Is Crowd Funding Right for Your Non-Profit?

In years past, if you had a good idea, whether it be for a for-profit venture, or more relevant to this article, for a non-profit, you would take that idea to friends and sometimes through friends, to others, and seek support. We call this “networking.”
An exciting new concept burst onto the field just a few years ago, that has now taken this old fashioned networking into a whole new level, Crowd Funding. Non-profit entrepreneurs and others with great ideas are increasingly taking their ideas to the Internet, through an ever increasing number of “crowd funding” websites. Last year in 2012, these crowd funding websites raised…… get ready for this…… $2.7 Billion worldwide, an 81% increase over the year before. Experts expect the amount to go above $5 Billion in 2013. The United States is at the center of this activity, accounting for almost 60% of the global activity. Non-profits, and what I call “profit lite” entities, the L3Cs and Benefit Corporations, which are for profits, with a specific social mission, have been the biggest focuses of this new funding device.

It is beyond the scope of this article, but many “for profits,” especially those with a specific mission-driven focus, are also substantially benefiting from crowd funding. A major environmental resources company that I am familiar with recently turned to mission-market stock underwriter “Mission Markets.com” with its desire to raise millions of dollars, and ultimately to find its way to the NASDAQ.

In the non-profit area, sites such as “kickstarter.com,” “Indiegogo.com,” and “FUNDRAISE.COM,” are literally changing how people seek financial support. I name these three, just because they are better known than others, but there are at last count, more than 500 crowd funding websites, with more opening up every day.

How the Sites Work

The features of the crowd funding sites differ, but at their most basic, they allow a non-profit to set up an on-line funding campaign based on a video, or other materials on a specific website page, and then for supporters to invest directly from the pages on the website that almost always utilizes a credit card, supported by the website.

The causes and the products differ substantially. Many sites feature tangible products, others support less tangible causes, like a film, or an art exhibition, or a career. Many times investors are actually a form of advance purchaser. Thus, for example, they are told to support the career of such and such an artist, by contributing $200 towards a project, and for each $200 contributed they will receive a copy of a print. In reality, the artist is selling his prints in advance to supporters, but ultimately raising enough money to take he or she to the next step.

This abstract explanation does not really give the concept justice. My suggestion, if you are interested in this kind of financing, is just go visit kickstarter, or indiegogo, or fundraise.com, and browse away. Do this if you are interested in being a supporter, but also do this if you are interested in using this kind of fundraising device.

For details on how to go about using a crowd funding site, there is no better resource than to go on the sites themselves and follow their own “how to” instructions, and they will make it very clear how best to utilize the site. They also tell you about their success stories, and sometimes also share those who have not been as successful.

One final point. All of the crowd funding sites tell you they have a large constituency of people who follow their site, and thus, likely to become an investor or donor. I do not believe this is completely true. If you have a very interesting idea and then a great site, it may work to rely on the folks already visiting, but I believe for most the site is only a way to get your program organized with a good presentation, and a vehicle for their present donors to give you money. Thus I believe, you will be successful only if your charity drives its own people to the site, to see what you have to offer, and to donate. Unless your idea is a truly spectacular one, I would plan to rely less on the people already visiting the website, and make sure that the supporters you already have, or might have, are encouraged to visit the site after you are on it, so that they can fully participate and, hopefully, become part of your financial support.

Thomas M. Wells is the founding Partner of WJ&L. He practices in the Land Use, Real Estate, Business & Commercial, and Non-Profit areas.

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