Peer to peer or P2P as it's often called has become a new business and economic paradigm these days. Pretty much everything from lending to real estate investment has gone P2P. Crowdfunding is no exception.
What is peer to peer crowdfunding? The answer is: A P2P transaction is a fundraising attempt that involves raising money on an online platform from a large number of people. Crowdfunding witnesses the exchange of equity or rewards for cash and is a subset of the P2P world.
The fact is that it is easy to confuse P2P and crowdfunding for being the same thing. They do share many similar characteristics but as you're about to find out, there are significant differences as well.
What Does Peer to Peer Mean?
The growth of the internet has meant that businesses have been reshaped completely. The old ways of conducting business are being disrupted and made obsolete everyday.
Peer to peer networks began appearing once it became clear that people had new ways to communicate with one another. For example, if all the users on a subreddit or Facebook group banded together to raise money for a cause or force changes, this is an example of peer to peer interaction driving change.
Technically speaking, every social media platform can be turned into a peer to peer channel. Even solitary websites.
In fact, this is precisely how crowdfunding first came to be.
You might think that this industry started around 2009 but this is not the case. The first recorded instance of successful crowdfunding occurred in 1997 when the British rock band Marillion raised money from fans to perform a reunion tour.
ArtistShare was one of the first crowdfunding platforms dedicated for similar efforts and pretty quickly bands such as Radiohead began releasing music online to their fans directly and raised money from them.
Peer to peer as you can see applies to pretty much any transaction that relies on a community of people willing to contribute towards a cause.
These days, P2P is mostly synonymous with lending and fundraising. There are many websites where a person in need of cash can post requests either asking for a donation, or promising to treat the money as a loan and pay back interest.
Donation based crowdfunding is an example of the former. However, one doesn't need to setup a special crowdfunding page to do this. A website or a Facebook message in a relevant group will do the trick.
Thus, crowdfunding is a subset of the P2P world, just like ride sharing is. Like ride sharing, crowdfunding has become a full fledged business and entrepreneurs seek to raise money in exchange for rewards or equity in their ventures.
Crowdfunding platforms, especially those used by nonprofits, typically differentiate between P2P and crowdfunding since their support services for the two are slightly different.
Since P2P is viewed as being a larger category, these campaigns are combined with events and other merchandise along with a far larger marketing push.
For example, the crowdfunding platform service provider Fundly mentions that P2P is essentially the crowdfunding approach replicated across multiple fundraisers.
Who Uses it?
Generally speaking nonprofits are the ones that use this form of fundraising the most. However, this doesn't mean that they exclusively do so.
Major corporations also use P2P fundraising platforms, with a crowdfunded portion, to raise awareness about their campaigns and typically combine this with events such as a walkathon or a marathon.
While P2P fundraising doesn't need to be tied to a particular event, this is usually how it happens and it is a key difference between P2P and crowdfunding.
Crowdfunding campaigns typically fall into categories such as equity based, donation based or rewards based, P2P is a bit different. Here, platforms implement rolling, time based and give-days based programs.
All of these work a bit differently from one another and across platforms as well. A P2P fundraising platform usually provides additional online support for the production of any freebies that are a part of an event.
T-shirts and mugs that are printed on demand are an example of these kinds of products.
How it Works
The campaign setup is pretty similar to how a crowdfunding campaign is setup. The creator defines the parameters and the funding goal.
Typically the last day of the campaign culminates in an event of some sort that encourages people to give even more and brings various donors together.
Nonprofits tend to have sizeable donor bases and information. Once the campaign is officially setup, the aim is to spread the word through these donor bases and have them mobilize their volunteers and direct traffic to the platform.
The reason mobilization is important is because it allows the campaign to get off the blocks quickly. The larger donors tend to donate first and this pushes the campaign closer to its goal.
This has a dual effect: First, the P2P platform witnesses the campaign receiving a high engagement rate and its algorithm naturally promotes it more. Secondly, any small donor logging in sees that the campaign is already well funded compared to the amount of time it's been live and this functions as social proof.
Under such conditions, donors are more likely to be generous.
When setting up the campaign, creators have the option of customizing it. While the campaign will have main page, the creator can setup pages that are customized to fit the message of the donor platforms that mobilize volunteers.
This is a huge difference between the way crowdfunding and P2P fundraising works as you can see. Crowdfunding campaigns don't require more than a single page to raise money.
As the donations pour in, the funding meter rises and all of this culminates in the event at the end of the fundraising period.
Why Does it Exist?
While P2P fundraising shares a lot in common with donation based crowdfunding, as you've just seen, the way in which creators go about running their P2P campaign is very different.
This is because nonprofits are a full fledged business in America. The fact is that donation based crowdfunding is a hit or miss prospect.
The person who needs money and posts a GoFundMe campaign typically doesn't have money to spend. After all ,that's why they're there!
However, unless they get lucky and are featured by the algorithm at the right time, their odds of receiving the money they seek is extremely difficult. Given the business like structure that nonprofits operate under, this just isn't good enough.
Nonprofits have tailored their fundraising and marketing abilities to a high degree of efficiency in real life. They have full fledged networks and bases of volunteers. Give them a zip code and they can tell you pretty accurately how much they can expect to raise from it.
Telling such an operation to rely on hit or miss crowdfunding is not going to cut it and this is why you'll see so much complexity being added. It's to cater to large nonprofits.
Often these companies require entire platforms to be customized to cater to their needs and this is precisely the type of service that companies like Fundly offer.
So are there any disadvantages of P2P fundraising? Well for starters, it's clearly not suited for individuals. Companies are the ones this is for and it doesn't make sense for an individual to setup an entire platform to raise funds for themselves!
The entire process does introduce additional bureaucracy at the company level as well but this is just a function of how the nonprofit business is setup in America. Whatever the efficacy of such organizations might be, there's no denying that crowdfunding (at the P2P level) is a great way for them to raise awareness.
One disadvantage is that smaller organizations might get caught in a no man's land between crowdfunding and P2P fundraising. They're too large for a crowdfunding campaign to work and too small to get P2P to work for them as well.
In such cases, organizations are best served by partnering with larger nonprofits or similarly sized ones to create a common fundraising platform that benefits everyone.
All in all P2P fundraising is a bit different from crowdfunding but as you can see, there are many similarities. When it comes down to it, the scale of operations is what makes the biggest difference.
Nonprofits that are looking to raise money are best served by the larger platform of services the P2P software provides.