25 April 2024

Crowdfunding for a Cause Gets Cheaper

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Raising money for personal causes through crowdfunding sites is a skyrocketing business - GoFundMe says such fundraising campaigns increased by 291 percent between 2013 and 2014, after rising by more than 500 percent the year before. But the fees make it clear the platforms themselves are, indeed, businesses rather than purely charitable efforts.

More than 2,000 crowdfunding sites have sprung up to try to catch the wave of this rapidly growing industry, says Howard Orloff, vice president of Zacks CF Research and founder of Crowdfunding-Website-Reviews.com. Of those, many are start-ups with little staying power and many are aimed at businesses seeking capital rather than personal causes. Some, like Kickstarter, one of the best known sites, don't allow personal fundraising.

Regardless of type, the sites make money by taking a percentage of pledges, which results in either a donation being reduced when it reaches the recipient or a surcharge added to the donor so the recipient gets the net amount pledged.

But when it comes to raising money for charity, that may be changing. On Dec. 15, popular crowdfunding site Indiegogo, which typically charges 4 percent to 9 percent (plus fees for PayPal or credit card processing), decided to drop the fee for personal fundraisers. Users of its new IndiegogoLife service only have to sacrifice the 3 percent taken by the credit card processors.

Indiegogo co-founder Danae Ringelmann says the company didn't want those who were in need of charity to be subject to the same charges as those trying to launch a business. Dropping that platform fee is a "game-changer" in the world of crowdfunding. Smaller sites [like YouCaring.com and Tilt.com] have offered no-fee crowdfunding for a while but none with website traffic, and public trust, anywhere near Indiegogo.

By contrast, collecting the old-fashioned way - by accepting cash in person or checks to be deposited in a bank - usually involves no extra costs, although some banking fees may apply depending on the kind of account you choose. But real-world collecting like that has limitations of reach, and not much possibility of the campaign going viral.

With crowdfunding, if the cause is popular enough to land on the home page of one of the more popular sites it can go pretty wild.

Click here to access the full article on Reuters.

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