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Crowdsourcing: Donors Are Confusing Fundraising With Funding

By Mark Hrywna - May 30, 2014

The Tisch Multiple Sclerosis Research Center of New York (Tisch MSRCNY) raises some $7 million a year for its operations, but for a clinical stem cell trial, the organization turned to crowdfunding. Tisch surpassed its $300,000 campaign goal within four weeks on Indie­gogo.com, raising $317,540 from 960 funders (an average $331 per donor).

Charities are beginning to raise all kinds of money through crowdfunding. A recent Forbes article estimated crowdfunding hit $5 billion annually — almost one-third of it for causes. That’s potentially $1.5 billion for charities through sites such as Kickstarter, Indiegogo.com and many others in the market.

To make sense of the options for donors, David Neff and Miriam Kagan established a Crowdfunding Bill of Rights. Since presenting at various conferences this spring, including South By Southwest Interactive (SXSWi) and the Nonprofit Technology Conference (NTC), the duo has been crowdsourcing the Bill of Rights, soliciting feedback from the online nonprofit community.

There’s a general sense of both excitement and apprehension from nonprofits about crowdsourcing, according to Kagan, a senior principal at Kimbia. The Austin, Texas-based technology firm has helped raise millions for nonprofits through regional Giving Days in recent years, including one of the biggest, North Texas Giving Day, which last year raised $25 million — $17 million online. The growth in crowdfunding is similar to the buzz about social media several years ago, with constituents and supporters talking about a charity but out of its control, said Kagan.

“The Bill of Rights is for people giving to a crowdfunder,” Kagan said, explaining what a donor should expect from an entity. “What’s the basic engagement, because it’s a free-for-all right now,” she said. Eventually, they also could create a crowdfunder bill of responsibilities and expectations. “If you’re a nonprofit working with a platform now, or building your own, what basic rules of engagement should we expect from you,” Kagan said.

“As we are creating the crowdfunding Bill of Rights, we’re crowdsourcing,” Kagan said. “We did not put out a plan and say, what do you think?” Instead, the first draft was consolidated from conversations at conferences and put to the community for feedback. “It’s really the ultimate way. It’s constituent and supporter driven, like crowdfunding,” she said.

Crowdfunding can include Giving Days as well as peer-to-peer campaigns, such as galas, events and relays — anything that solicits donations in a shortened timeframe. In some cases it refers to commercial entities aiming to raise startup capital. In a way, fundraising is a word that has been stolen from the nonprofit sector by crowdfunding, according to Kagan. “Traditional fundraising has been a word that belonged to the charity world,” she said.

For instance, if someone is crowdfunding for a trip to display their art at a show, it’s not necessarily fundraising in the traditional sense and there might not be any charitable giving aspect to it, Kagan said. They might just not have the money to go. “As a donor, it’s very confusing. How do I understand what you’re doing? How much of that money are you actually getting? What’s happening to my data?”

The bill of rights creators aim to establish a set of standard expectations that legitimate crowdfunding and peer-to-peer campaigns should follow and to build an educated donor base, explaining the ins and outs of what to expect from crowdfunding initiatives.

Whether someone gives to a project that’s being developed in its infancy or donates to a charity via a crowdfunding platform, there’s no difference in what funders are looking for: they want to see how their money is being used. The modern donor is looking for transparency and feedback about how their gift was used or made a difference, Neff said.

The Securities and Exchange Commission (SEC) this past fall issued proposed guidelines for crowdfunding but the rules were aimed primarily at startups and for-profit entities seeking alternative capital financing. Kagan said she and Neff were inspired by the SEC’s proposal as well as a crowdfunding rule passed in the United Kingdom, which also mostly addressed the commercial side about refunds and assumption of risk.

The term crowdfunding might be of recent vintage, Neff said, but really it’s not that different from what nonprofits have been doing for years: soliciting donations to raise money during a short, limited amount of time, sometimes for a specific objective. Crowdfunding is a more recent buzzword for it but some organizations have been doing it for years. Kiva (a for-profit) and DonorsChoose (a nonprofit) are essentially crowdfunders.

It’s complicated because there are online crowdfunding platforms, pitch contests, accelerators, giving days, and they “all kind of fit together but not really and no one’s really hitting home runs with it,” Neff said. “It’s on the edge of gaining a lot of traction,” he said.

A senior associate at PwC and co-founder of Lights.Camera.Help, a nonprofit film festival in Austin, Texas, Neff sees crowdfunding at the same point that online fundraising platforms were less than 10 years ago — lots of experimenting but no one’s sure how to do it just yet.

For the Tisch Center’s campaign, Indiegogo was a way to reach new donors and people who didn’t already know about the organization and its work. “There is a new generation of people with a philanthropic spirit, however the majority of them use social media heavily,” said Tisch Center spokeswoman Pam Levin. Email blasts or letters to supporters didn’t have the reach that an online crowdfunding site provides and the Federal Drug Administration (FDA)-approved Phase I Clinical Stem Cell trial offered a very specific cause for donations. “Our detailed campaign explained exactly how the trial will be conducted and where the funding will be applied. People like to see where their money goes,” Levin said.

Even with the release of the Bill of Rights last month, Neff expects it to be “sort of a living document,” with interested sites and people suggesting changes.

The initial draft summary Bill of Rights was open to public comment through mid-April and a revision was released in May:

“We the people, who are asked for money, hereby resolve that crowdfunding sites will:

  • Show a Clear Connection: What’s the relationship of the people raising money to the project? This should be clearly evident and endorsed by the group.
  • Explain About The Benefitting Organization(s): Information about the organization benefiting should be easily available, with info or links to site, leadership, key projects, and verification of legitimacy of nonprofit status.
  • Provide Fee Transparency: Be upfront about the fees that may be associated with the platform and the project.
  • Report Back: Show impact on the charitable giving. Report back. On a regular basis. At the minimum the project leader should provide monthly updates.
  • Provide Clear Timelines: Post regular updates on how the project being funded is progressing (toward the goal or otherwise) or when work will take place.
  • Have a Lemon Policy: Spell out what happens if the project doesn’t meet its goal.
  • List Your Disclaimer Clause: Explain and disclose any kind of moral imperative considerations that might go into funding the project. Define what is tax-deductible and what’s not. Make sure you are clear about fair market value of any incentives or offers.
  • List Risks and Benefits: Make sure there are clear disclaimers about the possible risk of the project, from a financial and outcome perspective. Be clear about benefits to backer, society and beyond.
  • Go Beyond the Ask: Explain how donors can get involved with the organization beyond just writing a check. Coding, Volunteering, Board of Advisors?
  • Offer Perks or Prizes: Clearly define what donors or participating funds might get by giving at different giving levels or reaching funding milestones and make sure it’s followed through on. Make it fun!” NPT

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