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Why You Need to Incorporate Crowdfunding Into Your Strategy

June 01, 2023 (9 min read)
Venmo fundraising is just one example of how crowdfunding platforms have impacted nonprofit fundraising.

When you think of fundraising, you probably think of fancy galas, charity 5Ks, or cocktail parties with the board. But in the past ten years, crowdfunding has changed the fundraising game. It’s extremely popular with Gen Z and Millennial donors, who are quickly becoming a majority of the donorbase, by offering transparency and immediate solutions.

But nonprofits who’ve traditionally raised money with events might not know how crowdfunding can work for them. Which online platform is right for your nonprofit? How do you create the kind of immediacy a GoFundMe campaign does?

In this article, we’ll go over the genesis of crowdfunding, it’s growth in popularity, how crowdfunding has changed traditional fundraising methods, and why you need to consider adding crowdfunding platforms to your fundraising strategy.

What is crowdfunding?

You’ve likely heard of sites like GoFundMe, Kickstarter or MightyCause. If you’ve donated to any of their fundraisers, you’ve participated in crowdfunding.

Modern crowdfunding first began in 1997, when a British rock band funded their reunion tour through online donations from fans. Crowdfunding quickly became popular with entrepreneurs looking to fund their small businesses and creatives who wanted to finance independent films or albums.

In 2010 GoFundMe debuted, and individuals were able to raise money for everything from emergency medical expenses to legal fees by crafting their story and sharing it with a wide audience. As such, crowdfunding platforms are often used in conjunction with social media to raise funds in a relatively short amount of time. Donors give any amount they’d like toward a specific goal and ask their networks to do the same.

Why Crowdfunding Has Grown in Popularity

According to GoFundMe, in 2019 charitable giving by individuals outpaced giving by corporations and foundations.

Its appeal is likely based on two factors: First, it finds donors through social media, where they’re already spending a huge amount of time and often are following people with common interests and values.

Second, they offer a level of transparency Next Gen donors want. As Changing Our World notes, 43% of Next Gen donors want assurances their donations are going directly to people in need. Giving to a GoFundMe page for a family affected by gun violence feels both immediately effective and personal, whereas giving to a large nonprofit that is using the funds for vital administrative material may not feel as impactful (even though it keeps the nonprofit doing its great work).

MORE: 2023 trends for nonprofits

How online crowdfunding has changed nonprofit fundraising

Lately it seems like GoFundMe pages are everywhere, whether they’re posted by a friend on social media or linked in a news story. Even more, the rise of Venmo, Zelle, and PayPal have made it incredibly easy for anyone in need to personally solicit donations from their networks. Similarly, loan-based platforms like Kiva allow users to make microloans to people in need around the world, unlocking capital and getting rid of traditional barriers to financial access.

Millennials and Gen Zers are taking to Twitter to ask for help covering immigrations fees, tuition or living expenses like rent and food. During the pandemic and Black Lives Matter protests, mutual aid funds grew in popularity, and many neighbors banded together to help their communities, proving that donor priorities shift during a crisis. While it’s inspiring to see so many people rush to donate, these more immediate calls for action have become a new norm for fundraising.

Instead of seeing this as a challenge, the nonprofit world can learn from these successful fundraisers. Crowdfunding is an incredibly efficient way to raise funds in a short period of time. Nonprofits can reach a broader audience when individuals donate and encourage their social media following to give as well. It’s also the perfect way to raise funds for time-sensitive needs, like responding to a natural disaster.

App-based crowdfunding platforms

While app-based digital wallet platforms are used for more than fundraising, their person-to-person payment models have made it even easier for individuals to donate directly to those in need.

As a prime example of this, the Venmo app has over 50 million active users. In 2021, it processed over $230 billion in transactions, proving it’s one of the most popular methods for sending and receiving money. In October 2022 Venmo launched charity profiles, which allows nonprofits to create profiles and get funds directly from users. While Zelle and PayPal are still popular crowdfunding tools for individuals seeking direct donations, this new feature has made Venmo the go-to for peer-to-peer fundraising. Here’s why:

  • Easy to use: Venmo is extremely appealing because of how easy it is to use. In seconds, a user can send cash to friends, family, or their favorite nonprofit. Once a nonprofit creates a QR code for their account, they can post it in their newsletter, at galas and charity dinners, and on social media. With a quick scan, potential donors can access the profile and give. 
  • Popular with Next Gen donors: Millennials and Gen Zers have embraced Venmo, with 83% percent of users in the 18-34 demographic. When they do give, transactions are often shared with their networks, creating built in publicity. Everyone will see your nonprofit’s profile and the friend or family member who donated.
  • Low fees: Perhaps the best thing about Venmo is that it’s straightforward, and they charge nothing to set up an account. They also have discounted fees for nonprofits with verified 5013C status

MORE: How to fundraise for social and human service nonprofit organizations

Tips for running a successful nonprofit crowdfunding campaign

If you've decided to jump into the crowdfunding game, there are a few strategies to help you ensure a successful campaign. 

