What Crowdfunding Can Teach Us: A Meditation in Three Acts

Throughout the nonprofit sector, philanthropy experts have been raising the alarm that while the total amount given to charitable causes is growing at a very modest pace, the number of donors is shrinking with each passing year. This begs the question: what changes need to be made to reverse this trend and attract donors back to our many worthy causes?

One source for inspiration should be crowdfunding platforms such as GoFundMe, Indiegogo, and FundRazr, which are in many ways reshaping the philanthropic landscape. This has been achieved not only through democratizing the philanthropy field and fostering global community bonds but, perhaps most importantly, by redefining donor expectations.

In this article we’ll dig into what monetary impact crowdfunding has had on nonprofit bottom lines, explore other ways these platforms are changing the philanthropic landscape, and take a look at a few practical tips on changes nonprofits need to be making right now to remain relevant to donors.

Act One: Crowdfunding by the Numbers 
Crowdfunding is a complicated term because it encompasses all sorts of financial arrangements, including gifts to individuals, organizations, and registered charitable institutions as well as financing for start-ups, support of artists, and bringing new products to market. While funding for start-ups usually receives all the press, it turns out that most money in this space is dedicated to more charitable endeavors.

So, what’s at stake here? Being a largely unregulated space, it’s nearly impossible to get an exact sense for the financial implications of crowdfunding platforms on philanthropic giving. However, Giving USA takes into account the roughly 22 percent of giving to nonprofit organizations through crowdfunding platforms when arriving at its estimate of $484 billion in total philanthropic giving in 2021. One estimate from the previous year for money raised by crowdfunding platforms is $34 billion, which would mean that approximately $26.5 billion of that total did not go to registered charitable organizations. Such numbers would also square with research by the Pew Charitable Trusts which indicated that “68 percent of crowdfunding users report having contributed to a project to help an individual facing some sort of hardship or financial challenge.”

Does this mean that crowdfunding campaigns are diverting money that might otherwise go to nonprofits to do their work? Yes and no. To begin with, according to an Indiana University survey, 4 out of 5 people who give via crowdfunding platforms “also give to charity through more traditional means.” People have given directly to family, friends, and those in need for generations, so in many ways online crowdfunding is just a new means of achieving a longstanding goal. At the same time, the estimates in philanthropic giving, combined with recent trends of a diminishing donor base, indicate that there are likely fewer dollars flowing to nonprofits than there otherwise might be. And let’s not forget those 1 in 5 people who are only giving through crowdfunding campaigns, many of whom are younger and people of color. Clearly, crowdfunding is proving both a complement and an alternative to traditional fundraising.

Act Two: A Changing Paradigm
While the money matters, the biggest impact of crowdfunding has been on donor expectations and the donor experience. More often than not, philanthropy has been a largely impersonal endeavor, with well-meaning people giving to organizations with the belief that the funds would make a difference. In return, organizations have tended to communicate back to their donors in broad strokes and with limited detail. This paradigm has been turned on its head with the rise of crowdfunding. The instantaneous, transparent, and personalized nature of platforms like GoFundMe has shifted donor behavior and reset their expectations.

Crowdfunding platforms offer an immediacy and personal connection that is largely absent from traditional philanthropy. Donors can give directly to specific causes or individuals, often in real-time, and see the impact of their contribution almost instantly. They can follow progress updates, witness the direct effects of their generosity, and see exactly where and how their funds are being utilized. This provides donors with a gratifying sense of direct impact, which has significantly reset expectations regarding giving. 

Moreover, these platforms have instilled a desire within donors for increased transparency. As mentioned above, donors would give without necessarily knowing the specifics of how their contributions were being used. With crowdfunding, they often see the entire process unfold. They know who they're helping, why they're helping, and how their assistance is making a difference. This transparency is fast becoming a prerequisite for modern-day philanthropy, challenging traditional charitable institutions to become more transparent and accountable.

Furthermore, crowdfunding has brought about a demand for personal connection in philanthropy. Donors now expect to feel a sense of emotional investment and personal involvement in the causes they support. This shift towards a more emotional and empathetic form of giving can be largely credited to the storytelling aspect inherent in crowdfunding campaigns, which effectively humanizes the recipients of aid and creates a deep, personal bond between donors and beneficiaries.

Act Three: Practical Tips for Nonprofits
At its core, the traditional donor engagement model is based on a top-down approach in which the nonprofit communicates its priorities in broad and generally impersonal ways. It also tends to be solicitation-heavy and stewardship light. This model is no longer effective. Donors are more skeptical than ever before, and if they are going to donate to a nonprofit, they’re more likely to give to organizations to which they feel connected.

To successfully pivot to this emerging paradigm and attract—and retain—this new generation of donors, nonprofits need to change their donor engagement model to be more bottom-up. This means better responding to donor interest and being more thoughtful in articulating how their donations are making a difference. Nonprofits can do this by:

• Focus on storytelling. Successful crowdfunding campaigns tell a compelling story that resonates with donors. Nonprofits need to focus on telling people stories—the people they serve, the people doing the work, the people supporting the mission—while being more creative in expressing the impact they are making in the world. 
• Personalize communications. With the bounty of automations and tools available in this digital age, it’s imperative that nonprofits communicate with their donors with as much personalization as possible. This goes beyond just including donors’ names, and includes responding to their areas of interest and delivering information at the desired frequency and in the preferred medium. Of course, this begins with building a data infrastructure that can accommodate this imperative. Remember, doing this poorly can hurt more than it can help.
• Embrace transparency. Not only do donors want to know where their money is going, they want to know more about your journey including your ups and downs. Strategically share challenges faced and lessons learned, and embrace crises head on. Nothing builds trust like transparency.
• Engage donors. To the extent possible, involve donors in the organization’s work by giving them opportunities to volunteer, serve, or provide their thoughts and feedback. Whatever you do, make sure that it is actionable and not just perfunctory. If you ask for donor feedback, report back with the insights gained and/or next steps in your process. This is an area that requires a considered approach because you want to balance the donor imperative with the realities of available staff time and resources. 

Final Thoughts
While the advent of crowdfunding has introduced new challenges, such as the potential for fraud and the risk of popularity-driven giving, the impact it has had on donor expectations cannot be understated. As we move further into the digital age, crowdfunding will likely continue to grow, evolve, and challenge traditional philanthropic norms, driving the sector towards greater immediacy, transparency, and personal connection. In doing so, crowdfunding is not just changing how we give, but fundamentally reshaping our expectations of what the experience of giving should be.