July 8, 2014
It’s no surprise that with the inclusion of the digital world in business, that fundraising would move online as well. Crowdfunding is essentially an online platform that allows users or an organization to solicit for donations for a stated cause. Popular websites for this are GoFundMe, Kickstarter and Indiegogo. Recent crowdfunding industry reports showed that the crowdfunding industry collectively raised $2.7 billion in 2012, with predictions to possibly double or triple in revenue in the next couple years.
However, with the oncoming of this new-age way of donating, donors and consumers should remain aware of the potential risks underlying in these websites. With little government regulation thus far and the ability for anyone to create a fundraising page, crowdfunding websites have the potential to create the greatest number of fraud victims with just one computer click.
Understand How Crowdfunding Websites Work
No two crowdfunding sites are the same. Each website features different types of fundraiser spanning from raising money to run a marathon to providing sports equipment for a local youth program. If you’re looking to make donations to a specific type of program, know which site to go to. Sites such as GoFundMe are for personal fundraisers where Kickstarter doesn’t allow personal fundraisers and only “creative.”
Not all of the money raised goes to the cause. In order for these websites to make the money, they do charge fees to the fundraiser anywhere from a 5 to 9% for processing the donations. There are also additional charges for things such as simply signing up or wiring money internationally.
Don’t assume it’s tax deductible. If you’re hoping to have your donation be tax deductible, look for fundraisers that are hosted by non-profit organizations. Specifically, organizations that have a 501c3 status from the IRS. This means this organization can solicit for donations which are tax deductible. When it comes to personal fundraisers though, the likelihood of your donation being tax deductible is very small.
Learn How to Spot a Phony Fundraiser
Websites can be tricked. While crowdfunding websites require some type of authentication to start a fundraising page, it’s usually something simple like a Facebook account and a picture for the page. Be aware during times of natural/community disasters or when a specific human-interest case has made national attention. Many fundraising pages could go up for the same cause without the family affected knowing.
Projects that update are more authentic. When it comes to scam fundraising, they won’t take the effort to update progress or provide much other information. Look for pages that show an active participation rate or a stagnant page simply collecting money.
Give to people you know. It can be difficult seeing events such as a house fire or tragedy on the news and not want to offer some type of assistance. While that is a primary reason why crowdfunding pages work so well to raise money, it can also be potentially harmful to donors. By directly knowing the person, you have much more assurance your donations are legitimate.
Crowdfunding is here and has no intention of leaving anytime soon, and why should it? It raises not only awareness, but funds, for people all over the world in need. However, that does not mean consumers should be cognizant of potential frauds. Whenever there is money for the taking, rest assured there will be someone who will go out of their way to make their projects look legitimate and worthy of investment.
Graphic By: Rocío Lara / Flickr