Crowdfunding, part II – What I’ve Learned

 

In my last post, I wrote about what I’d learned about fee structures as I set up a Crowdfunding campaign to help a buddy in need. In this post, I’ll share what I’ve learned now that I’ve run a full campaign. This is stuff I wish I’d known before I started. This can also be used as a How-To for those that will be setting up campaigns of their own. Let’s press on….

Unless one has done something like this before, one learns as one goes, like I did. A need shows up (medical bills or whatever) and then the work starts. I’ve found that doing this is like peeling an onion: There’s always another layer or two. Anyway, I thought I’d just set up the campaign on one of the many crowdfunding sites, and that would pretty much be it. I was wrong.

This is where I described why I chose YouCaring LLC as a crowdfunding host. But in hindsight, starting there was starting in the middle, not the beginning. The campaign I managed was wildly successful, gathering over $100,000 in just three days! This is real money, and these kinds of amounts require more planning and attention than more modest campaigns. So some of this may or may not be relevant to you. The beneficiary may have a complicated life, a messed up family, or just not be very good with money. Crowdfunding is built on trust, an donors want to be confident that the donated money will mostly go to what they thought they were donating to. This is where things get a bit murky.

So, when one gives to a crowdfunding campaign, there is a story that describes the reasons why the organizer is asking for the funds, and it sets an expectation of how the funds will be used. But it’s not a contract, in a strict sense of the word. To make matters more complex, the organizer may have an expectation of how the funds will be used that is different than what the beneficiary thinks is important, building in conflict from the start. So, here’s the first item on the To-Do list:

Decide how the money will be distributed!

Will the proceeds just be dumped into the beneficiary’s checking account or is some other arrangement better? If it’s a small campaign, just depositing the funds is often the easiest way to go. But when one is talking about a hundred grand, then that path is risky. If the beneficiary has other financial commitments or some greedy friends, neighbors or family, the temptation to provide for them may be overwhelming and poof, there goes a big chunk of change.

Create the receiving account (if needed)

For the amount generated by my campaign, I think a trust is the right way to go. The funds will still go to the beneficiary, but they are contained and protected, to a certain degree, by trustee management. That means one will have to find a trustee. If one has a legal firm do it, this can cost a lot of money. Think $1,000-$2,000 a month! So finding a responsible person who will do it for little or no money is a very, very good idea. Also, if a trust is the right way to go, it needs it’s own EIN (Employer Identification Number). Think of an EIN as a social security number for something that isn’t a person, and no, the entity doesn’t need to be an employer! This isn’t a big deal, as it can be done at the IRS website, in real time (Monday to Friday, 7:00 AM to 10:00 PM EST).

Some beneficiaries may think that it’s OK to put the money in the hands of a friend or relative, but it’s risky. If the beneficiary has a fight with the friend or relative, the money may go away and there is nothing that can be done about it. Also, there are tax implications (more on that later) that can make this type of an arrangement more complicated than either party imagined. While this structure (friend or family) may work, it does contain risk. I’ve even heard stories (I don’t know if they are real or urban legends) where there has been a large campaign, and then a divorce, and there goes half the money, shared in the marital estate. While all of these scenarios may be unlikely, $100k free and clear, just for the taking, can do strange things to people. So proceed with caution if this is the direction you choose for your proceeds.

Create the Campaign, and Don’t Forget the Photos and Videos!

Now it’s time to create your campaign. Every crowdfunding site will walk you through this. There are really three things that you need here: The first is a compelling story. Take the time to write what has happened and why you are asking for money. Word crafting is an art, and if you do it well it will make the campaign more effective. For my campaign, I wrote the rough draft and ran it by a teacher that has known the beneficiary for much longer than I have, as well as the principal of the school where he spent most of his time. I received valuable feedback, as well as some corrections and edits.

Pictures and Video! Don’t Forget!

