Thursday, September 12, 2013

Crowdfunding for Nonprofits - Hype or Hope?

Crowdfunding. It's a money-raising buzzword. It's trendy and in some cases, trending. It's the 21st century way for small businesses, artists, entrepreneurs and yes, small nonprofits to access cash for projects. Grants and government funding are incredibly competitive, and there is an element of the "good-ol'-boy network" mentality involved. Really new or very small nonprofits are often excluded just because they don't fit in that network.

Just a half-dozen years ago, no one thought of crowdfunding as a viable business model. Most business people were familiar with investor groups, but the idea of doing a whole fundraising campaign on the web was well, sort of a fantasy.

Then, in 2008 and 2009 respectively, Indiegogo and Kickstarter appeared on the scene. Primarily aimed at the performing and visual arts and the for-profit business market, these platforms offered a way for small businesses and start-ups, and even individuals to access funding for projects. Nonprofits have a category too.

In the last two years I have seen a decided uptick in the number of crowdfunding sites catering to nonprofits. So, is this a viable way for small nonprofits to access cash for programs?

I'd have to say "it depends". Like any new business model, crowdfunding has its share of hiccups. Initially, I saw a lot of sites go up that purported to be absolutely free to use. "We don't take a dime of donations for ourselves" was, and is a common tagline. Many of those sites no longer exist.

It costs money to build and host a website, process donations, keep track of whose projects fund and whose need to have money returned to the "crowd-vestors" ( I don't know if that's a real word…but it works for me!). Absolutely free just isn't going to pay the bills.

There didn't seem to be a lot of vetting of the projects and nonprofits for the donor's peace of mind.
In some cases, there was no way for the donors to receive an accounting for whether the money actually resulted in tangible gains or completed projects. Some sites gave the donors back their money if the project didn't fund, while others allowed the project owner to keep whatever funds were raised.

Lately I notice that many crowdfunding sites are themselves for-profit businesses. They charge a listing fee or other service fee, either from the donor, the project or program owner, or both. They withhold the credit-card processing fees so that the cost is not coming out of the site manager/creators funds. They seem to have a more stringent verification process for the nonprofit and to require more verifiable data before listing a program/project. In short, they have a business model and there seems to be some thought behind making the sites sustainable. Many like Uruut (www.uruut.com) are brand-new, but seem to have a grasp on the funding sources for the nonprofit sector.

Crowdfunding is certainly an avenue for small start-ups, both for -and non-profit, to explore. Like any other business venture, do your due diligence. All venues that have money as a component are ripe for exploitation and outright fraud. Service providers to the crowdfunding industry should be vetted. One resource I found was an ongoing five-part series on the website www.crowdcrux.com. titled "Doing due diligence on crowdfunding service providers". While it doesn't specifically apply to nonprofits,  the tips will undoubtedly apply across the board.

Exploring crowdfunding certainly provides the little guys with some hope of succeeding. Just remember, there is no such thing as "free". In this case your effort in selecting a good platform sponsor and a credible campaign will be the price you pay to increase your chances of success.


©091413 R.L. Baisch

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