I ignored most of the advice and carried on. Luckily for me, by the time I'd finished in 2014, civic crowdfunding was a term that people were starting to recognize.
Now I'm going to save you the time of reading 173 pages, and tell you what I learned in those two years, because I think it's at best the first half of the story.
I assembled a dataset of 1,224 projects launched between 2010 and 2014. Within that dataset I found some startling trends.
First, Most people want to donate about $60.
Most projects are small scale, less than $20,000.
Most projects happen in dense urban areas – especially those with high concentrations of college-educated 25-35 year olds.
The most common kind of project is a park or a garden.
I also ran into some complex ethical and political questions. Will Civic Crowdfunding deter investment in the long term? Will richer communities benefit more? Unfortunately it’s still too early to know if these are questions, or real problems.
So I came to the conclusion that while donation-based crowdfunding of public goods has benefited a lot of communities already, it raises some tough questions around scale and ethics. It's great at solving small-scale, uncontroversial issues - because who doesn't love a park - but it hasn’t yet proven it can solve, big, hard problems.
So where do we go from here?
I started to look at the incumbent mechanisms of financing public goods. Tax dollars, municipal budgets, and what to me was the elephant in the room – municipal bonds.
Now perhaps it didn't take me so long to get to muni bonds because between 2004 and 2006, I was reporting on the bond markets at Bloomberg News in london. This was the time when we were just starting to wake up to what goes wrong when people stop understanding how debt markets should work.
Are you familiar with how US cities and public agencies finance themselves using the bond market?
Well, I'll give you an overview. Public agencies raise $1bn a day for everything from school improvements to transport infrastructure. The New York Canals were funded by bonds. The Golden Gate Bridge was funded by bonds. In a bond deal, a city gets a loan, promises to pay a fixed interest-rate and in theory, any one of us can invest. It should be a fantastic, open way to produce public goods.
But bonds today are a very Wall Street kind of thing. Call a broker and get in line. If you're a high-rolling client you might just get a piece of the action. In fact the two are so intertwined that back in January, Texas Public Schools had to pause closing an investment deal because of storms in New York. True story.
It didn't always used to be that way. Half a century ago, public officials used to stand on the courthouse steps to sell bonds for public projects. They called on the crowd to pitch in, and the crowd were repaid for their efforts.
So what if we could connect the excitement and energy generated by donation-based crowdfunding to the much bigger, older problem of how to provide infrastructure? And in the process, reconnect people to their cities?
Now unknown to me, Neighborly, one of the donation-based platforms I studied while at MIT, had actually started out planning to help reform the muni bond market. But back in Neighborly they found investors were not as enthusiastic about disrupting the financial services industry as they are now, and the team was unable to raise funding for the idea. So Neighborly decided to get started with the donation crowdfunding model, which was better understood. In two years Neighborly raised $2.5 million for donation-based crowdfunding projects. Of course the team found exactly what I had – that donation-based crowdfunding matches small needs much better than large ones. So after two years of proving the crowd could be marshaled for civic purposes, their founder Jase Wilson returned to the idea of opening up public finance on a bigger scale. When Jase told me about their plans, it was obvious to me that I needed to be involved.
We agreed that because tax-free municipal bonds are a great investment as well as a civic good, they can go much, much further in improving cities. Retail investors buy more municipal bonds every week than Kickstarter has raised in its 6 year history. The main challenge is getting those bonds out of the hands of brokers and into the hands of those households.
In a couple of months, we're going to be opening the first truly accessible investments in US cities. Our goal is to give more people than ever before the chance to both contribute to and benefit from investment in public goods, and to break down layers of markets that depend on flipping to make a profit at every stage.
To me, this is very much the spirit of civic crowdfunding. It's not limited to a donation-based campaigns. It's the opening up of inaccessible financial processes to involve everyone.
What's really gratifying for me personally is that we're already hearing that we're not the only ones who have been through this thought process around earlier models of crowdfunding.
When we asked some of our users the question, why did you sign up for Neighborly, one wrote: "Do something better with my money than funding another piece of lame technology on Kickstarter."
So I'd like to leave you with the thought that as we sit here thinking about the future of funding cities, we need to consider all of the tools we have in our armory. Old and new.
We've passed through the first phase of trying to connect this idea to public goods and cities. I think the next phase calls on us to think bigger and bolder. I'm really excited to have today's conversation with you and to hear more about what you're working on.
Thank you for listening, and I look forward to continuing the conversation.