No such thing as free money in crowdfunding

When Grosse Pointe Park, Mich.-based Wolverine Human Services decided to jump into crowdfunding, it went all in: Its campaign launched on Giving Tuesday, the big online donation day, and it landed rapper Eminem as a celebrity backer. Wolverine's staff spent a full month preparing, creating new pages on its website, and lining up publicity and people to promote the fundraiser staged on the CrowdRise site. Eminem's foundation agreed to match all donations up to $100,000 — and announced the move a day before the campaign launched. Money started pouring in, donations of $10 and $25 with the occasional $100. Many of the donors had never heard of Wolverine Human Services before, said Matthew Wollack, its director of development and son of its founder. "We got a massive amount of publicity and awareness" and raised more than $72,000, plus thousands more from staff and friends, and with the Eminem match, the tally hit $120,000, he said. The campaign also gave current supporters, used to attending golf outings or banquets, "something new" and helped launch a young professionals' advisory board, Mr. Wollack noted. Yet for every successful nonprofit campaign, crowdfunding sites are littered with two or three or more that reach only 3% or 17% of the goals set. Some don't draw in a dime. "The misconception is that there's something called free money," said Chris Blauvelt, founder and CEO of Patronicity, a Detroit site focused on funding Michigan projects. "You can raise a lot more money in a single dinner than you can in a 30-day online campaign." Crowdfunding, which started informally a decade ago, uses dedicated websites and individual donor networks to bring in small donors, often for some creative project or short-term need. It's been used by the Heidelberg Project after it was impacted by arsons and by individuals who need dog food or tuition money. It has grown rapidly, nearly doubling in size in 2013 in North America, and could reach $96 billion by 2025, a World Bank report predicts. Among its potent advantages, experts say, are connecting to millennial donors, broadening donor bases as friends and family of existing donors join in supporting new projects or clever ideas. "Instead of driving donations, it's far more effective to recruit fundraisers to get donations for them," said Robert Wolfe, founder and CEO of CrowdRise, a site based in Royal Oak that expects to raise $120 million for groups and individuals this year. "It's really tough to get 1,000 people to donate $50. It's not so daunting to get 50 people to raise $1,000 for you." Campaigns work best, Mr. Wolfe said, when people are "donating to their friend who is raising money for a charity," perhaps through a walk or other activity. They work poorly, Indiegogo co-founder Danae Ringelmann said, when the nonprofit campaign manager writes: "We need your money!" or "Any little bit helps." A far more effective attitude comes with confidence and pride and passion for what is being developed, Ms. Ringelmann said. "Be part of this amazing, impactful thing that we're doing." Launch parties are helpful, as is lining up a dozen contributors before the launch, said Mr. Blauvelt. He likes campaigns that recruit new volunteers as they raise money for something tangible — like a playground or a Lansing art studio/classroom/creative district that raised almost $50,000 on Patronicity. Many nonprofit development types do not take the time to understand how different platforms work "and what it takes to make them successful," said Steve Ragan, chief development and external relations officer at Focus: Hope, who also runs a fundraising consulting firm. "Find the one that makes sense for what you want to do." For example, Indiegogo uses algorithms and other merit metrics to determine which projects get prominent placement on its site, while at CrowdRise, "it's more art than science," Wolfe said. Staffers seek out campaigns that are "cool and interesting and fun." The U.S. had 344 crowdfunding platforms as of mid-2013, according to a World Bank report. Some, such as Fundraise, CauseVox and Razoo, focus on nonprofits. Others allow a mix of individuals, businesses and charities to pitch their projects. Nonprofits also need to find ways to reach different audiences with each campaign, and ask: "Is there a unique marketing opportunity?" Do not pitch a new campaign every six weeks to the same donors or "you may alienate them," said Ragan, who has run campaigns for Focus: Hope and New Orleans' Make It Right Foundation, among others. "It's about friend-to-friend viral fundraising. Empowered by technology" and social media, Mr. Ragan said. "People fail when they put it up there ... and think it will be successful." Mr. Wolfe said many organizations rely on Facebook pages or Twitter to drive donations, but those campaigns are not as effective as email, in part because people look at many of their emails while they only see a sliver of social media shares. Wolverine Human Services found that out: When Eminem tweeted about its campaign, it was retweeted about 12,000 times yet raised only around $300, Mr. Wollack said. He suggests nonprofits develop "a big team" on their crowdfunding and come up with incentives for them — and their friends — to participate. Then hold back some of the prizes donors can win for the campaign's last week — to bring in more money. "We didn't unleash our first prize until the third week of the campaign," Mr. Wollack said. This story first appeared in Crain's Detroit on Oct. 26, 2014.