Financial Strategy

Capital procurement, as the process, to acquire capital goods and services to fulfill a goal (Sourcing Industry Group) is a critical part of every organization to fund projects and the organization itself. Therefore, to enable the project by Solare Zukunft of a “Sustainability Hub” in Freiburg solid funding is needed. In the first place to enable capital procurement for the “Sustainability Hub”, it is useful to create a detailed concept of the project, which is done through a business plan. To evaluate capital procurement methods as part of the financial plan of the business plan it is important to contour the general conditions, including the cost estimations of the premises and the consequential revenue. Normally a financial plan contains the current monetary situation and all long-term monetary goals, the strategies to achieve the goals, as well as the expected cost for the setup (McKeever 2018). Since Solare Zukunft only requested a “rough” Business Plan for the “Sustainability Hub” to give possible investors an idea of the project, the financial plan with its capital procurement methods is kept more as an overview and elaboration than a strict plan. The premises of the “Sustainability Hub” will create costs that can be divided into fixed and variable costs as shown in Figure 1. While the variable costs mainly consist of maintenance costs and operational costs, the fixed costs will include property costs, planning costs, building costs, and others. It can be expected that the variable costs can be financed by current revenue like leasing the premises for events, conferences, and meetings. Whereas the fixed costs primarily must be financed from investors, donators, sponsors, etc. – capital procurement methods.

Solare Zukunft stated two options for the premises – either an existing building or a new one. If an existing premise is found the cost estimation is highly dependent on the conditions on-site. Therefore, only the cost determination of a new building will be contoured in the following, even if renovations can use the same bases. Since overestimating and underestimating the cost of construction can be crucial for a project and accuracy in cost estimation is important for a successful project, the construction costs for the “Sustainability Hub” should be estimated. Common cost drivers for construction include Materials, Services, Equipment, and Labor (Ashworth & Perera 2015). With increasing volatility in supply chains an increasing amount of capital should be available for these kinds of uncertainties (Rice & Klibi et al. 2022) as well as for building “green” since the linking between capital cost and building “green” is still a field of current research (Rehm & Ade 2013). To get insights into how other organizations are financing themselves and their projects extensive market research of associations with a close thematic focus to “Solare Zukunft” around Freiburg [linking to the analysis] has been done. It is observable that the investigated organizations use different methods to finance themselves. Figure 2 shows a word cloud of the financing methods. The font size indicates the appearance of a single word in our research.

From the market research extracted Word-Cloud indicates that the reviewed NGOs mainly use three different methods donations, membership, and sponsoring. Therefore, in the following, only the three major methods will be viewed. A membership Organization is an organization that allows people to subscribe, with often a membership fee. Membership organizations have the purpose of connecting people around an activity, domain, interest, industry, or geographical location (American Society of Association Executives 2016). Besides collecting monetary capital, a membership also pools social capital from all members which are beneficial for every single participating person (Larance 2001). Donations can be either monetary or other resources like services or goods. Recurring, One-off, or Volunteering are three common types of donations. While recurring donations usually are small monetary amounts from long-term allies, one-off donations are single higher monetary amounts that appear usually in highly visual events. Volunteering as a service donation commonly appears in form of a workforce for a period. Sponsorship as a capital procurement method is considerable like donations. The difference is that the givers (sponsors) usually corporations want something in return for their sponsoring while donors come more from the philanthropic nature of humanity and do not expect something in return. The two main types of sponsorship are financial and fundraising sponsorship. While Financial Sponsorship can be characterized as regular agreements that support the non-profit organization for the time of the agreement, fundraising sponsorship can be events or campaigns for raising money.

