Online Crowdfunding

Crowdfunding is the practice of funding a project or new venture by raising money from a large number of individuals. These days, it is generally done through online platforms, such as Kickstarter, Indiegogo, GoFundMe, and YouCaring. Basically, “organizers” will put together a pitch for a new product (such as, an innovative product not currently on the market, or a creative endeavor, like a film or literary journal) and submit it to the online platform. Once launched on the online platform, people can fund the project in exchange for rewards such as the product at a discounted prize or a special viewing of the movie. These crowdfunding sites are also used to support worthy causes such as contributing toward someone’s funeral or medical costs.

Online crowdfunding sites are not immune from fraud. There are instances of outright fraud where fake companies and dishonest individuals deliberately swindle you out of money. However, there are many more instances where projects fail because the organizers are inexperienced, overly ambitious, and severely underestimate the time and challenges they will face in developing the product.

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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 Campaign Organizer. Learn all you can about the campaign organizer before making a contribution. Many crowdfunding sites verify organizers through Facebook, so you can start by checking out their Facebook pages. 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. You can also look up the organizer via internet search engines, like Google, and through other social media sites, like LinkedIn. Evaluate the organizer’s credentials. Does the organizer have demonstrated expertise in the area the campaign concerns?
  • Research the Crowdfunding Platforms. There are several different crowdfunding platforms and they all have different rules. Some platforms require organizers to show potential funders a prototype when the campaign involves the development of a complex product and only allow organizers to receive money if the campaign reaches its goals and after the campaign is over. This allows contributors time to change their minds and withdraw their support. Others do not require a prototype and give organizers the option of creating campaigns that allow them to take out money at any time, even if they do not reach their goals. A contributor who wants a refund must go directly to the organizers. Some platforms also provide refunds where a campaign’s content is inaccurate as to a material fact or when the organizer is charged with a crime related to the campaign.
  • Do a Reverse Image Search. Because fake campaigns often copy and paste other people’s stories or photos, a simple way to research a campaign is to conduct a reverse image search. Search for the photos used in the campaign, as well as those used on the organizer’s social media pages. Also, be suspicious of any campaign posted on multiple sites. Scammers will put up multiple campaigns on different platforms to maximize their odds of swindling people. A reverse image search may also reveal that the supposedly “new” product being developed already exists and is being sold in another country through global trade platforms like Alibaba.com. Scammers may be passing off cheaply made products at a premium.
  • Contact the Organizer and Ask Questions. Each crowdfunding site allows you to pose questions to the organizers through their comments section. If an organizer is answering questions regularly, it is more likely that they are acting in good faith.
  • Be Suspicious. Beware of campaigns that pull on your heart strings, but lack any details of how your donation will be use. Be especially careful after a disaster or tragedy, as scammers will often post campaigns that exploit your desire to help victims of the latest news story. Also beware of campaigns that overpromise on products or services. If it seems too good to be true, it probably is.
  • Understand the Purpose of Crowdfunding. Remember that there is no guarantee that the crowdfunded product will come to fruition. The purpose of crowdfunding is not to purchase a product, but to fund a company or idea. Contributors must appreciate the risk involved. Similarly, when donating to a worthy cause, contributions are not likely tax deductible unless they are made to a 501(c)(3) designated organization.

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What to Do If You’re a Victim

If you are suspicious of, learn of, or become a victim of an online crowdfunding scam, start off by notifying the online crowdfunding platform. Many of these platforms have dedicated people who investigate suspicious projects and may even refund your money.

The following 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 protecting yourself against crowdfunding scams, check out the following webpages:

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