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Audit & Assurance associates Lucio Barbalho and Caroline Serieka researched crowdfunding, the popular nonprofit fundraising tool. This article discusses donation-base crowdfunding and the way it is revolutionizing the way nonprofit organizations approach philanthropy.

Crowdfunding:  A Primer on an Increasingly Popular Tool for Nonprofit Fundraising

The concept of crowdfunding is the practice used to fund a venture or a project through multiple, often small, contributions from various individuals or investors. In today’s technology-driven world, programs such as crowdfunding platforms are changing the way that organizations access capital to operate and grow. The concept of crowdfunding has grown extremely popular with the general public with sites such as Kickstarter, GoFundMe, and Indiegogo. These types of websites provide simple-to-use platforms for individuals to invest in a rising startup company or to donate to a charitable cause. While many think of crowdfunding as a tool for investing in new ventures, a specific type of crowdfunding known as donation-based crowdfunding is revolutionizing the way nonprofit organizations approach philanthropy.

Non-profit organizations need a steady stream of funding in order to carry out their charitable missions, and donation-based crowdfunding is the latest tool to support nonprofits’ fundraising efforts. One of the greatest benefits of crowdfunding to these organizations is the expanded access to the traditional donor pools, as well as to attract new sources of donors. According to the National Council of Nonprofits, “crowdfunding happens through websites tailored to showcase specific projects or causes and accept donations, or (2) in-person, arranged around high-energy, community-building events.”[1]

Through internet-based crowdfunding, nonprofits are able to target a larger audience by utilizing the power of their existing donor base in a more extensive capacity. These platforms allow donors to do more than just donate their time or financial resources to a nonprofit they are passionate about; they can now spread the fundraising efforts of the organization to their own personal networks, further advancing a cycle that promotes the desired mission. Popular platforms such as social media applications are a simple way to connect with prospective donors who might not otherwise be accessible through traditional fundraising methods.

As with any modern advancement, the benefits of crowdfunding do not come without costs and certain risks.   Many sites that provide the crowdfunding platform will retain a platform fee on all funds raised (i.e. 3-5%, etc.) and often a payment processing fee (i.e. 2-5%) per transaction [2]. Risks associated with crowdfunding include compliance with the unique laws of each state that a nonprofit conducts fundraising activities in.  Nonprofits may be required to register in a state that it expects to solicit through crowdfunding depending on the registration requirements of that particular state. Therefore, it is important for management to ensure that the benefits of crowdfunding outweigh the associated costs and compliance risks that accompany use of the fundraising platform.

In summary, crowdfunding has revolutionized the nonprofit industry as a powerful tool for charities to leverage in order to maximize return on fundraising dollars.  The ability to access funding from donors not previously connected with a charity through an online platform makes crowdfunding a simple yet effective way for nonprofits to raise critical funding to support their missions.  While crowdfunding can contribute to the fundraising success of a public charity, a nonprofit must carefully weigh the benefits of crowdfunding against the costs, and consider the regulatory environment in which the charity operates to ensure it is in compliance.

We welcome you to connect with our nonprofit team if you have any questions or comments.
Footnotes

[1]   “Crowdfunding for Nonprofits.” National Council of Nonprofits. National Council of Nonprofits, 12 July 2016. Web. 04 Jan. 2017. <https://www.councilofnonprofits.org/tools-resources/crowdfunding-nonprofits>

[2]  Folger, Jean. “The High Cost of Crowdfunding.” Investopedia. Investopedia, 14 Mar. 2016. Web. 04 Jan. 2017.

<http://www.investopedia.com/articles/personal-finance/031416/high-cost-crowdfunding.asp>