Choose the right crowdfunding platform

Many organizations use Kickstarter and GoFundMe to crowdfund, but online platforms like QGiv, Fundly, FundRazr, MightyCause, and DonorsChoose were specifically designed for nonprofits. They’re affordable, easy for donors to navigate, and many offer special features, like social media analytics, countdown clocks to your fundraising goal, or extremely responsive customer support teams.

Venmo, as mentioned above, is ideal for peer-to-peer fundraising, and since it’s been embraced by Gen Z and Millennial donors, it’s a nice alternative to traditional platforms that might charge platform fees on top of processing fees.

Set specific and measurable goals

It’s always easier to set a fundraising goal when you have a specific project in mind, and time-sensitive projects work particularly well for crowdfunding. Maybe your goal is to move unhoused youth into a new apartment or give a rescue dog the surgery it so desperately needs.

Consider what you’ll use the funds for and aim for about 30% more than what you need to give yourself a cushion. Remember, however, that the best goals are achievable, so you’ll need to carefully consider your community as you set your goal.

Create an engaging campaign

Your campaign page is your chance to introduce a potential donor to your cause. Whenever possible, share personal stories of all the good your nonprofit does, and focus on how donations will make an impact. Video content is particularly popular with Next Gen donors, who love getting information in quick, bite-sized clips.

Social media is the ultimate crowdfunding tool, and it lets your supporters share the campaign on your behalf. Even better, potential donors can access your campaign in a single click, making it incredibly easy to spread awareness for your cause.  Consider text and email campaigns to increase urgency as your campaign draws to a close.

Once your campaign is in full swing, create a goal bar to track your progress and share it with your network to encourage giving to reach your goal.

Show your gratitude

Like any fundraising campaign, you’ll want to thank supporters for donating when your crowdfunding campaign ends. Many crowdfunding platforms sync donor info with CRM (customer relation management) software, so you can reach out to donors afterward by email.

This helps to grow your community by recognizing your donors impact, encouraging them to engage with your organization and give again in the future.

MORE: How to fundraise for the arts

Potential challenges of crowdfunding for nonprofits

While crowdfunding provides opportunity for nonprofits, it’s not without its drawbacks. Here are a few of the ways that crowdfunding can be challenging for fundraising.

Oversaturated market

The rise of GoFundMe has created competition for nonprofits, with a barrage of personal, immediate asks. For example, an American started a GoFundMe page every two minutes during the pandemic as there was a surge in those looking to cover their monthly expenses, save their small business, or even cover their next meal. Additionally, social media has made it easy for Gen Zers to go directly to their networks for peer-to-peer fundraising whenever they’re in crisis, so people are confronted with money asks on a daily—or hourly—basis.

Tax considerations

Donations are considered nontaxable gifts, but there are two instances where a donation could be taxed. First, if the donor receives a gift in exchange for their item, and second, if an employer donates to an employee. So, you’ll want to avoid the incentives you see in many Kickstarter campaigns—branded water bottles or tee shirts encouraging donations.

In addition, crowdfunded donations are typically not tax deductible. Exceptions are made for qualifying 501c3s but do your due diligence before launching your online campaign.

Platform limitations

Some platforms don’t sync with CRM software, and it will take time and energy to manually enter donor info into your existing system. Even more, donors tend to think of GoFundMe pages and other crowdfunding as a one-time ask, and there’s currently no option on these platforms for recurring donations. This could make retaining donors challenging if you don’t have a solid communications plan.

Potential for fraud or theft

No one likes getting taken for a ride, especially when they think they’re doing something to benefit society.

Even if your organization is above board, other organizations or individual donors may not be. While it’s nearly impossible to verify if someone asking for medical help is actually in need of those funds, any fraud brought to light can be damaging for the whole industry. Similarly, while theft from crowdfunding platforms is very low, those who are not used to the tools may be worried that their information will get hacked.  

To ensure that you maintain the trust of your donors, clearly communicate your security measures, and consider sending updates on the project to demonstrate its validity.

MORE: Why your nonprofit needs to be talking about ESG

Embrace crowdfunding to connect with the future of giving

Crowdfunding is poised to be the future of fundraising—be it for individuals or larger organizations. Even if you have a well-established donation network, you shouldn’t miss out on this unique opportunity to expand your reach. This is especially true as younger donors become more prominent in the giving landscape.

Adopting new technology, outreach strategies, and maintaining mission transparency will only serve to help you attract this new generation of donors (and keep your old ones). There is never a better time to start expanding your reach. And who knows, a crowdsourced campaign may introduce your organization to new evangelists, broadening the reach of your mission and increasing your impact for years to come.