Depending on the needs and the structure of the organization the focus on each capital procurement method can differ (Martin 2022). In the underlying market research, none of the investigated non-profit organizations named crowdfunding as a financing method for their projects or the organization itself. Even though the expected average funding per Campagna in Germany is growing (Statista Research Department 2022), which indicates that the probability of crowdfunded projects is also increasing. Crowdfunding is a collective cooperation by people who network and interact, and raise capital together, usually via the internet, to support efforts by other people or organizations (Lawton & Marom 2010). Crowdfunding is a unique method of collecting hundreds of thousands of dollars for one’s own investors or securing funding for extremely innovative ideas. This form of financing is gaining popularity beyond its funding function, and crowdfunding is being used to market innovative projects, beyond money-raising purposes (Belleflamme & Lambert et al. 2013), which could be beneficial for the project of a “Sustainability Hub” since an increased range of possible interested people in a certain project can help the project itself (Fichtel 2019). Some even say that “Crowdfunding is the next step in the world’s progress towards a globalized society promoting cultural and geographical diversification, towards pacification and education of all people, towards economic stability and equality” (Brüntje & Gajda 2016). Crowdfunding as the concept of exploiting a large number of people, and investing small amounts of money to carry out capital-intensive tasks was born in Germany during the seventeenth century. In 1884 the American Committee raised over $100.000 for the Statue of Liberty’s pedestal from over 160.000 donors. With the internet, crowdfunding campaigns enable even more benefits of visibility and feedback. (Brüntje & Gajda 2016) For associations, there are two main types of crowdfunding – classic and donation-oriented since no shares are to be sold. In classical crowdfunding, the investors receive a non-monetary appreciation for their support. The investor is primarily interested in the results of the project and personal profit if the project is successful. For donation-oriented crowdfunding, the donors receive nothing in return. (Mennig 2020) The reason is more from philanthropic nature, supporting social projects and organizations. To answer the question of whether crowdfunding is successful it is appropriate to have a look at the latest “Global Alternative Finance Market Benchmarking Report” from 2019 For the European Union and United Kingdom, a classic volume of €158.8 million with a success rate of 66% and a donation-oriented volume of €53.14 million with a success rate of 69% was determined. A successful crowdfunding campaign in Germany could be even higher since the risk for campaign fraud is 15% lower compared to the average. (Wenzlaff & Britney Wang et al. 2020). Since digital marketing reduces the cost per person or visit to reach interested parties (Poddar & Agarwal 2019), crowdfunding could be an efficient way for Solare Zukunft and their project to reach funders and as a side effect increase the level of recognition not only for citizens of the city of Freiburg but also for visitors. Known crowdfunding webpages for associations are for example:

• “fairplaid.org”
• “betterplace.org”

To perform a crowdfunding project reaching the funding goal several things can increase the probability of success. A study of 500 Kickstarter.com projects tried to find predictors that can help reach the funding goal of a crowdfunding initiative. One result of the study was that the presence of a video explaining the project’s features highly correlated with a higher probability of success. In contrast, setting a too-high funding goal lowers the success rate. The study also discovered that the presence of special offers for early investors and showing commitment to the platform by helping other projects are two good mediators influencing the relationship between the number of purchases of the project and the rate of funding. (Brüntje & Gajda 2016) It can be expected that the project of a “Sustainability Hub” with its premises-, property-, etc. cost will be high and therefore challenging to finance. Aside from the more traditional procurement methods sponsorship, membership, and donations, it is recommendable to also include crowdfunding in the overall financing plan. As above mentioned, the success of reaching the funding goal correlates with the high of the goal – hence splitting the project up into smaller sub-goals could increase the financing by the crowd. The local limitation of the project can be captured as a burden for inter-/national funders since then the motivation is only of philanthropic nature. Reacting to this challenge possible funders could receive some sort of non-physical credit like an online workshop for installing solar panels on their balconies. As a Side effect crowdfunding could also increase the overall visibility of Solare Zukunft internationally and therefore also for tourists visiting the city of Freiburg which again would increase the overall visibility.

Nonetheless, it is most likely that donations and sponsorship will be the driving capital procurement methods for financing the “Sustainability Hub”. However, beyond the financial part membership and especially crowdfunding shows the higher potential of interaction with people, which is crucial to ensure the human-centric alignment and make the place vibrant and well implemented into the urban context.