Where money goes when donating to crowdfunding campaign
Popular crowdfunding websites charge some type of fee for service
HOUSTON – Crowdfunding is a booming trend when it comes to raising money.
Every day, people are donating to friends, complete strangers and even celebrities to raise cash for a cause.
Most have heard of the crowdfunding site GoFundMe. Campaigns usually pop up after tragedies such as the Pulse shooting or when families use the site to raise money for funeral expenses.
But crowdfunding campaigns come in a variety of types. A quick scroll through Kickstarter will show campaigns for everything from the perfect blouse to a new web series.
On GoFundMe, a fan created a campaign to help chip away at rapper Kanye West's $53 million in debt. So far $7,352 has been donated towards the $53 million dollar goal.
Seneca Dunmore is a Houston Community College professor and motivational speaker who recently took a medical mission trip to Angola.
"It was a phenomenal trip. Totally different culture. Totally different people," Dunmore said. "We set up basically a medical camp. They had a huge scare with malaria and yellow fever and typhoid this year. We were able to partner with some of the local clinics there to get them free vaccinations."
Dunmore used GoFundMe to raise the money she needed for the trip. In all, she raised nearly $6,000.
"I'm a huge fan of crowdfunding on GoFundMe," Dunmore said. "I reach out to all my people, you know, on social media, my family, email -- everyone I know who might want to make a donation."
But she didn't get to keep all the money that was donated to her.
"If I raised $6,000, I probably paid $400-500 in fees. Something like that," Dunmore said.
The four most popular crowdfunding websites all charge some type of fee for the service. If someone donates $100 to someone on GoFundMe, only $92 actually makes it to the person. The rest goes to fees.
Take that same $100 on Kickstarter -- only about $95 goes to the individual. The site tacks on another 3 percent in fees. If someone doesn't reach their goal, the site refunds the donations and the person doesn't get the money.
A $100 donation on Crowdrise goes the farthest. The site guarantees the recipient will get at least $97.
On Indiegogo, $100 turns into about $90 by the time it's received. And if the person doesn't reach their fixed goal, the donations are sent back.
Leah Napoliello, with the Better Business Bureau of Houston, said those setting up crowdfunding campaigns and those donating to them should do their homework on crowdfunding sites first.
"Take time to research the site. All of their policies," Napoliello said.
Dunmore said even with the fees, she prefers crowdfunding because it gives donors an up-close look at their donations in action.
"They feel like they are part of the experience and the journey," Dunmore said. "That's why I'm so adamant about when I'm on missions, posting pictures so they can actually see what we're doing, see where their money is going and how their money is helping another country."
On its website, GoFundMe warns consumers to steer clear of sites that claim to be 100 percent free. According to GoFundMe, the sites usually charge donors up to 15 percent to donate, and still pass on a 3 percent processing fee to the consumer.
Better Business Bureau offers additional tips
The Better Business Bureau of Greater Houston and South Texas urges donors to protect their gift to a crowdfunding page by following these tips:
- Don't give blindly. Investigate before you give. Check BBBHouston.org for public Better Business Bureau charity reports. The Better Business Bureau is the only charity-monitoring organization that evaluates charities against 20 charity standards for charity accountability; the items reviewed include an audit and IRS Form 990, among others. Also, visit the charity’s website for more information about its mission.
- Ask questions and request information. Reach out with questions, including: Is verifiable contact information available? Are progress reports posted? Are donors acknowledged? Specialized crowdfunding sites may be more adept at spotting problems as opposed to a site that allows any type of campaign, which may be more challenging when it comes to identifying scams.
- Verify if the donation is tax-deductible. Please be aware that donations to crowdfunding projects that help individuals may not be tax-deductible. Remember to check if the organization is registered with the state and IRS as a 501(c) (3) charity. Also, always consult with a tax professional before giving.
- Read the website terms and conditions. Check if the site disclaims legal responsibility for campaigns created on their site. Do they self-regulate? Is there another vetting system, other than checking Facebook and PayPal? If funding goals fail, will you be notified? Under what conditions are donations refunded, if at all? How and when will money be returned?
- Scam artists will emerge after a natural disaster or tragedy. Scammers strike while the emotional iron is hot and find different ways to create fake crowdfunding pages. Always ask how the creator of a page is specifically helping the cause. Is the person a victim or a family member? Is there verifiable information for the featured organization?
- Give to someone you know. Always try and give to a person or organization you know and trust. Campaigns posted by individuals are more challenging to verify. Scammers continue to use social media as a tool to promote their fake causes, and unsuspecting donors may, unknowingly, share bogus information throughout social media.
Copyright 2016 by KPRC Click2Houston - All rights reserved.