Not-for-Profits Join the Crowdfunding Movement

Crowdfunding is creating a buzz for not-for-profits around the nation.

Crowdfunding was first used by entrepreneurs to attract small-sized investments to for-profit ventures, primarily via the Internet. The global crowdfunding market is projected to become a $90 billion to $96 billion industry by 2025, according to a study commissioned by the World Bank.

Now not-for-profit organizations are getting in on the act. Crowdfunding is increasingly becoming a valuable tool to generate a revenue stream from previously untapped sources. (See box below: “The Crowdfunding Figures Are In” for more information on how crowdfunding is catching on.)

Background Information

In the not-for-profit sector, crowdfunding is usually based around websites featuring special projects or programs or around in-person fundraising events. With either method you may be able to inject new life into your organization. Here’s how they each work:

1. Online crowdfunding. This method has often been used to entice individuals to contribute small amounts to a venture through an online portal. Among the most popular sites are gofundme, Kickstarter and indiegogo. The last of these is an international crowdfunding site (one Chicago charter school raised $50,000 on indiegogo to support a Net-Positive Energy Campus that produces the same amount of energy it consumes). There are dozens of other sites to choose from.

Crowdfunding enables an organization to reach a more diverse audience than its traditional donor base. The online presence may be shared through other social media platforms such as Twitter, Facebook and Instagram.

2. Event crowdfunding. With this method, a not-for-profit gathers a group to hear its pitch for a worthy cause — most likely tied to a specific theme such as hurricane relief efforts. The targeted audience members are asked to pledge donations in a manner similar to an auction. The event may be run by members of your own organization (if some have this expertise) or by independent third parties.

Both online and event crowdfunding encourage give and take with donors, who are free to ask questions and provide feedback. This discussion format can help strengthen ties with existing donors as well as build new relationships. Significantly, you’ll most likely hear from people who haven’t voiced their opinions to you before.

Note that there are some variations within these methods, especially for online crowdfunding. In some cases, a project may be formulated for creative purposes more than fundraising. And the fees charged by a specific platform might change depending on whether your stated goals are reached. In any event, a crowdfunding platform will charge, at a minimum, a basic processing fee. Look into all the costs before you make a commitment.

Five Crowdfunding Tips

As the landscape continues to evolve for not-for-profits, you can refine your crowdfunding activities to meet your particular needs. Consider these five practical tips:

1. Set your sights. Be realistic. Don’t expect this technique to work miracles overnight. Find a proper balance based on what you have accomplished in the past and where you hope to go. And, once you have compiled data from your first forays into crowdfunding, analyze and use the information to help determine goals for the next go-round.

2. Tell your story. A crowdfunding campaign may present a unique opportunity to get out the word about your organization. If your story is particularly compelling or moving, it might bring in donors by the droves. When possible, try to focus on specifics. For instance, if you’re combating homelessness, paint a true picture about a homeless person who crawled out of despair and became a successful business owner. A story like that will likely resonate with the audience.

4. Shelve the gifts. It’s common to “reward” crowdfunding participants with small gifts, perhaps pens or coffee mugs emblazoned with the name of the organization. However, your organization may get more bang for its buck, or generate more goodwill, if the rewards are tied to the charitable cause. If your organization is running a campaign for at-risk children, for example, handwritten notes from the beneficiaries may have more of a lasting impact than keychains.

4. Involve others. Crowdfunding is similar to a grass-roots political movement. You can start out by inviting people able to promote your cause and solicit donations from their peers and long-time supporters, as the foundation for the crowdfunding campaign. It will likely pick up steam and expand beyond those you already know to include those you’ll want to know.

5. Publicize the effort. Once you’ve got the ball rolling, and those you invite do their job, you can add to the momentum by seeking out media influences. Thus, your crowdfunding efforts may be complemented by traditional publicity methods that may have worked for you before, such as pitching the story to local journalists, posting news on social media or sending it via email.

Finally, the laws in this area are still evolving, so your not-for-profit should obtain expert legal advice. In many states, an organization is required to register to be able to solicit residents of the state. Where events and platforms can be located in multiple states — a virtual certainty with online crowdfunding — the legal issues should be ironed out beforehand.

More information about legalities involving crowdfunding is available from the National Association of State Charity Officials (NASCO) and the National Council of Nonprofits.

The Crowdfunding Figures Are In

Here is some of the global data gathered about crowdfunding by Fundly, a universal platform:

  • The global amount raised by crowdfunding is $34 billion, making it one of the most popular ways for individuals to raise money for a cause, project or event.
  • Peer-to-peer lending has raised $25 billion. This is a way to borrow and lend money without using official financial institutions as an intermediary.
  • Donation crowdfunding is the second largest type of crowdfunding, having generated $5.5 billion. It’s used to pay for life events, causes and more.
  • Equity crowdfunding has raised $2.5 billion. It has helped many small businesses get up and running while promising a share of the company to investors.

For more information, visit Fundly.

Eric Cohen, CPA is the President and Founder of E. Cohen and Company CPAs, a full-service CPA firm serving nonprofit organizations, government contractors, professional service companies and other industries with audit, tax and business advisory services for over 25 years. The firm was commended as a SmartCPA Reader's Choice by SmartCEO magazine and a “Best Accounting Firm to Work For” by AccountingToday magazine. For more information, visit www.ecohencpas.com or call 301-917-6200.