The Power of Crowdfunding for Nonprofits

When British rock band Marillion launched the first online crowdfunding campaign in 1997, I doubt they realized they would be the frontrunners of a global phenomenon. However, in many ways, that’s precisely what they were. Flash-forward to 2020 and it’s a multi-billion dollar industry.

According to financial services publication MarketWatch, crowdfunding is projected to reach approximately $28 billion in global value by 2025. That projection is on the low end of the scale. Crowdfunding platform Fundly predicts that by 2025, the global crowdfunding market will be valued at $300 billion.

Although some inroads have been made in leveraging crowdfunding as a venture capital tool, the majority of the market still exists in the consumer space, through platforms like Kickstarter, GoFundMe, and Indiegogo.  To date, the video game Star Citizen remains one of the most successful crowdfunding campaigns of all time, having raised, at the time of writing, approximately $271 million.

The only campaign to have ever exceeded this value was the fundraising drive for blockchain protocol EOS, which raised $4.1 billion in 2018.

The Powerful Case for Nonprofit Crowdfunding

At this point, you may be asking what any of this has to do with charitable organizations.  It’s certainly impressive that people have put so much money towards tangible consumer products and ideas. But how exactly does that apply to the nonprofit space?

In a sense, everything.  Stripped down to its core, crowdfunding is about selling people on an idea and inspiring them to put money towards that. That’s exactly what you do when you’re raising money for your nonprofit’s cause.

And while the numbers might not be quite so massive, plenty of nonprofits have enjoyed success via crowdfunding. As noted by the National Council of Nonprofits, for instance, one of the largest U.S.-based crowdfunding efforts in history raised $41.6 million to help victims of Hurricane Harvey.

Crowdfunding represents a valuable tool in your repertoire. It can help you reach a larger and more diverse audience, and provide a platform through which people can easily donate to your cause. Perhaps most importantly, it has the potential to inspire more people to donate.

Primarily, this is through a phenomenon known as the bandwagon effect. Also known as herding, it refers to the fact that people tend to ‘follow’ one another where investment and donations are concerned. In other words, if someone sees that a cause has already received a large volume of donations, they’re likelier to donate themselves, particularly if they can share their donation (spreading further awareness of your cause) via social channels.

“[There exists] robust evidence of herding behavior in lending-based platforms,” concludes a research paper on crowdfunding published by Mendel University. “Lenders follow other lenders in the whole market as well as in the market fraction specified by platform and project categories.”

What Your Nonprofit Should Know Before Pursuing a Crowdfunding Campaign

As compelling a case as I’ve made so far, I should conclude with a word of caution. Crowdfunding does not guarantee success. Not is it something you can dive into without first planning a few very important things.

  • The platform you’ll use. Although Kickstarter and Indiegogo are some of the most popular crowdfunding platforms on the web, they’re not particularly well-suited for nonprofit campaigns. Instead of using a popular consumer platform, consider a nonprofit-focused one such as Causes, Network for Good, or MightyCause.
  • Crowdfunding regulations. At the time of writing, most states don’t have much in the way of rules and regulations surrounding the charitable use of crowdfunding tools. Unfortunately, as noted by the National Council of Nonprofits, this may mean you’ll need to register in multiple states and regions in order to carry out your crowdfunding efforts.  Familiarize yourself with the law, or bring in a third-party legal expert to help.
  • Your goals. As with any fundraising campaign, it’s important to understand what you want to achieve with crowdfunding before you leverage it. It also may be worthwhile looking into peer-to-peer fundraising if you have the budget and donor base. As explained by fundraising platform Qgiv, it’s similar to crowdfunding save that it directly leverages your audience, with each donor creating their own page for your cause.
  • Your crowdfunding presence. You need to consider how you’ll pitch your cause, what progress milestones you’ll show your audience, how you’ll incorporate your nonprofit’s branding, and what media you’ll use (ie. video, photos, infographics) for updates.
  • Your marketing. How will you motivate or inspire your donors to give? What will you do on social media to support your crowdfunding push? How will you leverage email to drive awareness?

Crowdfunding Can Be a Powerful Tool in the Right Hands

In many ways, crowdfunding has always been at the heart of nonprofits. That it’s expanded into the for-profit space just means more avenues through which you can bring in donors and raise awareness for your cause. More tools you can leverage to ultimately change the world for the better.

About the Author

Brad Wayland is the Chief Strategy Officer at BlueCotton, a site with high-quality, easy-to-design custom t-shirts.