Is Crowdfunding an Alternative for Nonprofits?– October 15, 2015

One of the main challenges nonprofits face is finding the money to accomplish their mission. Fundraising events continue to get more creative, from golf outings, marathons and dance-a-thons, to polar plunges and even repelling down buildings. But have you considered crowdfunding?

If your nonprofit organization has a large social media presence, including a website and accounts on Facebook, Twitter and even Instagram, you may have the platforms in place to launch, run and support a successful crowdfunding campaign.

What Is Crowdfunding?
In its simplest form, crowdfunding is an effort to raise smaller amounts of money from a larger number of people, which can add up. For-profit organizations use crowdfunding to attract investors, while nonprofits use crowdfunding to raise money for their organization as a whole or for specific projects.

Here’s how it works:

  • Supporters can create “child” webpages, allowing their network of friends and colleagues to donate to the organization’s campaign as well.
  • The campaign can be promoted to potential contributors via the nonprofit’s existing Facebook, Twitter and other social media platforms to widen their reach.
  • A nonprofit creates a “master” or “parent” webpage on a crowdfunding site — such as Crowdrise, Fundly, Kickstarter or Indiegogo — to showcase a specific project and accept donations to help fund it.
  • The nonprofit monitors the crowdfunding page and uses it to remain transparent, reporting on project status and final results.

A crowdfunding campaign can be set up exclusively as an online campaign, or it can be used to supplement other sources of funding for a project. For example, crowdfunding can enhance fundraising activities for an annual event, such as a golf outing or marathon. The crowdfunding page would be geared towards funding the specific event but also could focus on getting supporters to actually attend as well.

Is It for You?
Like any fundraising event, your organization will need to evaluate the cost and benefits before starting a crowdfunding campaign:

  • What is your end goal?
  • What will it take to get you there?
  • Which crowdfunding website should you choose?
  • Do you have resources available to set up, monitor and maintain the webpage(s)?
  • Do you have resources available to promote and publicize the new campaign throughout its duration?

Most importantly, are you aware of the current laws and regulations surrounding online fundraising? The last thing you want is to hinder all of your fundraising efforts and put your organization at risk for noncompliance. Currently, crowdfunding is a loosely regulated market where laws and regulations are fuzzy. This is particularly true regarding potential issues that may arise for a nonprofit — such as which state registrations would be required when hosting an event in one state, with the crowdfunding platform hosted in another state and potential supporters residing in yet another state. As of June 2015, multiple states have enacted or adapted their own laws to address intrastate crowdfunding. However, at this time, Ohio is not one of them.

Transparency is Key
If you decide crowdfunding may be an option for your organization, be sure to keep your campaign transparent. “The Crowdfunder Bill of Rights,” which is being drafted by consultant David Neff in conjunction with others in the nonprofit community, suggests the following guidelines:

  • Set clear timelines and goals
  • Be upfront with potential supporters about fees that may be associated with the campaign
  • Report back to supporters on their impact to reaching your goal
  • Set a policy on how to handle an under supported project
  • List the moral imperative considerations that may impact the funding of your project
  • Offer rewards to supporters
  • Offer alternative ways to get involved with the organization
  • Conclude on the efforts by showing the results of your project

Crowdfunding, on its own or in tandem with more traditional fundraising efforts, has the potential to amplify the funds nonprofits can garner for their cause. But, as you would with any new fundraising initiative, before starting a campaign determine your goals, strategy and execution. In this instance, it also is a good idea to check with your legal counsel to make sure you understand the applicable regulations surrounding your efforts.

Contact Kimberley Calkins, MBA, at kcalkins@cohencpa.comor a member of your service team to discuss this topic further.