The second thing you need is pictures, at least one, and more are better. For example, YouCaring might put your campaign on their home page, but they want you to have 5-10 pictures, and a video is preferable. (The YouCaring suggestions can be read here.) I only had one picture, so I didn’t ask to be added to the homepage, but eyes become clicks and clicks become donations, so if you can, make the effort. The photos and video can and do personalize the pitch, so take some time to really capture your beneficiary’s spirit. It’s worth the effort.

How Much Should You Ask For?

The third item is the campaign goal. I’d had a motorcycle accident when I was in grad school oh so long ago. Even though it was 25 years ago and I had catastrophic health insurance, I still had over $35k in uncovered bills in the first month of care. So I knew what the beneficiary was facing, even if he didn’t. I thought that he’d need about $125k to get him back to earning on his own, but that seemed like a lot of money, so I set what I thought was an ambitious goal of $50k to start. I didn’t ask for the whole $125k to start, as I didn’t want to seem greedy. But to be honest, I just went by feel here and chose the $50k goal out of thin air. Don’t worry if it’s low. You’ll be able to change it later if you need to.

Link the processor  system to the receiving account.

YouCaring makes this easy. As you start creating your campaign, you can choose to either use WePay or PayPal. I chose WePay so I can speak to it. Anyway, when the campaign is launched, WePay will send the campaign organizer an e-mail to validated the account (must be done pretty fast) and then step you through the process. Keep in mind that you will need some information describing both the campaign organizer as well as the beneficiary. But don’t worry: If you don’t have all the info right off the bat, you have 30 days or so to really set everything up. This means that there is time to hunt down the odd piece of information. For the campaign I managed, I used this time to back up and create the trust account.

Seed the Campaign

We are more like lemmings than we like to admit. The first donation sets the tone for what kind of donation you are looking for. It’s no guarantee that people will match your donation, but if you aren’t willing to give to the campaign you started, why should others? I seeded my campaign with a donation of $250. If the bulk of the donations are $5-$10, it would take an awful lot of people to reach the initial goal of $50k. If my seed donation ended up being the average donation, then I’d need 400 people to hit it. (The local school district is small, with just two schools. I thought we’d get donations from a couple hundred people.) While I underestimated the number of people who would donate and I also underestimated the total number of donors, I was off by less than a factor of two for both numbers. I think I did pretty good for a first timer. Anyway, take your goal and divide it by the number of people who you think will give, and that’s a good number to seed your campaign.

Share, share, share!

I’m not really plugged into social media. But I do have a Facebook account that is noteworthy by it’s neglect. None the less, I have several hundred Facebook Friends, and once you finish creating the campaign YouCaring let’s you post it to your Facebook account (same with a Twitter feed, if you have one. E-mail too!) I chose to do this because 5%-10% of my Facebook Friends are in the local community. After you send it off, if you’ve done your work and have a compelling story, get ready for it to take off.

And take off it did! I launched the campaign at 9:30 at night with my seed of $250. By the time I went to bed at a bit before midnight, the balance was up to $600! I was so proud. Now, with each donation, the donor is given the option to share the campaign on their Facebook timeline. Even those that don’t give can share…. Anyway, I was totally shocked to see over $6,000 dollars when I woke up, and when I took the kids to school, it was at almost eight grand. $2k over breakfast and packing backpacks!

Let’s just say I learned first hand about viral campaigns. By mid-morning, it was over $10k, and a single massive anonymous donation of $50k showed up! When I went into the school’s front office, the admin had the campaign web page on her screen, and the excitement on campus was noticeable. I think the campaign hit over $60k in the first 24 hours. It was over $100k in less than 48 hours. It turns out that the beneficiary was known and loved and the community was just looking for a way to support him and his recovery.

The money kept coming in, but much slower over the next couple of days. We’ve topped out at over $111k in 4 days, and now only a couple donations a day are coming in. I had to up the goal after the large donation came in, but I didn’t raise it again. The campaign has just shy of 300 donors, and a bit over 400 people shared the campaign on Facebook.

