Can Crowdfunding Ever Sustain a Nonprofit?

The latest fundraising method, which seems to be sweeping the nonprofit industry, is the concept of a large group of total or nearly total strangers making small donations via dedicated web platforms or apps. This unique method of fundraising is known as “crowdfunding.”

Crowdfunding is also all the rage for startup for-profit ventures. In the overall spectrum of crowdfunding, a majority funds are going to these for-profit projects, such as funding a new businesses or idea on Kickstarter or Indiegogo. However, there are still significant dollars being raised for nonprofit projects via peer-to-peer apps and services, so it is worth exploring for a moment.

Wikipedia’s entry on crowdfunding is quite interesting. The particular section on “philanthropy and civic projects” reads as follows:

A variety of crowdfunding platforms have emerged to allow ordinary web users to support specific philanthropic projects without the need for large amounts of money.^[18]

Global Giving allows individuals to browse through a selection of small projects proposed by nonprofit organizations worldwide, donating funds to projects of their choice. Microcredit crowdfunding platforms such as Kiva (organization) and Wokai facilitate crowdfunding of loans managed by microcredit organizations in developing countries.

The US-based nonprofit Zidisha offers a new twist on these themes, applying a direct person-to-person lending model to microcredit lending for low-income small business owners in developing countries. Zidisha borrowers who pass a background check may post microloan applications directly on the Zidisha website, specifying proposed credit terms and interest rates. Individual web users in the US and Europe can lend as little as one US dollar, and Zidisha’s crowdfunding platform allows lenders and borrowers to engage in direct dialogue. Repaid principal and interest is returned to the lenders, who may withdraw the cash or use it to fund new loans.^[61]

DonorsChoose.org, founded in 2000, allows public school teachers in the United States to request materials for their classrooms. Individuals can lend money to teacher-proposed projects, and the organization fulfills and delivers supplies to schools. There are also a number of own-branded university crowdfunding websites, which enable students and staff to create projects and receive funding from alumni of the university or the general public.

Several dedicated civic crowdfunding platforms have emerged in the US and the UK, some of which have led to the first direct involvement of governments in crowdfunding.

What are the potential dangers to nonprofits?

There are a couple attributes of crowdfunding to be aware of before you and your nonprofit embark upon this method of fundraising:

1. Variable charges beyond credit card fees vary widely.

Be aware of the fees being charged above the normal credit card processing fees. These often range from 1% up to as much as 5% or more per transaction! These add up quickly if it is a large campaign. These “skimming” fees differ from a flat monthly or yearly fee that you would expect to pay for other types of software.

In some cases, it is truly a buyer beware situation. It is best to consider some form of comparison-shopping and extremely clarity on what the vendor will charge you.

2. Who owns the names of the donors?

What happens to the names and contact information being gathered by the crowdfunding platform? This should be another crucial point of comparison and exploration. Without ownership, will you be able to properly thank donors following the campaign’s completion? If you can’t bring donor information from the crowfunding app into your donor database, will you be able to nurture a long-term relationship with them?

75% to 90% of most annual funding is via repeat donors. The ramifications on your mission funding should be considered.

Crowdfunding is most likely here to stay in one form or another. Weigh the various points above to decide if it is a proper supplement to your fundraising efforts, rather than a replacement for tried and true professional fundraising practices in order for your charity to sustain itself and your mission long term.

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