Nonprofits call for responsible practices

As a "chamber of commerce" for the nonprofit community, we have heard a great many concerns from our members about crowdfunding platforms, and we have also been involved over the past year in discussions about potential crowdfunding regulations in California with legislators, the Attorney General's office, and crowdfunding companies.

Today, we are introducing CalNonprofits’ new Principles for Responsible Crowdfunding.

These Principles are meant to act as a guide for emerging legislation and as a call to you – the crowdfunding platforms – to act in a fair, public-spirited way. They are being sent directly to the CEOs of ten crowdfunding platforms, to members of the California state legislature and to California’s newly elected governor, Gavin Newsom. We welcome your comments and feedback on the Principles.

Background
Crowdfunding – broad, public, online fundraising campaigns – has emerged as an important vehicle for both donors and nonprofits. Crowdfunding campaigns bring causes to the attention of wide audiences who find it a convenient way to make donations, typically of modest amounts. Individuals also use crowdfunding campaigns to encourage their friends to donate to various nonprofit or community efforts. For nonprofits, crowdfunding is also a new way to reach out to prospective donors and can provide a significant revenue stream along with an opportunity to raise awareness and increase engagement with their cause and programs.

At the same time, as the crowdfunding industry has evolved concerns have also arisen, including:

• A proliferation of scam artists purporting to be legitimate nonprofits;
• Concerns by donors about undisclosed fees, uncertainty about tax-deductibility, and confusion about disclosure of their identity;
• Nonprofit complaints about slow fund disbursement, undisclosed fees, and inconsistent – or missing – information about donors; and
• Questions about the implications for existing Donor-Advised Funds (DAFs) and for possible DAF regulation in the future as crowdfunding companies reconfigure their giving platforms as DAFs.

The crowdfunding industry has sponsored legislation in California to clarify what is legally permissible, and over the coming years we anticipate more state and federal policy efforts to address concerns that are bound to emerge as this industry and these practices mature. The principles by which crowdfunding should be operated and regulated will evolve as well. We propose the following Principles to define responsible and ethical practices that will help nonprofits, donors and the industry engage in these online activities in ways that are productive and ensure consistency with long-established laws that strive to balance the interests of stakeholders.

Download the new Principles for Responsible Crowdfunding.

Photo credit: ThinkBusiness.ie