Tuesday, April 9, 2013

Crowdfunding for nonprofits-an overview

New and small nonprofits, much like new or small businesses, struggle to attract capital. I have addressed some ideas for those wishing to start a nonprofit in previous posts, but if you've cleared the first hurdle of forming a recognized 501(c)(3) you may be asking - what now?

You have probably independently confirmed my oft-repeated advice that there really is a gap between becoming a nonprofit and applying for support from grants. There isn't enough privately controlled foundation, corporate or public government funding out there to support every nonprofit and there probably never will be, so what other sources are there? According to Giving USA statistics published on a government website, in 2011 73% of all charitable support was contributed by individuals[1]. The problem is in directing that support to you, particularly when it is outside of your immediate local area.

One source gaining popularity is the crowdsource or crowdfunding model. The idea behind this as it is currently being used is similar to investing groups for businesses. Crowdfunding is a growing industry of its own, stemming as do most business models from need. One example of this is found in companies formed in emulation of the Kickstarter creative project funding model.

Essentially, these are web-based donation aggregators. For the purposes of this post, I am only considering those that cater to small nonprofits or smaller projects versus the large social impact investor sites. Some are locally focused, while others are regional or national in geographic focus. 

The cost of fundraising on these sites range from a  few dollars to as much as 15% of the total amount raised or donated. All of the twenty or so sites I have researched to date have some sort of monetizing strategy, and that is just fine as long as you carefully weigh the pros and cons. Most charge monthly fees ranging from under twenty dollars for a monthly account to several thousand dollars for annual memberships. Most of them charge processing fees for each donation on top of the sign-up fee. Just be aware that these fundraising sites are businesses in their own right and have to make money to survive.

These sites have different presentation strategies, ranging from simple narrative postings to video presentations. Some require videos, others allow images and graphics while some are text-only. This is one place where having a professional review your presentation before you post it will certainly improve your chances. Some of the sites offer this as a fee-for-service add-on. Another consideration is your social media presence. Some of these sites require that you utilize Facebook or other social media platforms to raise the funds, so you will need to develop a broad base of social media contacts to be successful.

Aside from the charges, there are some other things to consider. If you do not reach your funding goal, all donations are credited back to the donors, often in the form of a credit to be used for other projects. I have seen some squawks from donors online because the funds weren't returned to them directly, or that refunds were slow. Funds are usually disbursed from 30 to 60 days after the funds are made available by donors.

This fundraising strategy is certainly an avenue to consider. Caution here: I cannot possibly stress too strongly the importance of doing thorough due diligence  when signing up on these platforms. Some are apparently successful and reputable, but there is certainly great potential for scam artists here. Check with the charities that are currently posting on the sites. If the site gives a list of funded projects, verify that the project or charity actually exists and ask for feedback on their experience with the site. Read and re-read the terms of agreement for site use. This is not the time to blindly check "I agree".

Supporting your nonprofit - Rebecca Lee Baisch dba Cloudlancer Writing Services

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