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Sunday, 19 July 2015 20:46

State-backed crowdfunding initiative hits 97% success rate in first year

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The Michigan Economic Development Corp. worked with the crowdfunding platform Patronicity and the Michigan Municipal League to create the Public Spaces, Community Places initiative, which allows residents to donate to public projects. Local examples of the public placemaking initiative include the Exit Space public art installation project from the Urban Institute for Contemporary Arts in Grand Rapids, which raised $10,315 that was matched with $10,000 in funding from the state. The Michigan Economic Development Corp. worked with the crowdfunding platform Patronicity and the Michigan Municipal League to create the Public Spaces, Community Places initiative, which allows residents to donate to public projects. Local examples of the public placemaking initiative include the Exit Space public art installation project from the Urban Institute for Contemporary Arts in Grand Rapids, which raised $10,315 that was matched with $10,000 in funding from the state. COURTESY PHOTO OF MURAL AT UICA

As many remain skeptical of crowdfunding’s ability to bolster growth among private-sector entrepreneurs, economic developers have found the fundraising model holds promise for public placemaking efforts statewide.

In the first year of the Michigan Economic Development Corp.’s “Public Spaces, Community Places” initiative, a partnership with crowdfunding platform Patronicity and the Michigan Municipal League, 33 out of 34 projects from around the state have met their fundraising goals, according to the program’s website.

As of July 8, five more projects were still accepting donations and two of those had hit their goals before deadline.

Observers say a 97-percent success rate is a rare figure among crowdfunding campaigns.

“I was hoping for a 50-percent success rate,” said Katharine Czarnecki, the MEDC’s community development director who oversees the program. “The fact that we have 97 percent is crazy.”

As part of the relatively small program — fundraising goals range from a few thousand dollars to $100,000 — the MEDC matches the amount raised from the public, or “patrons,” with grants.

To date, the MEDC has matched just less than $900,000 in grants, while project organizers have raised even more than that through donations beyond the match goal, according to the project website.

The projects are as varied as the communities pursuing them. They range from a historic manufacturing building restoration in Calumet and a recreational sports complex in Sparta to an outdoor soccer field a few blocks from the Capitol Building in Lansing and a public art installation in downtown Grand Rapids. They also include a neighborhood opera house in Detroit and a new pavilion along the Kal-Haven trail in Southwest Michigan.

Instead of the state telling communities what kind of placemaking projects they should do to get funding, the Public Spaces program lets communities decide what might get the most public buy-in.

“With this project, we are trying to drive public spaces to be reactivated,” Czarnecki said. “The state is focusing on placemaking and we kind of left it up to the community to find what projects they want completed.”

Czarnecki said state funding levels will remain at $750,000 for the fiscal year, and the MEDC is hoping to get $2 million for the next fiscal year. Money for the program comes from the MEDC’s corporate fund, which draws revenue from tribal gaming compacts.

“It has been tremendously successful from our end, with the project creators and with donors who love it as well,” said Ebrahim Varachia, president and co-founder of Detroit-based Patronicity. “It has been incredible to see that this program has allowed for more than $2.3 million in community impact from the state and citizens.”

“It is quite rare,” he added, to see crowdfunding initiatives with that level of success.


Finding partners

The state originally approached Patronicity — which grew out of a business incubator that the MEDC supported — about using the platform to help startup food trucks in Detroit. That morphed into an idea for funding public projects whereby the state uses community grants to match fundraising efforts.

Varachia refers to the model as “crowd-granting.”

“It is revolutionizing the way funding has been done,” he said. “With the match, there is so much more on the line. If you hit your goal, you don’t just get that money, you double the amount. Donors love it because they feel their $10 or $100 is $20 or $200. It really changes what projects can be done by giving them a lot of leverage.”

Czarnecki said the program “actually got off to a slow start” with funding available only for an alley restoration project in Midtown Detroit. Organizers there raised more than $52,000, which the MEDC matched with a $50,000 grant.

After Jan. 1, “projects really started to take off. We’ve been successful in every project except for one,” Czarnecki said.

The project that failed to reach its fundraising goal was for redeveloping a park along the Kalamazoo River near Arcadia Brewing Co.’s new pub just east of downtown Kalamazoo. An Arcadia official could not be reached for comment.

While the Kalamazoo project did not reach the goal to qualify for the state match, Varachia said it will be able to keep the funds raised from the public because of the way its fundraising was structured from the start. Other Patronicity projects are all-or-nothing, meaning donors’ credit cards aren’t billed if the goal is not met.


‘Eye-opening innovation’

Using crowdfunding in the private sector has led to mixed results and skepticism, particularly with equity or securities-backed fundraising. MiBiz reported in June about the waning interest among entrepreneurs in securities-backed crowdfunding after lawmakers passed the Michigan Invests Locally Exemption (MILE) Act in 2013.

“I think there is a lot of merit to continue to explore that as a financing mechanism for real estate and small business development,” Czarnecki said. “But I can tell you our leadership team is a little hesitant [to support that] until things get ironed out at the state and federal level.”

Specifically, she cited concerns over fraud and a lack of federal rules or guidelines.

However, the matching funds the state provides for successful fundraising goals as well as Patronicity’s willingness to provide support and training to project organizers make this community-based crowdfunding model unique, Varachia said.

“We see ourselves as the training wheels,” he said.

The Urban Institute for Contemporary Arts in downtown Grand Rapids raised $10,315, which was matched with $10,000 from the state, for its Exit Space project, an ongoing public art program with installations throughout the city. The funding will allow for two or three additional murals within the city, said Kristen Taylor, UICA’s development director.

“The thing that I liked about the [Public Spaces] program is that it was very specific to placemaking,” she said. “It hit the UICA mission, a large part of which is to [foster] a creative community. It was a way to involve the entire community on a project that would directly benefit the entire community.”

Bob Trezise, president and CEO of the Lansing Economic Area Partnership, the capital region’s economic development agency, called the program “a really eye-opening innovation in how we’re going to move forward with economic development.”

Four projects in greater Lansing — including the Beacon Field soccer project downtown that exceeded its $60,000 fundraising goal by more than $10,000 this year — are participating in the program. Plans to raise $35,000 to upgrade the city of Charlotte’s tennis courts were also announced recently.

“It’s not the answer, it’s just a different answer” that could be useful during times of cuts to incentives and municipal budgets, Trezise added.

Trezise questions how successful the model would be for larger, more expensive endeavors. But for now, it’s working as a “marginal solution,” he said.

“While it’s a small program, it’s not unimportant,” he said. “I’ve been so impressed with the results so far (that) I begin to wonder whether we could actually use this tool as an incentive to companies. I wonder how far we can push the envelope here. It’s been an important experiment and one that’s worked with rave reviews.”

Read 10386 times Last modified on Tuesday, 21 July 2015 10:06

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