What Is Crowdfunding for Nonprofits?
Just as it sounds, crowdfunding enables a crowd to fund a project, business, organization or even an individual’s expenses. Using a digital platform, a person or organization can raise funds by inviting a large number of people to each give a small, easy-to-make contribution. Crowdfunding is one of the most common ways people give today.
- A way to raise money via small contributions from a large number of people.
- Funding can be for a charitable cause, a for-profit project, a business idea or an individual.
- Typically internet-based.
How does crowdfunding work for nonprofits?
There are numerous crowdfunding platforms. Kickstarter, GoFundMe, DonorsChoose and Kiva are some of the most well known. The finer technical details of how crowdfunding works vary from site to site, but the basic steps include:
Deciding whether crowdfunding is a good fit for your fundraising campaign.
A person or group has an idea or a need, and decides to crowdsource funds to pay for it. Crowdfunding is one way to raise funds for nonprofits. You could also try other forms of fundraising, such as applying for grants or building relationships with individual donors. Crowdfunding might be one part of a fundraising strategy that includes grantseeking and major donor cultivation. Crowdfunding tends to be best for specific campaigns, rather than for general operating support.
Choosing a crowdfunding platform.
The next step is choosing a third-party platform, or crowdfunding site, to host your fundraising campaign. Platforms have different processes and regulations, so you’ll want to research them and choose one that’s best for your campaign. There are well-known crowdfunding platforms like GoFundMe, as well as more niche platforms, such as HIPGive, a project of Hispanics in Philanthropy that supports crowdfunding for Latinx community organizations. Nonprofits should research:
- What is the platform’s fee?
- How does the platform handle donor information? What is their privacy policy? What information will the nonprofit be able to gather about donors to their campaign?
- How does the crowdfunding process work on each platform? For example, what content will the nonprofit need to provide? How and when will funds be transferred to the nonprofit? What happens if you don’t reach your goal?
Creating your crowdfunding campaign content.
To improve your chances of raising funds, it’s important to write a compelling story about why you’re crowdfunding and how the funds you raise will benefit your cause. This content can involve anything from typing in a few details to creating a slick promo video and putting together thank-you packages for contributors.
Cultivating some support before you publicly launch your crowdfunding campaign.
Let your lead backers know about the crowdfunding campaign in advance. Get their buy-in. Discussing your plans with people who already support your organization will not only help you refine the campaign as you listen to their responses to the idea and answer their questions, it will also lock in some early donations. People like to give to projects they believe will succeed. If several backers contribute right when the campaign launches, people who don’t already know your organization will have more reason to believe the campaign is worth supporting. Support inspires more support.
Promoting your crowdfunding campaign.
Nonprofits need to drive fundraising by spreading the word about their campaign in a way that inspires people to click on the link to give. Successful crowdfunding campaigns are well promoted via DIY marketing or even more advanced approaches. Frequent social media posts, email marketing campaigns and text blasts are additional ways to promote your crowdfunding campaign.
Donor stewardship.
Crowdfunding is fundraising, and the fundraising basics still apply: send thank-you notes and any promised thank-you gifts to your donors. And depending on the privacy rules of the platform and any agreements with donors, keep track of donors to your crowdfunding campaign if you can – add them to your donor database and keep nurturing relationships with them.
Tips for Nonprofit Crowdfunding Campaigns
Plan your crowdfunding campaign thoughtfully and execute it well.
Since it’s a popular medium that is less formal than seeking foundation grants, some people think crowdfunding is an “easy” form of fundraising. That’s not necessarily the case. Successful crowdfunding campaigns often take time to execute and promote.
Set a realistic goal for your crowdfunding campaign.
Just like with other forms of fundraising, you want to set an achievable goal for crowdfunding. It’s not only about how much your organization needs for a project, it’s about how much you can successfully fundraise – and how much donors believe your organization can handle well.
Explain the project in a clear and compelling way.
Make your text and/or video succinct and inspiring. Your campaign content should tell prospective donors: What is the project? Why should funders support it?
Check the fine print before choosing a crowdfunding platform.
Some platforms charge a fee for their service that can be rather sizable. In this case, consider the price of the fee in addition to the total funds you are hoping to raise. Some platforms have other requirements, such as “all or nothing” policies – that is, if you don’t achieve the full funding goal, the funds are returned to donors. Others have more flexible approaches to funding goals.
What are the pros and cons of crowdfunding for nonprofits?
Crowdfunding is one of several ways to raise money for a nonprofit. Every form of fundraising has its advantages and its challenges. Read below for some of the pros and cons of crowdfunding for nonprofits.
Pros of crowdfunding for nonprofits:
- Crowdfunding democratizes finance and giving. Crowdfunding is popular because it’s so accessible. Anyone can seek funds through crowdfunding. You don’t need to know venture capitalists or philanthropists. You don’t even need to have 501c3 status. You just need an idea that lots of people want to fund — and the communication skills to inspire them to give.
- Giving to a crowdfunding campaign is simple and convenient. Anyone can give online in seconds. Compared to traditional philanthropic funding, which might involve researching several nonprofits, reviewing grant proposals and making grant decisions with a board, the ease and immediacy of contributing to a crowdfunding campaign — not to mention the fact that gifts may be quite small — explains why so many people give in this way.
Cons of crowdfunding for nonprofits:
- Not all gifts to crowdfunding campaigns are tax-deductible. Since individual people and organizations that are not 501c3 nonprofits can raise funds through crowdfunding, many donations via crowdfunding are not tax-deductible. Some donors will prefer to give directly to a nonprofit where they can be certain they will receive a tax deduction for their gift.
- Running a successful crowdfunding campaign takes a lot of time and effort. The most successful crowdfunding campaigns are well executed with high-quality storytelling through text and/or video, and are effectively promoted through frequent social media posts, emails and texts, and more. A nonprofit should assess whether a crowdfunding campaign is the right fit for the project at hand, taking into account the nonprofit’s available resources to follow through. In other words, before you start a crowdfunding campaign, make sure it won’t cost more time and money than it brings in.
- The need for crowdfunding points to gaps in the social fabric. The explosion in crowdfunding is happening in a period when people have to crowdsource funds to pay medical bills or funeral expenses, and when teachers post classroom needs to DonorsChoose just to get educational supplies you might expect would be provided by the school. From this view, crowdfunding is a symptom of a society that has failed to establish functional healthcare and education systems, or the result of a culture that’s decided that isolated individuals competing for dollars makes sense as a way to meet basic needs.
Crowdfunding and Other Ways to Fundraise for Nonprofits
Ideally, crowdfunding is one tool among many — including public funding, philanthropy, private financing and mutual aid — to fund exciting new projects, charitable causes, and individual and community needs.
Learn about other forms of fundraising and charitable giving with IP’s Learn Center. Become a subscriber today.
