How crowdfunding is replacing bake sales and car washes

Posted Friday, Jun. 21, 2013  comments  Print Reprints
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More information Giving wisely • Crowdfunding websites typically take a percentage of the donation ranging from 2 percent to 25 percent and may also deduct payment processing fees. • Make sure you have some personal connection with the campaign donor or cause. Crowdfunding sites are not required by law to check up on the authenticity of each campaign and they typically do not. • Some crowdfunding sites only take money when the goal is reached. Check credit card statement to make sure if charge was made. • Contributions through these sites may not be tax deductible. Crowdfunding donations made to support a specific individual or family are considered a “personal gift” and not a charitable contribution. • Make sure the crowdfunding websites on which you donate securely encrypt all transactions using Secure Socket Layer (SSL) technology. Look for https at the beginning of the website address. Source: Better Business Bureau, CrowdSourcing.org, Savvy Consumer

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Your next fundraiser — whether you’re a sports team, college student or small startup business — may be online.

Crowdfunding — which uses the Internet to raise money on a timeline for a specific purpose — is growing exponentially as people connect their social media networks like Facebook and Twitter to fundraising.

An industry report on crowdfunding by Crowdsourcing.org showed there were 536 crowdfunding platforms or websites at the end of 2012, 60 percent more than a year earlier. In 2011, $1.5 billion was raised in more than 1 million campaigns worldwide and that volume was expected to double in 2012, according to the report. Most of that activity was in North America and northern Europe.

That growth mirrors what is happening at one leading crowdfunding website, GoFundMe based in San Diego, according to Brad Damphousse, the website’s founder and CEO.

“Since we launched in 2010, GoFundMe users have raised over $80 million from 1.25 million donors,” he said. “The growth has been massive with no signs of slowing down. GoFundMe grew 500 percent in 2012 and continues to grow an average of 30 percent each month in 2013.”

For Fort Worth brewers Brad Morian and Matt Morales, crowdfunding on New York-based Kickstarter was a relatively easy way to raise $15,729 in 45 days this spring. The money was used for more equipment and marketing for their fledgling beer business.

“We were very happy with the results,” said Morian, co-founder of Social Brewing Co. “It’s humbling and surprising to receive so much support from the community.”

Morian estimates that about half of the money raised came from family and friends making donations on Kickstarter. Another 40 percent of the funds came from the local Kickstarter community, he said, while the remaining contributors were from out-of-town.

Morian attributes the success of his campaign to being able to show updates on the company’s Facebook page and extending the campaign from the recommended time of 30 days to 45 days.

“Money came in a lot slower than we thought it would,” he said. “More than half didn’t come until the last two weeks. Friends and family didn’t act on it until the very end.”

Another reason for Morian’s success was the promotional products, from stickers and key chains to T-shirts and mugs, and membership offers given at certain donation levels.

But ultimately it was the free advertising on Kickstarter that made the effort worthwhile, Morian said. (Most crowdfunding websites do not charge to set up a campaign.)

“It gave us exposure to thousands and thousands of people across the nation,” he said. “People donate because they want to be a part of something. Crowdsourcing is so simple in concept and so powerful in effect.”

Not all campaigns turn out as well as Morian’s, however. Kickstarter’s website says only around 44 percent of its campaigns have been successful. Unlike most other sites, however, Kickstarter doesn’t collect anything from donors unless the goal is met and it does require campaigns to meet its project guidelines.

Most crowdfunding sites have a specific niche. For example, Kickstarter is project oriented and generally linked to the arts, food or technology.

On the other hand, GoFundMe is designed specifically for personal fundraising. The top categories for fundraising campaigns on the site are for medical and education costs, volunteerism efforts, personal emergencies and sports, Damphousse said.

“People will always be eager to support others they care about,” he said. “GoFundMe removes the physical barriers traditionally associated with asking for and receiving money from the people in our lives.”

Current local examples include a donation page for someone with medical bills from cancer, a couple raising money for their honeymoon and a student looking for help with the cost of graduate school.

Most crowdfunding sites have a fee — ranging from 5 percent to 25 percent — for each campaign, according to the Crowdsourcing report. In addition, there are additional charges for using a credit card to make a donation, which is what is used at most of the sites.

For example, GoFundMe takes a 5 percent fee for each donation you receive, plus its WePay account set up for users inside the site charges 2.9 percent plus 30 cents per transaction.

Still, those costs beat most other fundraising costs, Damphousse said.

“Crowdfunding with GoFundMe is far more efficient and effective than traditional methods such as bake sales or benefit dinners,” he said. “Plus, there’s no up-front costs and results speak for themselves.”

While crowfunding is currently only in the donation arena, it will soon expand into business investments. The Securities and Exchange Commission is currently writing rules for just how that will work.

Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net

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