Crowdfunding is the practice of funding a project or new idea or business by raising money from a large number of people. These days, it is often done through online platforms, such as Kickstarter, Indiegogo, GoFundMe, and YouCaring. “Organizers” will pitch a new product or creative project and submit it to the online platform. People can then fund it for rewards such as the product at a lower price or a special preview of the creative project (such as a movie). These crowdfunding sites can also be used to help people in need, such as raise money to pay for funeral or medical bills.
Online crowdfunding sites are not safe from fraud. Sometimes fake companies and scammers try to trick you out of money. However, more often you will lose your money because the organizers do not have the right experience or the challenges to the project are too big to overcome.
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Tips on Evaluating Crowdfunding Campaigns
Here are a few tips on how to protect yourself when dealing with crowdfunding campaigns.
- Research the Organizer. Learn all you can about the organizer before making a contribution. Use Google and LinkedIn to look up the organizer. Does the organizer have the expertise in the area the campaign concerns? Check out their Facebook page. Does it look fake? Are the friends real? Are there real-time comments? Be suspicious of pages that were created right before the campaign started.
- Research the Crowdfunding Platforms. There are many different crowdfunding platforms and they all have different rules. Some platforms require organizers to have a prototype and only give the organizers money if the campaign reaches its goals and after the campaign is over. This gives people time to change their minds. Others do not require a prototype and allow organizers to take out money at any time, even if they do not reach their goals. If you want a refund, you have to get it from the organizer. Some platforms also provide refunds in certain situations (that is, when the organizer makes false statements or is charged with a crime).
- Do a Reverse Image Search. Fake campaigns often copy and paste other people’s stories or photos. Doing a reverse image search of the photos used in the campaign, as well as those used on the organizer’s social media pages, can show you if the photos are stolen. Also, be careful if the campaign is posted on multiple sites. Scammers will do this to reach more people. A reverse image search may also show that the supposedly “new” product already exists and is being sold in another country like China through Alibaba.com.
- Contact the Organizer and Ask Questions. Each crowdfunding site allows you to ask the organizer questions through the comments section. If an organizer is answering questions regularly, it is more likely that they are not trying to scam you.
- Be Suspicious. Beware of campaigns that make you feel sorry for someone, but do not give you any details of how your money will be used. Be extra careful after a major disaster or tragedy because scammers will often try to take advantage of your desire to help victims. Also beware of campaigns that seem too good to be true. They probably are.
- Understand the Purpose of Crowdfunding. Remember that there is no guarantee that the crowdfunded campaign will be successful. The purpose of crowdfunding is to fund a company or project, not to buy a product. There are risks involved. Similarly, when donating to a worthy cause, contributions are probably not tax deductible unless they are made to a nonprofit.
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What to Do If You’re a Victim
If you are suspicious of, learn of, or become a victim of a crowdfunding scam, first notify the crowdfunding platform. Many of these platforms have people who investigate suspicious projects. They may even refund your money.
Here are instructions on how to report suspicious campaigns on some of the popular crowdsourcing platforms:
You may also report the organizer of the campaign to the Attorney General’s Public Inquiry Unit, the Federal Trade Commission, and the Better Business Bureau.
For more information on how to protect yourself, check out the following webpages:
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