Written by: Bryan Boyton
Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people. Crowdfunding is a form of alternative finance, which has emerged outside of the traditional financial system.
There are three types of crowdfunding in the United States: reward-based crowdfunding for creative enterprises; equity-based crowdfunding to raise capital for companies and donation-based crowdfunding. Donation-based crowdfunding or compassionate crowdfunding allows individuals, groups and nonprofit organizations to raise money for a charitable cause. Two popular platforms for donation-based crowdfunding are GoFundMe https://www.gofundme.com/ and YouCaring https://www.youcaring.com/ .
The Ohio Attorney General recommends that nonprofit organizations evaluate a crowdfunding platform by considering the following:
- What fees will the website deduct from each contribution?
- Are charities provided with donors’ information?
- When will contributions be deposited into a charity’s bank account or mailed to the charity?
- What happens to contributions that don’t meet a certain threshold amount?
- What steps does the website take to prevent solicitation fraud?
- What kind of accounting will the website provide to a charity? If questions arise, what procedures are available for the charity to challenge the accounting?
Many nonprofit organizations continue to see their funding from federal, state and local government agencies decrease. More and more private grant making organizations are requiring nonprofit organizations to demonstrate program results or outcomes achieved to continue to receive funding. With these funding pressures, nonprofit organizations are seeking alternative funding avenues through fundraising events, individual contributions and other development opportunities. Nonprofit organization leaders should consider using a donation-based crowdfunding site when looking to fund or support projects, programs or capital campaigns as an alternative avenue to traditional charitable fundraising.
Stephenson and Warner provides over 30 nonprofit organizations with assurance, IRS 990 preparation and consulting services.
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