What is Crowd Fundraising?

How did a fundraising appeal to make an ordinary potato salad raise over $55,000? Simple – crowd fundraising : )

 

Zack “Danger” Brown posted a short proposal on crowdfunding invention and ideas site Kickstarter. His campaign to raise $10 for potato salad was a joke that came just at the right moment. It’s a spot on parody of the style of many campaigns (look at a couple of serious ones and then watch his behind-the-scenes video). Enough people liked it that he raised his goal 5,500 times over. While Brown’s freak success is rare (other joke campaigns have not done as well), it shows the potential power of crowdfunding.

What is crowdfunding?

Crowdfunding is a way of raising money from donations, usually donations made online. There are three groups involved: “the project starter” (also known as “the campaign starter”), who receives the donations, the donor, and the host website (that posts the project and processes the donations). If you haven’t seen any crowdfunding websites, have a look here and here for examples.

There are heaps of crowdfunding sites – some fundraise for business investments, some are exclusively for community projects, some fund inventions. We want to focus on sites that allow fundraising for community groups like schools, clubs or individuals AKA crowd fundraising.

Crowdfunding is a fundraising buzzword at the moment. It feels like everyone’s read an article about someone raising $10,000 to take their cat to the Cat Olympics. It seems like anyone can do it. Many a community group have asked themselves: “Why don’t we try crowdfunding?” But only a small number of schools and clubs venture into the online world of fundraising, and many campaigns don’t do well.

One reason for this is that the crowdfunding world is big and growing bigger, and it causes a bit of deer-in-the-headlights syndrome. How do you choose between Ozcrowd or iPledg, Kickstarter and Dreamstarter? We’ve taken a look at some differences between different websites, to give you an idea of which one might be a good fit for you.

We have an upcoming article taking a look at five crowdfunding websites that might be suitable for Australian fundraisers. As always, have a look at the fees, terms and conditions, privacy policy etc before making your final decision.

How it works

To qualify for most host websites, projects need to set a goal (in our instance a fundraising goal), a deadline for when donations close and post a description of what the money will be used for. This sounds simple, but usually includes making a video (many sites require it, but all of them recommend it). It also means keeping up a good flow of communication (usually through social media) between you and the people who agree to fund your project.

The ‘catch’ is that almost all sites will charge processing and credit card fees in return for hosting your campaign. These vary from site to site so be wary to research the current fees.

Many sites also incorporate ‘perks’ (or ‘rewards’) – these are awards, or thank yous for giving to the project. Have a look at some successful projects for ideas, but perks can range from a Facebook shoutout thank you, to receiving a t-shirt, to naming a building after the giver – the world is your oyster! The more imaginative, the better. (This may even be a job for your Thank You Sergeant).

Unfortunately, there are conditions about what can be given as perks (have a look at your host’s terms and conditions). Crowd fundraising works on the idea that the donated money qualifies as a gift (and because of this, is tax exempt for the campaign starter). If the perk is too valuable, the project looks less like a charity and more like a business. So for example, you couldn’t give gift certificate as a perk because that has a tangible monetary value.

If you are registered as a charity, and depending on the site, you may be able to generate tax deductible receipts automatically. However, just because you’ve posted a project on a website like Indiegogo, or Chuffed, does not automatically mean that donors gifts are tax deductible – you have to register for that yourself.

No Snake Oil or Time Travelling Please

All of the websites expect that if you post a project and receive money, you will carry out the project. Otherwise, you risk your project becoming a scam, and they’re illegal. Campaigns that are also banned are ones you know to be physically impossible (eg ‘My Time Travel Adventure Back to 1985’ would not be a goer). Many sites also will not fund projects that are promoting sexual behaviour or adult products.

Fixed or Flexible?

There are usually two types of funding models, and again, websites use slightly different names for each of them – the ‘fixed’ funding model, or ‘flexible’ model. In fixed funding, the project must reach its amount goal by the deadline, otherwise it will not receive any of the money. This is especially good for donors. If the project doesn’t go ahead, they won’t be charged anything.

The flexible model means that regardless of whether the project reaches its fundraising target, it will receive the money raised (minus any fees).

The Stuff You Don’t Read

Terms and conditions (also called terms of use or something similar) were often hard to find on the sites, but if you Google “[site name] terms and conditions”, they’ll come up in the results. Obviously, make sure you check the terms and conditions before you sign on. Many of the sites say they won’t necessarily notify you if there are any changes to the terms, so it’s up to you to check for updates (they’ll often list the last date the terms have been updated at the top of the T & C page).

Same goes for privacy policies.

T & Cs will often include some waivers, minimum fundraising goals, as well as a section on intellectual property. You should make sure that you’re certain what each of these would mean for you.

It is a wild world out there. There are some unbelievably lucky stories, many solid successes, as well as lots of quiet failures. Crowdfunding is not the magic bullet, and stories of people hoping to raise $10,000 and ending with $50,000 are VERY rare. Most successful projects happen when their creators use networks to reach donors, and communicate their message really well. Have a look at our upcoming article (the Habits of Highly Successful Crowdfunding Campaigns) to find out how to make your project something special.

Have you had any experience with crowdfunding? If you have any crowdfunding stories, let us know!