Taxes and the IRS

I’d been asked if these donations can be used as deductions on the donors’ taxes. Short answer: no. These are individual gifts from the donor to the recipient and are not deductible. One cannot set up a 501(c)3 organization (tax-exempt charity) for the benefit of a single individual (see this IRS page for details.) All hope is not lost, as YouCaring is investigating forming a tax-exempt charitable organization. If you crowdfund through them make sure to ask the status of this.

The IRS FAQ page on gift taxes is here. The beneficiary may be subject to gift taxes if any single donation is above $14,000 ($28,000 if the donation is from a couple.) WePay used to issue 1099-Ks to beneficiaries of the charitable campaigns, but they no longer do. So it’s the honor system. YouCaring allows you to download donation information into a spread sheet, so there is some documentation of gift amounts. I suggest that no matter who the beneficiary is, download this list so that one can document breakdown of individual donations.

Taxes can get messy. Let’s say you have taxable gifts, and the recipient isn’t the one who has the medical bills (in the hypothetical case that the money is entrusted to a friend). Then the friend may have a big tax liability, and the person who has incurred the medical expenses may have tons of deductions with no income to shelter! Now, I’m just a physicist, not a tax accountant, so if you find yourself in this type of situation, get professional help. Tax planning with large amounts of money can get complex.

Campaign Maintenance

Once the campaign is launched, you are not done. The sites have places for comments, and you don’t want the campaign to become stale, so keep checking in to make sure that the questions and comments are addressed. Also, there are ways to provide updates to the campaign, and donors are asked if they want to subscribe to updates when they give. For longer campaigns, YouCaring recommends that you update your campaign at least once a week. My campaign went fast, so this was a non-issue for me.

Fraud: The Dark Side of Crowd Funding

One day, I was checking the comments, and someone had posted a link to their campaign. I couldn’t tell if the campaign was real (the beneficiary didn’t have a last name listed) and the campaign organizer had a Facebook account with only 15 friends. There was no appearant link to our community (the campaign was for $5k for funeral expenses for someone in Ft Worth, TX, I live in Northern California). There was no link to our community of givers in any way, shape or form. I deleted the comment and contacted YouCaring to investigate.

Earlier I wrote that these campaigns are based on trust. I think that either a well meaning person just wanted to help out and chose a poor way to do it, or, more likely, they saw that our campaign had a high goal that was exceeded in a matter of days. All the donors on my campaign were already qualified as deep-pocketed, compassionate and generous, so they looked like a prime target. Stay on top of your campaign so it doesn’t get hijacked. I also posted an update stating that if someone wanted to post a relevant campaign on our campaign feed, they needed to contact me first otherwise I’d just delete it as well.

And it just happened again. Some group in India posted to my campaign. I get the feeling that this is like spam e-mail, and one has to keep on top of it. I surely hope that the progression I’m noticing doesn’t make crowdfunding as much a mess as some of my e-mail accounts. I have an account that has been in service since 1985, and you can guess how many spam e-mails I have to fight through a day for that one!

In Conclusion

Crowdfunding is a viable way to generate donations for a cause. Not only can it be effective, but it actually feels really good to help those in need! Like I texted with one of my friends, “Giving is getting!” The end result for my campaign is a beneficiary who has been moved to tears several times by the depth of support from the community, and many of his financial worries have been put to rest. I’ve felt empowered in that I leveraged existing tools to provide to someone in need. The community received a way to express the love and support they felt for someone who was hurt and needed help. (I can’t believe how many comments like “I wanted to do something, but Amazon Gift cards didn’t seem to be the right thing. I’m so glad you set this up.”) Not only that, but the participating community bonded over this, and feels a well-deserved sense of pride. Other than some minor maintenance issues to keep those on the make at bay, this has been a wonderful experience for all involved.

 

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