Online crowdfunding platforms have changed the way charities, non-profit organizations, startups and even established companies, raise money.
Mostly, these platforms have opened up new fundraising avenues for organizations of all kinds. These days, we’ve all seen pages for different groups looking to boost their bank accounts, and those pages are bringing in some big bucks, according to industry research. According to a 2016 report, more than $34 billion was raised via crowdfunding in 2015, and crowdfunding brought in more money than private equity deals did in 2016, according to another report.
And those numbers are not expected to decline anytime soon. Other studies have found that the crowdfunding industry is projected to grow at a rate of more than 25 percent through the end of the decade.
But with so many groups getting involved with crowdfunding, it’s getting harder and harder for groups — be they for profit enterprises or non-profit organizations — to raise money for their cause, no matter how worthy that cause may be. It’s a problem that Daryl Hatton, founder and CEO of crowdfunding platform FundRazr, is all too familiar with.
Hatton started FundRazr in 2009, with a mission to use the power and popularity of social media to help non-profit community groups like athletic teams and school clubs raise money and collect dues. While the company has found success by taking to social media, Hatton said that the huge volume of crowdfunders make it harder than ever to break through the noise, forcing his team to find new ways to attract attention for both non- and for-profit enterprises alike.
“People are turning crowdfunding off, because they don’t want to see campaigns anymore” Hatton said, causing consumers (and potential donators) to feel fatigued. “So our challenge is, how do we expose campaigns that have that more critical need to the community, and how do we cut through the noise on Facebook and on social media to get that exposure to happen.”
PYMNTS recently caught up with Hatton to find out more about how the crowdfunding platform has had to work to find new ways to get interested eyeballs on worthy fundraising campaigns, the differences between how non- and for-profit companies raise money and what the future of the industry is.
Shifting social (media) norms
Hatton said that his crowdfunding venture was motivated by a personal need — in 2009, he coached a local youth lacrosse team in Vancouver, British Columbia, Canada. The team needed a better way to collect dues from team members and donations from parents, friends and other family who wanted to help the team to travel for tournaments.
Hatton decided that social media would be a crucial part of how organizations raised money then, and in the future, and built his platform on that premise. He took his inspiration from a strange source — the popularity of Farmville and other Facebook games that were being incessantly shared by users. However, while the idea to capture social media for fundraising may have turned out to be a popular one, Hatton said there were more than a few bumps along the way.
“I saw what was happening with social media, with Facebook and said, how can we use this as a way to collect donations or fees for nonprofits?” Hatton recalled. “So we built out the original functionality with a focus on fee collection, and the idea that you could also do donation processing. The fee collection side didn’t take off, and then it was pretty squashed when Facebook changed the APIs to stop Farmville from destroying Facebook.”
So Hatton shifted his strategy, and decided to focus on crowdfunding donations, eliminating fee collection. He also changed his plans on social media as Facebook shifted away from games and towards the news feed that users are familiar with today.
Hatton also noted, however, that social media standards and norms are still constantly shifting. While Facebook may no longer be making changes to stop an overrun of annoying notifications from games, the company, and its users, are constantly changing the way the site is used, meaning that his team, and other crowdfunding organizations, reach potential donors on social media.
“Social sharing now has to be way more sophisticated than just putting a share button a campaign, because it’s gotten to the point where “Likes” on a Facebook post are almost useless,” Hatton said. “Now, it’s about “Likes” on comments on a post, those are valuable, because it’s showing Facebook that your content is valuable, that it’s creating a discussion, so they’ll promote it more to other people on their news feed as a result.”
Collecting donations (without scaring away customers)
Hatton also said that, along with finding a way to get attention on social media without overwhelming or annoying donors, organizations need to figure out how to turn that attention into monetary support.
FundRazr accepts payment through three processing partners — Stripe, WePay and PayPal. Donors can give money using credit and debit cards, as they can on most eCommerce sites, but Hatton noted that FundRazr’s relationship with processors, particularly Stripe and WePay, allow the site to accept donations using a wider range of payment methods.
“The main reason we use these processors is because they have been getting very innovative about taking new payment methods like Apple Pay and other mobile wallets and even bitcoin donations,” Hatton said. “In the United States, our partnership with WePay even allows us to accept bank transfers.”
The site does charge a small processing fee for donations, which organizations can pay in several ways. The most common model, Hatton said, is a combined-fee model, where users are charged a fee between 5 and 7 percent, which accounts for fees from both FundRazr and payment processors. There is also a tipping model, where organizations can pay only payment processing fees, and FundRazr will prompt payees for a “tip” after payment is made. The site is also introducing a new payment model in the coming months that will allow nonprofits and other organizations using the site for ongoing donations to pay a small subscription fee of about 3 percent each month the campaign remains active.
Hatton noted that most nonprofits pay the fees themselves, from their pool of donations, rather than charging a fee on top of a donor’s transaction. He said that while donors may be willing to give for a good cause, they may be more unwilling to cover a campaign’s overhead costs and often are deterred from making a donation at all as a result of the additional fee.
“We do have some customers who are asking or have asked donors to cover the fee, and funny enough, that oftentimes backfires,” Hatton explained. “You’re trying to save this really small percentage, and some of the customers bail when they see a fee added on, because up until that point, they didn’t realize that 100 percent of the money wasn’t going directly to the cause, but going to covering some other expense. So trying to save on that percentage can be a really mixed bag.”
Different aims, different strategies
Even if donors aren’t scared off by a fee, individual campaigns can also struggle to get noticed because of the huge amount of crowdfunding efforts starting every day. Campaigns from sites like FundRazr, Kickstarter, GoFundMe and Indiegogo can be seen constantly on Facebook and other social media sites, and Hatton noted that overabundance could be causing fatigue in some consumers.
Part of the reason for that glut of crowdfunding campaigns is the way that entrepreneurs and other for-profit enterprises have embraced crowdfunding. What used to be only a way for charities to raise money has become a new way for companies to get off the ground or get funding to build a new product. Startups even brought in more money in 2016 via crowdfunding than with deals with venture capital firms.
So how can entrepreneurs and non-profits avoid stepping on each other toes, and wearing out willing consumers and donors? Hatton said the secret is to market the campaigns differently, offering different reasons for donations or perks for contributions depending on the focus of the campaign.
“To me, crowdfunding is a tool that you apply to different circumstances in different ways,” Hatton explained, noting that FundRazr allows individuals to raise money for personal expenses such as medical costs, non-profits to collect donations and entrepreneurs and for-profit enterprises to raise funds and offer perks.
“The big difference is the communities and where you find them. Individuals are looking for their friends and families and rarely getting above that. Charities, meanwhile, are more about working an established supporter base for that cause, and entrepreneurial campaigns are more about what we call ‘give-to-get.’ Contributors are willing to give you money in advance for the promise of getting something back.”
However, Hatton also noted that as crowdfunding matures, non- and for-profit efforts could eventually come together. He pointed to CoCoPay, a new platform started by FundRazr, that allows corporations to use branding and other resources to help raise money for non-profit causes, as part of the company’s mission statement or charitable efforts.
Maybe it won’t be too long before crowdfunding comes, in one way or another, to a company near you.
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The Payments Powering Platforms Tracker™, powered by WePay, serves as a monthly framework for the space, providing coverage of the most recent news and trends, along with a provider directory highlighting the key players contributing across the segments that comprise the payments-integrated platform ecosystem.