Crowdfunding: How Patrick Donohue scales up social business

A botanical garden for medicinal plants in Peru, which is supported by crowdfunding via the Hoop Fund. Photo by: Hoop Fund

It is not uncommon for an organization to adapt another’s business model. But even in those cases, imagination and crystal-clear focus are key to success.

Just ask Patrick Donohue, co-founder and CEO of the Hoop Fund, who based his social enterprise on Kiva’s microloan mechanism.

In an interview with Devex, Donohue, a software engineer, explains how he’s learned from Kiva, carved out a distinct identity for his fund, and sought smart partnerships to scale up his fledgling enterprise.

The Hoop Fund built on the funding mechanism that Kiva uses – microloans. Why?

What we found with Kiva, we had people that were becoming connected on different sides of the planet. And we saw a base of people who wanted to do more. They wanted to be able to help, not only give out loans to someone, but also be able to promote their business. Also be able to enjoy business that they just helped.

I give a lot of Kiva loans. And I recently funded a group of pig farmers in Vietnam. My mother is from Vietnam, so I feel better connected to Vietnam. And so I funded these pig farmers. But there’s no way I’m ever going to help them – I can’t help them sell their pigs and I can never taste the product that they’re making.

And yet, there’s so many products that come to our lives that do come from communities like those. So why can’t I also help those communities and then also be able to experience what we’ve been helping?

The original idea of Kiva for fair trade or for ethical products came from my co-founder Deborah Hirsh. She had this idea, she worked from fair trade. She said, “What if we could use it for something like this for fair trade and ethical producers?”

We met, and I was looking at ways in which you could create consumer movements for people to have ownership for things that are doing good for the world. And the two ideas came together; it’s what we’ve created for the group.

What were the challenges in adapting that mechanism from Kiva?

Actually, for our market and people that we work with, they very often start with product. If they can connect via some chocolate, that’s good.

The way Kiva approaches it is more from a location or a project. And so we have a lot of folks, their main action is it’s actually a product that does good. And so, when you look at it from a consumer’s perspective, someone that’s looking for product with different experience than if you’re coming from a microloan perspective.

We had to learn that early on, that there’s a different messaging and there’s a different way that people are going to want to interact – or on something that you’re also buying versus something that you’re just giving.

So we had to really focus on: How does being connected to people that make your products increase your enjoyment of the products? What kind of stories do you want to hear? How often do you want to hear them? How do you want to experience it? And then of course, since we’re talking about the product, you’d want to know where you can buy it.

There’s a whole other half of the cycle that we’re dealing with that Kiva has not done. So we’ve had the gaps.

What we’ve done, a big example of that is, recently, we moved to this idea of being able to take one action that normally gets you the product – that not only funds the microloan but also gets you the product at the same time.

So if you go to our website, you would see something – what we call “bundles” – that are combining a deal on a product that’s doing good for the world with the microloans for the people that make it.

This is something that we had to learn.

Our original problem is that people would fund loans, and they would say, “OK, I just funded this chocolate grower, this cocoa grower; I will now buy their chocolate.” What we found is that everybody wanted to be able to do that at the same time. They didn’t want to make the microloan and then go buy the chocolate. They wanted to be able to do two at once. And again, it’s something that we had to learn.

And then, the other thing that we learned because of who we’re working with, that all the fair trade and ethical brands, they really needed help attracting and finding the right customers. They didn’t want to win a deal or campaign that’s going to bring in the whole world – they wanted to bring in people who will be going to care about their impact.

And so they wanted to work with us because we have a way to do that because of the relationships we’re building with the producers, because of the microloan component. They saw that it’s a way to attract the right customers. And then, that encouraged them to stick around because they get project updates and they also get repaid eventually.

Again, that whole value proposition is very different for brands than it is, say, for a microlender. So we had to learn also to make sure that – as a brand – that they see the value that they’re getting from this.

All the brands that we’re working with, they all have missions. They want to make sure that their supply chains and their producers are doing well. But they also need to sell more products. And so that’s part of what we saw – it’s not only to enable the producers to get financing that they won’t get otherwise, but we also have to drive product sales for both the brands and also the producers that are supplying these products.

Social enterprises in general, and crowdfunding websites in particular, are on the rise. How do you keep ahead of the competition?

The biggest thing about there being more crowdfunding platforms is to make sure that your message is clear and your value is clear: Why are we different from Kiva, why are we different from these other groups?

But also in a crowdfunding [platform], it’s just the mechanism, right? It’s the means to an end. So, making sure that you stay focused on your mission and the value that it provides. And for us, that’s making sure that it’s about producers getting new opportunities and growing the market for sustainable products, fair trade products.

So that’s where we’re at, we focus on that. How to achieve that is through the right types of partnerships: with alliance organizations like Fair Trade USA, with all the different brands that we work with, with organizations like Good Capital. It’s very important … that your point of distinction isn’t that you’re a crowdfunding platform – it’s that your point of distinction is what you use that crowdfunding to do.

What was the pitch you made to funders when you were starting up?

The seed funders – they’re investors in our company – and the mechanism they used to invest in us was something that’s called a convertible note, which right now is a loan but it will convert into equity at a point in the future. So, they will actually own a piece of the company.

We looked for mission-aligned investors. So, people who were very excited with what we’re trying to build, who believed in our values, [who] wanted to do it also.

