blainehansen

Adaptive Grants, a crowdfunding structure for truly ambitious public goods

By building more accountability into crowdfunding, we can make it safer to fund unknown creators and large projects.

published: November 7, 2023 - last updated: November 8, 2023

Crowdfunding is obviously a good idea, and has been proven effective.

However it's generally well-understood that a crowdfunding campaign is unlikely to be successful if the creators don't already have a large following and a strong reputation. I think this is a problem.

The ability to "build a reputation" doesn't necessarily correlate with the ability to successfully complete an impactful project. There are many deeply skilled, creative, and determined people who don't have the opportunity (or forethought) to do their work in public. Most of the work that most people do at their day jobs is private and counts for nothing in the public square that is the internet.

And even worse, there are many people who are very skilled at building a reputation that definitely don't have the skill to complete an impactful project! It's pretty easy to put together a team of marketers and designers and hype a product that you definitely can't build.

The idea of Adaptive Grants is an attempt to fix this problem in both directions. My hypothesis is that by adding substantially more accountability to the process of crowdfunding, backers will feel safer taking risks on unknown or very large projects, and it will be easier to shut down projects that aren't making progress and refund whatever money's available.

Here's the core idea of how an Adaptive Grant would unfold:

  • Creators draft a project description as usual, but they must include a detailed plan with monthly budgets, project milestones, and cushion for the unexpected.
  • Backers pledge to the project, raising the full budget amount. The project begins once the entire budget is raised.
  • For the entire project duration, only one month (or whatever period) of funds are released to the creator at a time. This means the maximum they can run away with is a single period of budget. Creators are as usual expected to give updates on their progress.
  • Every period the backers can cast a persistent vote (opens new window) weighted by the size of their backing on whether the project should continue. For now I'm not exactly sure how the votes should actually be added up. (Should it work like some kind of persistent commitment (opens new window)? Should a mere threshold of 50% approval be good enough?) If at some period the voters have decided not to continue the project, the remaining budget is refunded to them prorated by how much has already been spent.
  • If the project completes and the backers signal vote that they're satisfied, then whatever budget is left over is given to the creators as a "prize". This gives them an incentive to finish in time and under budget. (It might make sense to allow budgets to explicitly include an extra "prize", but some communities might not love that 🤷‍♂️)

This simple "vote to continue" system seems like it would be enough to prevent (and therefore deter) the most malicious actors, and gives enough control to the backers to allow them to take bigger risks!

And it allows the creator to build the idea of "increasing reputation" into the project timeline itself! Often it is possible for earlier project phases to involve less people and equipment, making them cheaper to fund. If an unknown creator is able to design the project timeline to start cheap as they solve small problems, reduce uncertainty, and validate their abilities before ramping up cost and complexity, then their pitch can be very compelling and low-risk despite their lack of reputation.

In general, if we want our world to have more shared and open public goods it seems especially important we solve this problem. People with creative ideas and the skills to execute them shouldn't have to dither around tweeting or writing blog posts to build up their reputation. They should be able to bring the idea directly to the communities most possibly interested in them, and have a reasonable chance of getting an opportunity to prove their mettle.

This idea might seem like overkill, but it's important to remember that even if failed projects are actually quite rare, trust is more easily destroyed than built. A small number of malicious or overwhelmed creators can ruin things for all the other capable people who don't have a strong online brand.

§ Okay sounds good, are you going to build this?

Although this idea is compelling to me I'm not sure I'll be able to get to it soon, since I have a lot of other things going on. Previously I built a toy version in this repository (opens new window), but I'm not satisfied with it and if I ever try again I'll restart it entirely using different tools. (These kinds of side projects are a great opportunity to play around with different technologies! 🤓)

Maybe you should do this!! If you decide to pursue it please reach out!

If I do pursue this idea, it would be run as a Persistent Democracy Cooperative.

Also here are some other random thoughts about how to better structure such a site:

  • It seems crazy credit cards are the de facto payment method online despite having massive transaction costs. ACH payments (opens new window) seem much better for a system like this where refunds might need to be issued at any time. I'm pretty convinced this site should require backers to pay credit card fees, giving them an incentive to set up and use a lower cost method such as ACH.
  • Backers are charged up front, ensuring that the true fundraising goal is reached. They can always be refunded if the project goal isn't met.
  • Just like any crowdfunding system, the project can offer rewards. However if those rewards themselves cost money to fulfill, then that cost should be subtracted from the actual contribution of the pledge to the budget goal. In general the site should do as much as possible to help creators construct a sound budget that accounts for the fact that some rewards have larger "per-item" costs that don't contribute to the "lump sum" nature of the project. Also user-variable things like shipping should just be added onto the pledge cost.

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