Crowdfunding Will Change Philanthropy—But How?

March 13, 2017; Fast Company

As reported on Crowdsourcing.org, crowdfunding generated more than $34 billion in worldwide donations, equity funding, and person-to-person lending in 2015. In North America, it’s estimated that number was $17 billion, an 82 percent increase for the most recent year’s statistics available. More than 22 percent of Americans have already contributed to some kind of crowdsourced online project, according to research conducted by Pew Research Center. Field leader GoFundMe has topped $3 billion since it was launched in 2010, and there are more than 3,500 other social giving platforms around the world.

The result of these successes, according to an article in Fast Company, is “a vast pool of money that’s fundamentally shifting who is funding charitable work and how that work gets done.”

The rapid rise of crowdfunding is not unlike the rapid growth of donor-advised funds. In a stunning upset, after years of rapid growth, the donor-advised arm of a commercial, privately held, multi-national financial services company surpassed United Way as top nonprofit fundraiser in the United States. The share of giving directed to similar funds tripled between 2009 and 2015. These donor-advised funds (DAF), often managed on behalf of commercial financial service companies, pulled billions of charitable dollars into what are in essence longer-term hold accounts, inflating current giving totals but limiting the amount of money actually put to immediate charitable use.

Crowdfunding represents another kind of field-busting change:

Viral campaigns may reach more potential donors but those givers often respond in an emotional as opposed to rational way: You’re paying to alleviate someone’s suffering, not the broader societal problem it represents. The result has left nonprofits scrambling for new ways to share their own community-minded messages within the medium.

Will the size of the philanthropic pie increase, or will the money just move around? For example, while some news-oriented groups saw large post-election increases in donations, some experts believe there’s little reason to think such growth represents a net increase in giving. Giving in the U.S. has held stable between 2.1 and 2.2 percent of net income since 2003 and has been similarly flat for decades. The Chronicle of Philanthropy labeled it “the stubborn two-percent giving rate.” Yet, many Americans think they—or their neighbors, at least—should be giving more, as much as double what they give today. (That’s according to a small poll conducted by Ideas42, a nonprofit organization that takes on projects using behavioral science to help solve social issues.)

Crowdfunding raises money for all sorts of projects, and not all of it counts as a tax deduction. In some areas, the answer is gray for the giver, the recipient, or both. (For example, Michigan’s attorney general posted a consumer alert for crowdfunding.) The most popular kinds of crowdfunding projects to date are contributions to help someone in need, and the fact that many of the donations in this fast-growing category are not tax-deductible raises an interesting question about the value or role of the charitable deduction and whether or not it encourages new giving. In the case of emerging giving trends like this, it may not be needed.

Much of the DNA of today’s nonprofit sector is based on a cultural history that might be summarized by the phrase, “We’re experts. Trust us, give us money and we’ll do the right work.” The premise of crowdfunding starts from the exact opposite point of view—that beneficiaries know best about what they need and how to spend it. It’s not just another fundraising tool; rather, it’s a vibrant new lifeform.—Kevin Johnson