An Australian Crowd Funding website for non-profit and social organisations will make campaign managers return money to donors when projects fail to get off the ground.
Entrepreneur Prashan Paramanathan recently launched ChipIn, a website that aggregates donations from people wanting to fund community projects. The model, commonly referred to as crowdfunding, is usually associated with raising capital for creative ideas and technology gadgets.
One of the site's two launch projects is a project by Australia's non-profit Pollinate Energy to fund five dealers selling cheap, solar lights to slum dwellers in Bangalore.
Unlike popular commercial crowdfunding counterparts such as US-based Kickstarter and IndieGoGo and Australian site Pozible, ChipIn says it will force organisations to refund donations when a project has not been completed successfully. The site's terms and conditions of use make it clear supporters' donations are to be refunded immediately in full should a project not be completed in line with objectives set out in the submission.
Illustration by Robin Cowcher.
ChipIn does not charge a fee to fund-raisers except to pass on financial transaction charges. It requires a PayPal account for all projects.
A University of Pennsylvania study last year, The Dynamics of Crowdfunding: Determinants of Success and Failure, found that more than 75 per cent of Kickstarter projects were delivered late. Some crowdfunding projects have flopped, with their project pages full of comments from disgruntled donors.
Another study released this week estimated crowdfunding donations topped $2.6 billion globally in 2012.
Paramanathan said social organisations could not afford to disappoint or rip off donors, pointing to strict fund-raising laws that stipulate that non-profit groups and charities must use donations only for the purpose for which they were raised.
"We think it's a smart business move to return donations where you can if you can't deliver your project. To us, it speaks volumes about organisations that do that. They clearly believe in accountability to their donors.
"The long-term penalty is clear - you're going to struggle to re-engage donors who have had a bad experience with you."
He said all fund-raisers must submit a line-by-line expenses form, and report back at least twice in the six months after donors' funds have been taken.
Octopi advises clean technology start-ups and non-profit groups on legal and regulatory requirements, and executive director Abraham Robertson said regardless of the platform used, donations must be spent on activities outlined in an organisation's constituent documents.
Robertson said crowdfunding was a great way to raise seed funds for an idea but would not be sustainable in the long term.
"NFPs should be careful to seek proper accounting and legal advice, but more importantly sites like ChipIn have a responsibility to uphold the integrity of their sites and crowdfunding by doing proper due diligence on groups/entities seeking to raise," Robertson said.
He said organisations needed to be registered as fund-raising bodies in their home states for the donation to be tax deductible.
Pollinate Energy founder Jamie Chivers said strict laws prevented NFPs from running off with funds.
"We use the funds for a proven operating model to distribute solar panels to the poor," Chivers said.
"The reward to those who donate has no 'development' or 'technology' risk associated, and it allows people to justify contributing to a cause they believe in because they get something tangible in return."
However, despite the good intentions, some are not convinced the model can succeed.
Sydney entrepreneur Ryan Wardell shut down crowdfunding site ProjectPowerUP months after launch because of poor growth. He is not convinced the model can work.
"While there's certainly an opportunity for non-profit crowdfunding, the projects are nowhere near as big or lucrative or even newsworthy," Wardell said.
"I think tugging at the heartstrings will get really old, really quick. Without PR and social channels, crowdfunding doesn't work."
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