Advertisement

Crowdfunding has money to spare, but needs some rules

When U.S. news gossip website Gawker wanted to raise $200,000 to buy a video of and release it to the world, donors stepped over each other to contribute, knowing they’d never see their money again and probably wouldn’t see the video. They still haven’t.

And when Facebook post surfaced in 2012 showing U.S. school bus driver Karen Klein being bullied by kids to the point of tears, the outraged masses ponied up more than $700,000 to send her on a vacation. She took the trip and said she’d use the rest of the money to retire.

This is crowdfunding, and stories like these are sure to grow in number as the Generation X and Yers who drive it build more disposable income.

Originally the domain of artists and inventors looking to fund projects, crowdfunding has gone decidedly mainstream, totaling $16.2 billion in 2014, and is expected to top $34 billion this year.

It’s easy to see why. Platforms like Indigogo and Kickstarter let you start a fundraising campaign with little more than an idea. You set a funding goal and make a pitch, and if people like it, they contribute.

To launch your new high-tech flyswatter, you’ll need to market, but for campaigns that tap into an impassioned public, the response can be fast and overwhelming.

For the donors, they get to feel connected to the cause they’re supporting in a more direct way than in the traditional practice of going through a charity or middleman.

It’s grassroots, new economy Internet stuff.

And it’s pretty much unregulated.

“It seems like it’s the Wild West,” says Michael Johnston, president and founder of fundraising consultancy HJC.

“The traditional middle person role has always been the charity, with accountability of a board of directors,” he says. “If we move over to crowd funding… there’s not that forethought, that sense of proportionality.”

In other words, the instant gratification of it can mean some people pledge before they think, and there’s not much of a safety net in place. And we mentioned this is a $34 billion industry, right?

In the case of Karen Klein, where the $700,000 raised compared with a campaign target of just $5,000, few begrudged her keeping the excess for an early retirement.

Other overfunded campaigns have drawn more criticism, such as one to raise funds the funds for the funeral for Elijah Marsh, the toddler who died after wandering out of an Etobicoke apartment building in the middle of a freezing February night.

The campaign on Tilt quickly overshot its original goal of $20,000, eventually raising $173,000. Buried in the outpouring of grief for Elijah and his parents was concern about the fate of the extra money.

“It would be really disgusting if Elijah’s parents profit from his death,” read one online comment that echoed many peppering news site and message boards, many suggesting the excess money be given to a community organization or used to fund an education grant.

While different platforms have different policies around how funds are gathered and the significance of targets (some allow you to keep the money regardless of whether you reach the funding target, while others are all or nothing), where the money ends up is in the hands whoever is running the campaign.

“There’s no self regulation, so no guidance from the transacting crowdfunding site,’ says Johnston.

“I see the stories every darn week… where people are just angry, just generally upset that the proportionality is out of whack, that the money is not going where they thought it would.”

And with the crowdfunding portals taking a percentage of the funds as their fee, they have little incentive to try and restrain the largesse.

Of course, the law does kick in if an actual fraud takes place, such as someone raising money for cancer treatment for a nonexistent patient. But as long as the campaign is legitimate, as long as the tragedy is real or new product is in the works (but no guarantee of completion), then the money’s there to be used.

With so much going towards crowdfunding campaigns (and many significantly overfunded campaigns), you could wonder whether traditional fundraising and donor channels are being sacrificed.

Johnston says it appears that’s not happening, and that the overall pool is getting larger, as younger donors embrace crowdfunding, and Boomers stick with the traditional channels.

But if the industry doesn’t do a better job of self-policing, he worries potential donors may eventually sour on the whole thing.

“As it keeps growing, if we don’t’ do it right, there’s going to be bad story and bad story, and it’s just going turn off a percentage of younger of philanthropic people from this way to raise money, which is a shame.”