Now that crowdfunding is becoming such a common way to
fundraise, it’s time to discuss the potential pitfalls of this phenomenon from
the contributors standpoint.
First, there are two potential things that can happen to
your money when you give to a crowdfunding action and it doesn’t fully fund.
One, they give back everyone’s money and that’s the end of it. Two, they don’t
give back everyone’s money and assumedly, they use that money to forward their
cause. It works differently with different campaigns, so make sure to read the
fine print.
Giving to a crowdfunding campaign is equal parts
philanthropy and investment. But be cautioned:
donating for perks is not like shopping at Amazon. In some cases, those
perks are so tightly tied to the success of their campaign that you may never
receive your perks at all, receive them years after the fact, or maybe receive
them right away, depending on how tied they are to the campaign. Don’t expect
to immediately receive those mp3 files that you paid for if you contributed to
pay for studio time for that friend’s band. You’re looking at between 6 months
to 2 years on that one.
I know if you’re considering giving to a crowdfunding campaign,
you’re probably already invested in the campaign one way or another, through
friendship or emotional investment. Something has touched you about the need,
you want to see someone you know succeed. That’s the way it goes. Even complete
strangers give to crowdfunding campaigns because of a common bond or emotional
attachment.
That said, you’re investing in someone’s success or failure.
And if they fail, you lose a little bit yourself. If they succeed, you can tell
your friends that you helped fund that film, that record, that event. It’s
pretty cool when you can hold up that CD or movie or what-have-you and say you
helped get it made.
The flipside is that it’s not awesome when a crowdfunding
attempt fails. It’s not earthshaking in many cases. Your money gets refunded
and you go your own way, having had your money tied up for no good reason for a
period of time. If it’s one of those where you don’t get your money back, it’s
a little more painful. You could look at it like any bad investment, but either
way, it stings.
So how do you tell whether the risk is worth the investment?
In the charity world, you can look up ratings for charities and see what
percent of your contribution will likely get to the end user and how much is
tied up in overhead. There is none of that disclosure with most crowdfunding
campaigns. These things are grass roots and oftentimes not well thought-out.
For instance, the woman who was asking for donations for her daughter who broke
both of her feet jumping off her roof into a pool and missing. Oh, the backlash
that came about because people considered her “charity” unworthy.
First: you are the only one who knows your risk tolerance.
Some don’t care if they have their investment returned on at all because the
cause is so worthy that perks would be unnecessary. Some are so infatuated with
that perk: a rare, collectible item or unique experience of a lifetime is often
offered for large donations. I might stop reading the fine print if I could
spend $300 for a half hour interview with Bruce Campbell. You need to know how
your money will be handled in case that the campaign fails. Heck, don’t you
want to know what your money will be used for either way? I won’t discourage
people from giving to crowdfunding campaigns. I’m just advocating that you read
the fine print.
Second: read the refund policy first and foremost. I know
people will scream that it’s a charity and you should give for the right
reasons, but crowdfunding is often for those things that fall into a grey area.
It’s not exactly charity, it’s not exactly investment, not exactly sales or
marketing. You need to know if you’ll be expecting a refund or nothing once the
crowdfunding campaign fails, if that is its destiny. For those that will be
keeping your money if they don’t fully fund, what happens to your money at that
point. Is there an alternative to what they were trying to do in the beginning?
Either way, don’t be counting on hearing anything about what
your money went for. It could have gone to a depressingly drunk bender for the
organizer and it would just be the way things go. If you’re not keen on paying
for a drunk bender or Hawaiian vacation for a stranger, it might be good to
avoid giving to a non-refundable crowdfunding campaign.
Of course, assuming that you’re not one of the gonzo ones who
isn’t phased about losing a lump of cash in the name of charity.
Third: watch what people are saying in the comments. You
might be tipped off early that a campaign isn’t what you think it is.
Fourth: don’t be swayed because the organizer is a friend or
industry peer. Friends can fall on their faces too. And sometimes, they drag
you down with them. I remember the first time I lost money on a friend’s unique
promotions opportunity. It way predated crowdfunding, but I got suckered and I
lost big. Walked away and didn’t look back.
Fifth: your perks will arrive when they do. No sooner. The
most successful crowdfunding campaign I gave to still took two years to produce
the goods. Now, I wasn’t upset about the wait, the final product was worth it.
I’m no fan of Marco Collins, but here’s an example of a
successfully funded crowdfunding campaign. Note the fact that certain perks
include digital downloads of a film that’s not completed yet. Those perks will
take a while to get to you. Also: read through and see where the money goes if
the campaign doesn’t hit its goal. While I’m not invested in this project
enough to have given, this is a good example of a well put-together campaign
that I would consider trustworthy enough to give to.
Marco Collins Kickstarter SuccessMore about Collins Film Project
Now, here’s one that you might have wanted to read a little
more closely. Awesome event, but is this Con a con?
ZomBcon Indiegogo PageMore on ZomBcon Indiegogo Campaign
You win some, you lose some. Being informed of the hows,
whens and whats of a crowdfunding campaign will help you direct your money in
more useful and successful ways. Remember that your risk tolerance is not the
same as others. A non-refundable crowdfunding campaign is less likely to
succeed simply because the risk tolerance of most who would give is low. Even
if one or two big spenders step up, there’s no guarantee of success.