I may be too cautious (or maybe suspicious) but I see a lot of risk in the practice of crowdfunding. For someone intent on scamming people it seems to be the ideal place to practice the art of theft. I define crowdfunding as soliciting funds from others to fund a project or charitable cause using a website and often providing status reports and updates on the project or cause. Sometimes this is also known as crowdsourcing but that term also encompasses soliciting someone who can work at a task with or without pay.

In full disclosure I did once contribute to an author who was trying to fund her book through one of the major sites. She was going to use our funds for travel (to the site where the events of the book occurred) and research. Once the book was published we would receive a signed copy and be mentioned in the acknowledgements. In her status reports she encountered some unspecified health issues and had to postpone the book. Once she had recovered she began the research and travels only to come up short of funds and to request additional money. She was appropriately apologetic and even acknowledged how suspicious it sounded. At that point I blocked her emails and stopped contributing. I have been watching Amazon for her book or her name as an author but it has been over 5 years and she has not appeared…..I guess the research is taking longer than expected.

I took some time to research the policies of both GoFundMe and Kickstarter. There was one immediate surprise…..while most people are aware of the GoFundMe.com website and the myriad types of fundraisers it hosts, there is also a GoFundMe.org site. These two organizations are separate but work closely together. The .org is a 501c (3) charity and donations to it may be tax deductible while the .com is not a charity and donations to its crowdfunding projects are not tax deductible.

The GoFundMe.com site lists information about its security and anti-fraud policies. Essentially if a donor believes that there has been misuse the company will refund the donation up to $1,000 per campaign. If the intended beneficiary does not receive the funds from the campaign organizer GoFundMe.com will contribute the undelivered balance of the funds up to $25,000. The company does require organizers to provide these details to make the request as transparent as possible:

  1. Who you are (Organizer)
  2. Who you are raising the funds for (Beneficiary)
  3. Your relationship to the beneficiary (the person receiving the funds)
  4. How the funds will be spent (be specific as possible)
  5. How the funds will be delivered to your beneficiary

As you might expect, it is very difficult to determine if any of the fundraisers listed on GoFundMe.com are legitimate or fraudulent….I am sure the company does the best they can but you may want to look at this website first: www.gofraudme.com . This site is devoted to identifying and reporting on instances of GoFundMe fraud. It is very sobering. Let the Donor Beware.

As for Kickstarter, they do not allow charity directed projects and have stronger focus on ensuring that projects actually have a result in mind and be clearly presented. Here are those requirements:

  1. Projects must create something to share with others
  2. Projects must be honest and clearly presented
  3. Projects cannot fundraise for charity
  4. Projects cannot offer equity
  5. Projects cannot involve prohibited items (list included)

Kickstarter also requires those creating a fundraiser to provide an address, bank account, government issued ID, and major credit or debit card. While these are not impenetrable shields against fraud they are much stronger than other crowdfunding sites. Still, someone could open a Kickstarter project to create a “transporter” (ala Star Trek) and if it contained enough technology jargon it might be allowed yet would never be completed. Again Let the Donor Beware.

If your company has been a victim of fraud let me know if you are willing to discuss it with me. It would be helpful to other entrepreneurs to hear about real life examples of fraud, loss and recovery.