Crowdfunding is a way to raise funds online, person-to-person. Online platforms like GoFundMe, Kickstarter, and Indiegogo let people create crowdfunding campaigns. They’re easy to set up, and the organizers get the funds quickly. Here are a few things to know:
- The campaign organizer sets the goal of the crowdfunding campaign. The organizer can set up the crowdfunding campaign to help specific people, like a family that lost everything in a house fire, or a veteran who needs help paying for medical bills. Or they can set it up to help a larger group or cause, like people who’ve been through a natural disaster in a particular area. Sometimes, crowdfunding campaigns have a business purpose, like raising money for a new invention or business project. The campaign organizers often ask for donations in social media posts or on crowdfunding sites.
- There are many crowdfunding platforms, and each has its own set of rules. Platforms have different rules on how to set up the fundraising campaign, how much the platform will keep in fees, and how and when it will disburse the money to the campaign organizer.
- The money raised goes to the campaign organizer. In a crowdfunding campaign, the money goes to the campaign organizer, not directly to the people or the cause it’s set up to help. The organizer is expected to tell you the truth about what the money raised is for and how it will be used, but it’s up to them to deliver on that promise. Scammers and dishonest businessperson can set up crowdfunding campaigns to raise money for themselves.
- Only donations to a charity are tax deductible. Sometimes charities will set up crowdfunding campaigns. If it’s important to you that the donation is tax deductible, confirm that the organization is registered with the IRS as a charity. Look up the organization in the IRS’s Tax Exempt Organization Search tool.
Avoid donating to a crowdfunding scam
It’s important to do your own research before you give because later it might be impossible to know whether a crowdfunding cause was real and if the money actually got to the intended recipient. Here are a few tips:
- Find out who’s behind the crowdfunding request. If a friend posted, shared, or “liked” the request on social media, contact your friend offline. Ask what they know about the post. Do they know the person or group who’ll get the money? If not, try finding out who the campaign organizer is and look them up online. The crowdfunding platform should tell you who the organizer is. If you can’t find them online, or the details you find don’t match what they’re saying on the campaign page, be suspicious.
- Do a reverse image search of the photos used on thecrowdfunding campaign page. Search on your web browser how to do a reverse image search and see if the campaign images are associated with other names, or whether the details don’t match what the crowdfunding campaign is saying. Do a reverse image search of the campaign organizer’s social media profile picture, too. Scammers often use stolen photos and copy and paste other people’s stories. If you find anything suspicious, you can always help in a different way.
The safest way to give through a crowdfunding campaign is to donate to campaigns organized by people you actually know.
Crowdfunding campaigns to fund a business project or invention
A businessperson may set up a crowdfunding campaign to fund a project or an invention. They may ask for small contributions — $10, $50, $100 — but these can quickly add up to thousands of dollars in funding. In other cases, the goal is to get individual investors to give large amounts of money, perhaps in exchange for a reward once the project is completed — like getting a prototype of the new gadget or some other incentive.
But a dishonest businessperson might lie about the project or product and its development timeline. And they might lie about the rewards donors will get once the product is finished.
If someone asks you to give money to a crowdfunding campaign to fund a business project or invention:
- Do your own vetting. Find out who the campaign organizer is, and look them up online. The crowdfunding platform should tell you who that is. Search for the organizer’s name and the name of the project together with the words “complaint,” “review,” and “scam.” See what you can find out. Ask the campaign organizer lots of questions. Have they launched other products successfully? Have they funded those projects using crowdfunding? Use what you find online to confirm the details.
- Find out what happens to your money if the project doesn’t get off the ground. There’s no guarantee that the crowdfunding campaign will be successful and the project completed. Would you get a refund in that case? What risks are involved?
- Confirm the production status. Having a 3D photo of the product doesn’t mean that the product is finished. Ask for a production schedule, and be clear on the current stage of development. Some crowdfunding sites don’t let fundraisers show 3D photos of the product on their websites because donors might mistake these for a finished product. Ask the campaign organizer if there is an actual prototype and if you can see it.
- Understand the purpose of the campaign. When you give to a business project or invention through a crowdfunding site, you’re not buying the product. You’re simply helping fund its production. Be clear about what the fundraising is for and if you’re getting anything out of it.
Crowdfunding campaigns for medical treatments
If the crowdfunding campaign is for medical treatments, don’t assume those treatments have been tested and are safe. Some medical treatments that are promoted through crowdfunding are unproven and ineffective. Donors to crowdfunding campaigns for the development of medical treatments risk losing the money they donate. Chances are that the medical treatment won’t work. People also can be misinformed about the safety of these unproven treatments and may face serious harm from trying them out.
If you’re on social media, you’ve probably seen posts from people asking for donations. Pay attention to who’s asking and who’s getting the money. Don’t assume that a request on social media is legitimate, or that hyperlinks are accurate just because a friend posted it.
- Check where the donation link goes. Does it go to a crowdfunding campaign? If that’s the case, any money you give will go directly to the crowdfunding organizer. It’s best to confirm with the person who posted the link that they know the person behind the fundraising.
- If the link is to a charity’s website, research the charity before you give. Read Before Giving to a Charity to learn more.
An online fundraising platform, or online giving portal, is a website that lets you donate to one or more charities you select from a list on the site. Companies like eBay, Amazon, Facebook, Lyft, and others have added charitable giving to their services. They’ve done this by creating online fundraising platforms and making them available to their members.
When you donate through an online fundraising platform, your money may not go directly to the charity you chose. Another company — maybe the platform or some other intermediary — may get your money first, take some of it as a fee, and then pass on the rest to the charity. And it may take time for the charity to get the money. That could be an issue if you’re donating to help people with immediate needs, like people affected by a natural disaster.
The best online fundraising platforms will have clear, easy-to-find information on their websites about
- Where your money goes. Online fundraising platforms should tell you who gets your donation and how your money gets to the charity or beneficiary you chose. Just remember that even if a charity is listed on an online fundraising platform, you should still do some research on that charity to see how your donation will be used.
- Fees. The website should clearly state if the platform or another intermediary will keep part of your donation as a fee before sending the rest to your chosen charity. Consider whether the charity would get more of your donation if you donated directly.
- Timing. Online fundraising platforms should say how long it will take for the charity to get your donation.
- Follow-through. Just in case your donation can’t be sent to the charity you chose, the website should say what happens to it — and how often that happens.
- Your information. Check if you can choose whether or not your information is shared with the charity — or anyone else.
If these details aren’t clear, consider taking your donation money elsewhere. You can always go directly to the website of the charity you want to support.
If you work for a charity that’s considering using an online fundraising platform to raise funds for the organization, read Online Charitable Giving Portals for advice.
If you spot a crowdfunding scam, first report it to the crowdfunding platform. Here are links to report to some of those companies:
You may also want to let the social media platform know that you’ve spotted a scam on their network.
Then, report the campaign organizer to
- The attorney general of the state in which the campaign organizer lives, if you know it, or where the business project is being developed, if the funds are raised for a business purpose
If you spot a problem with a local charity listed on an online fundraising platform that serves your community, tell your state’s charities regulator.