How Crowdfunding Sites Could Be Better

As mass fundraising sites like Kickstarter and Indiegogo have become increasingly popular, charities are at once embracing them and worrying about what that means for the future of giving.

The market is growing: In 2013, crowdfunding, as the process is called, raised $3-billion. By 2025, it’s projected to balloon to $93-billion. Just recently, Kickstarter hit $1-billion in projects that have been funded by individuals. (The company takes 5 percent of every transaction.)

In a panel at the SXSW Interactive festival titled, “Ethics and the Future of Crowdfunding for Communities,” Miriam Kagan, a senior principal at Kimbia, and David Neff, a digital strategist at PricewaterhouseCoopers and co-founder of Lights. Camera. Help., explored the tricky issues prompted by the rise of the new fundraising approach.

They said that for many big, established nonprofits, the largest concern is that individuals who don’t have formal ties to an organization may be the ones pitching an idea on the crowdfunding sites. As a result, Ms. Kagan says, charities don’t have a chance to train volunteers about the mission of the organization and what it wants to communicate to donors.

Another challenge: Charities typically don’t know who gives to them through crowdfunding sites so they can’t build a relationship to encourage people to give more. In some cases, the crowdfunding sites won’t say, and in others they charge for the information.

But the money and exposure are often helpful, so charities know they need to work with the sites.

With that in mind, Mr. Neff and Ms. Kagan, with help from session attendees, came up with guidelines they would ask crowdfunding sites to follow:

• Require solicitors to say how much overhead they are putting into cost estimates for projects.

• Disclose the fees that sites collect and state how much of the money actually goes to the intended organization.

• Include regular updates on each fundraising project to show how the effort is going.

• Provide information about what supporters can do beyond giving cash, like volunteering.

• Spell out what happens if a project doesn’t meet its goal. Do donors get their money back? Do the nonprofits keep it?

• Describe in detail what contributors are getting in exchange for their money.

• Post detailed information about the relationship between the nonprofit and the individuals who are raising money.