One of our biggest investors is a family who’s very strong proponents of fair trade. We have other early investors who have other investments in fair trade companies: They found [in us] another way to help make fair trade much more accessible to lots of people, so that everybody felt like they owned a small piece of the movement. They loved that idea.

So that was the basic idea, that not only could we have a great effect to raise money for producer groups, but we can help build the market and demand for these brands that are out there and hopefully, drive demand for ethical sourcing so that more companies do it, more companies see the value in having a transparent supply chain, having a supply chain that you’re taking care… again, knowing where your products come from.

Also, we can help you sell more products. …

They are impact investors. They have a portion that they [use for] traditional investments, but they have a portion of the portfolio that they use to do impact investments also.

What were your challenges in scaling up, and how did you overcome them?

We launched with an initial platform just to test out the idea about 11 months ago, at the SOCAP conference here in San Francisco. But we launched our real platform in April. We’ve learned a few things about what people actually engage with.

The biggest challenge when it comes to doing something like this is that we start to get in front of more people. So, part of what we do is that we do deals with all the brands that we’re working with. We do co-promotions and co-marketing. We promote their stuff and they’ll promote us.

They gain a lot more by coming together on our platform and co-promoting together. And they do it by trying to just own their small community. That’s one piece.

The other piece is through the channels. Again, the places where we connect create added value. So, part of that is looking at much larger brands. And we’re starting to toss them much bigger loans.

The other thing is more interesting platforms for communities. We’re talking to one of the largest marketplaces for fair trade and ethical products about how we can be a tool for them and add value where people can also do microloans and that people are making the products that are awesome.

The key piece that we’re focusing on is for us to get the right partnerships and the right channels for us to go through.

It’s not all about everybody coming to our website; it’s taking a piece of what we do out to interesting communities – that’s very critical. To do that is short of, say, Oprah Winfrey doing a story on us. You don’t need as many people when you have some very good press about us, as you saw in the Wall Street Journal, the great piece in Forbes just a couple of weeks ago. That’s good, but what you really need is to be in the places where your community is and having the right channels. Partnership is very critical.

In forging partnerships, what are the three most important factors you consider?

There are different types of partnerships but there’s some basic ones. That means mission-aligned – that we both have the same vision for the world, especially if it comes to how you work with the supply chain. How do you work with the people and at the end of it is increasing their power, increasing their visibility, increasing their opportunity for good things?

Certainly, for the brands that we work with, they need to know where their products come from, that’s one. And the other is that they have to be doing good work with their supply chain. Their supply chain, their producers have to like them.

And then, we’re a loyalty and engagement platform. What we provide is a way for companies to take the good work that they’re doing with the supply chain and use it to engage with new and existing customers at a deeper level.

So it’s got to be companies that are interested in investing in growth to say yes, I want to do more.

Just like we want companies that are comfortable in engaging their producers on a deeper level, to engage their consumers, their customers on a greater level and be comfortable with the two of them interacting on a new level – customers and producers. How open are they to letting customers play a role and what they do is very important. There are some companies that want to track customers but they don’t want to interact with them per se.

How do you “refuse” or “reject” organizations that do not pass your criteria for partners?

Sometimes it’s an operational level where we don’t work together. Or their product comes in but very quickly they become commodities – it’s hard to trace where [their products] came from once they reach consumers. It’s hard for us right now because what we’re trying to do is to create this closer connection. So when that connection is lost, it’s hard for us to work with them.

How do you end a partnership when things are not working out?

It’s often very mutual. They see what we need. Again, the idea that you need to be able to trace the end product all the way down to the producer. And it’s not through any fault all their own. It’s just, by the time it reaches the retail level, it might lose that information.

They understand. So generally, it’s mutual. And what we say is, let’s continue the talk ‘cause we’d love to work together. Maybe in the next six months or a year, we’d have something – either we will or they will – have been able to work something out, to have that problem overcome.

The Hoop Fund was able to raise $12,000 since its launch. How would you rate that?

We’ve had a pilot platform since October last year. And our first real platform, we launched March-April. And then the new idea of “bundling” products and deals came off in June. We’ve been figuring it out for a while, but we’ve only been going live for not too long.

I’m never satisfied. I want to be able to do more. I want to be able to help more people and engage more consumers. And again, the biggest thing that we’ve discovered is just finding the right channels to be in where we can reach a lot more people – even if everybody who sees what we’re doing likes it, you still have to see a lot more people.

Our conversion rate in terms of people coming to the site and doing something, funding a project, buying a bundle, or just joining is OK. It could be better. But the biggest issue is, rather than 10,000 people, how do you get to 100,000 people, how do you get to turn it even more than this?

Sometimes it’s just time, the longer you’re around, the more people know about you, the more stories people are telling about you. But at the same time as an organization, you’ll need to be able to do it pretty quickly.

So, I’m happy that we’ve proven some real value. There’s a lot of people that are holding us up as a model now. I’m just driven to do a lot more. There’s so many other people to support in the world. And there’s so many more stories to show off. I just want to be able to do it all a lot faster.

Read our last ‘How I Did it.’

About the author

  • Che de los Reyes

    As a senior staff writer, Che focuses on international development breaking news coverage as well as interviews and features. Prior to joining Devex, Che handled communications for local and international development NGOs and government institutions in the Philippines.