6 Common Crowdfunding Risks and How to Prepare for Them

Crowdfunding offers a way for individuals and organizations to raise money for a specific campaign or cause that they wouldn’t otherwise have. Crowdfunding is primarily conducted online, allowing individuals and groups to reach a larger amount of people than if they just focused locally.

With every campaign, there are crowdfunding risks. This is regardless of the organization or what the funding gets used for.

It’s important to understand what the cons are, so you can decide if this is still the best option for what you’re trying to do. Learn more about how crowdfunding works, and make sure to weigh the pros and cons carefully.

1. Know That Trust is an Issue for Many Donors

Establishing trust is something that takes time when using crowdfunding as a source of money. People who have never heard of your organization often feel unsure about donating.

Even if you tell them where the funds go to, many wonder if money gets misappropriated, or how much money actually goes for what your claims are. Charities and other organizations that use crowdfunding benefit from learning how to establish trust.

Donors gain confidence in the group they are giving money to when they know about them. Having transparency in who you are and what you do gives folks confidence before they donate.

In turn, this makes them feel better about giving money, and they’re likely to support your future endeavors.

2. Understand What Platform Works Best When Evaluating Crowdfunding Risks

Before soliciting donations through crowdfunding, it’s important to understand where your target audience is and what appeals to them the most. Take time to learn about alternative crowdfunding sites, and weigh the pros and cons of each one to help decide which is best for your cause.

Among things to evaluate when deciding which site to go with include:

  • How much gets taken out in fees to the crowdfunding site
  • What the site typically gets used for (is it personal, geared toward artistic endeavors etc)
  • What is the success rate of the crowdfunding site with other individuals or groups in situations similar to yours
  • Do you get all the money raised even if you do not make your goal

One of the crowdfunding risks associated with raising funds this way is that there is potential to lose out on money if you don’t meet your target goal.

3. Know That Creating an Unreasonable Deadline Leads to Problems

When getting set up on a crowdfunding site, make sure you’re paying attention to the what your goals are, and how long it’s taking to get the funds. You might believe that if you try to meet a target goal within three days time, this will pressure people into donating.

This could have the opposite effect, and it’s one thing to consider when evaluating crowdfunding risks. Make sure to read the terms of service over carefully when selecting a crowdfunding site.

Some have specific requests for how long a fundraiser should take, and what the fundraiser gets used for. Creating high-pressure deadlines when the circumstances do not dictate urgency isn’t likely to appeal to your target group.

4. Be Aware of Copyright Issues and How They Present Crowdfunding Risks

When getting your crowdfunding set up, you’ll likely use a variety of images to show people what their money is going toward, and how it helps. This is important since it makes donors feel closer to you and what you’re raising the money for.

Make sure if you’re using any pictures taken by professional photographers or works of art created by someone else that you have the right to do so. Neglecting the effects of copyright law causes trouble for some people raising funds.

This could result in your crowdfunding getting shut down and even being banned from using the crowdfunding site for future fundraisers. Folks who donated sometimes get their money sent back and people lose trust in you and the cause you’re raising money for.

Take time to go over every image you plan on using and make sure it’s not subject to copyright law, or it was something created by you, that you have the rights to. This saves hassle and problems later on while keeping your cause active.

5. Know How Money Earned Through Crowdfunding Must Get Accounted For

One of the biggest crowdfunding risks that most people don’t consider is how money must be accounted for and documented when it’s raised through crowdfunding.

Contact someone skilled in tax law, and have them assist you with the process. You’ll avoid breaking any tax laws, and won’t get accused of embezzling or misappropriating money that was supposed to be for something else.

This keeps your reputation above reproach and ensures that you won’t lose a loyal gathering of supporters.

6. Don’t Neglect Fulfillment Needs to Keep Everyone Happy After They’ve Donated

One of the most important things you can do to minimize crowdfunding risks, keep trust high, and ensure your supporters believe in you is to follow up on how the funds got used.

Crowdfunding sites make it possible to use pictures, create updates, and otherwise document how successful the crowdfunding was. This gives donors the chance to see what you’ve done, feel closer to you and your cause, and further commit to helping you succeed.

With so much depending on how others see you and what you’re able to do, it’s worth the short amount of time it takes to update everyone on your progress.

Learn More

If you need help avoiding crowdfunding risks, don’t try to do it all by yourself. Contact us, and see how we can make your job easier.

We’ll ensure your crowdfunding idea follows the rules, and help you have the most successful experience possible.

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