CORRECTED-YOUR MONEY-Crowdfunding for a cause gets cheaper

Thu Jan 15, 2015 4:50pm EST
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(Corrects to clarify information about the typical range of Indiegogo's crowdfunding fees, in addition to PayPal and credit card processing fees, in paragraph nine)

By Mitch Lipka

Jan 15 (Reuters) - The week before Christmas, a fire gutted the Beverly, Massachusetts home shared by Kevin Wagner, his fiancée and their four young children. Most of their basic possessions were destroyed along with their Christmas presents.

While insurance will cover much of the rebuilding, friends stepped in right away with cash to fill the gap until the claim is settled. As is becoming more common these days, they started crowdfunding campaigns on popular sites - one on, which holds money in an FDIC-insured savings account, and another on, which is linked to a personal bank account. Both sites collect a 5 percent fee from the donations and pass along a credit card processing fee of about 3 percent.

For the $25,000 Wagner's friends raised on DreamFund, that amounts to $2,000, and another $800 went to GoFundMe and its credit card processors for the $10,000 raised on that platform.

A few people were put off after learning about the fees, Wagner says, and simply handed him checks, which added another $10,000 to the effort.

Nevertheless, raising money for personal causes through crowdfunding sites is a skyrocketing business - GoFundMe says such fundraising campaigns increased by 291 percent between 2013 and 2014, after rising by more than 500 percent the year before. But the fees make it clear the platforms themselves are, indeed, businesses rather than purely charitable efforts.

More than 2,000 crowdfunding sites have sprung up to try to catch the wave of this rapidly growing industry, says Howard Orloff, vice president of Zacks CF Research and founder of Of those, many are start-ups with little staying power and many are aimed at businesses seeking capital rather than personal causes. Some, like Kickstarter, one of the best known sites, don't allow personal fundraising.

Regardless of type, the sites make money by taking a percentage of pledges, which results in either a donation being reduced when it reaches the recipient or a surcharge added to the donor so the recipient gets the net amount pledged.   Continued...