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Go Fund Yourself: What is Crowdfunding?

 In Donations & Fundraising, Management

With advances in modern technology and the ever-increasing opportunities to give back to the community, many nonprofit organizations have turned to the Internet for help. Crowdfunding, the practice of funding projects and charities through many, small amounts of monetary donations via the Internet, has taken the nonprofit world by storm. This is in large part to its quick, easy accessibility and ability to reach people (typically on social media) all over the world.

Given the popularity of crowd-funding, it is reported that crowd-funding will become a $90-95 Billion industry by 2025. One example of a crowdfunding site, GoFundMe, has already raised over $5 Billion since 2010. GoFundMe users offer a variety of philanthropic causes for altruistic Internet users to donate. Crowdfunding can be a very reliable and effective tool to solicit donations all over the world, but keep in mind that with evolving technology also comes newer complications. While crowdfunding is becoming the shiny, new, and magical tool modern nonprofits are using to generate charitable revenue, there are still some important details to consider:

  1. Asking for Donations: Do I Need to Do Anything?

Given that crowd-funding involves interacting with donors from every state across the U.S., it is important to know whether the donor’s state has laws on the books about online charitable solicitation. Many states have a “charitable solicitation registration,” which requires that the nonprofit organization, as well as any third-party, paid “professional fundraiser” raising money for the nonprofit, register before soliciting donations. There are generally registration exceptions for religious organizations, accredited schools, nonprofits that collect contributions solely from its voting membership, and organizations with no employees that raise de minimus amounts. Charitable registration requirements could complicate online crowd-funding if state charity agencies require nonprofits to register when participating in crowdfunding efforts. They may also make the process of soliciting donations from multiple states more expensive, time consuming, and just plain burdensome.

  1. Online Trolls: When Online Donations Can Become Risky

The Internet may be an easy way for people to transmit messages, send money, and gather information, but it is just as easy to fall victim to online predators. First, online fundraising has attracted criminals who profit from dishonest fundraising practices and exploit generous citizens. Second, phishing, or the practice of using emails or passing off as another person, can often trick users to give up personal information such as credit card numbers, bank account numbers, social security information, and other details. The Federal Bureau of Investigation reported over 19,000 crimes related to phishing, including several users who passed off as online charities, both public and private. If you are using a legitimate crowd-funding site like GoFundMe, you will likely not run into this problem, but it is important to know that traps like this exist for the unwary. Luckily, GoFundMe offers users a 100% donor protection guarantee ensuring that all donations make it to the intended beneficiary (i.e., your nonprofit).

  1. Fees & Costs

Some online crowd-funding sites require users to pay fees to set up their online donation site. While setting up a campaign is free on GoFundMe, donors must pay a 5% processing fee in addition to their specified gift. This fee may deter some donors, so it is wise to diversify your charity solicitation efforts to include traditional fundraising methods.  In addition, if a user fails to raise the “goal” amount associated with the donation campaign, some crowdfunding sites will refund donors and the user will not receive any of the money collected.  So, beware of setting goals too high (or too low). GOOD LUCK!

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