Disaster recovery turns to crowdfundingMay 23, 2013: 1:08 PM ET
A new outlet for one of technology's fastest-growing sectors.
By Jennifer Alsever
FORTUNE -- Shortly after a devastating tornado ripped through Moore, Okla. on Monday afternoon, Robyn Rojas posted a photo on Facebook of a pile of rubble that was once her home. The student advisor at the University of Oklahoma then added one comment, "This is a nightmare."
The next morning, her coworker Jacque Sexton Braun saw the post and within five minutes set up an online fundraising campaign on GoFundMe.com to raise money to help pregnant Rojaf and her husband Ivan pay for new clothes, toothbrushes, everything before their first child arrives in July. Within an hour, the campaign collected $1,000 for the couple. Within 24 hours, donors contributed more than $6,000. "Giving to the Red Cross is great, but this way you're giving to someone whose story you know, and it's more personal," says Braun, a marketing specialist for the university.
Kickstarter was just the beginning. The nascent $2.7 billion crowdfunding industry has proved to be not just a powerful tool for financing startups and art and movie projects. It's helping to transform charity too. Anyone can easily set up a campaign, tap into their social networks, and make a direct impact on giving. Thousands of campaigns are being set up to help Oklahoma victims on sites with names like Fundly, Indiegogo, YouCaring, GiveitForward, Crowdrise, and GoFundMe.
In just 24 hours, a handful of campaigns on Fundly brought in $500,000 in donations for Oklahoma tornado victims. Last fall, Fundly campaigns raised $2.5 million for Hurricane Sandy and $250,000 for Boston bombing victims. The outpouring of support makes Fundly CEO Dave Boyce project Oklahoma donations on the site will top $3 million.
It took Braun about five minutes to set up an account for Rojas on GoFundMe, which broadcast her campaign to her Facebook friends, letting her post photos and updates, and amass likes and comments as well as money. The money is immediately available: You can withdraw it within 24 to 48 hours.
Most crowdfunding sites take a 3% to 8% cut of the total money raised, which, say executives, is far less than the average 25% overhead of most large charities. (YouCaring is an exception, since it relies only on user donations to operate.)
Despite the growing frustration over slow, bureaucratic charities with high overhead, crowdfunding alone is not the solution, says Ken Berger, president of Charity Navigator, which offers advice on charitable giving. "There is a desire to move money as quickly as possible and get as much money to the victims as possible," Berger says. "But the danger is that the faster the money moves, the greater the chance of abuse and scandal."
While speedy and personal, those individual crowdfunding campaigns cannot provide for the long-term needs of victims or offer the money and support needed for first responders and aid workers. Often, the person with the best marketing, not the greatest need, gets the most cash, Berger says.
Other efforts are underway to get money directly to victims faster. Recently, family members of victims and frustrated donors are now working with Congress to create the National Compassion Fund, which will funnel the vast majority of donations directly and immediately to victims. After the Boston Marathon bombing, Boston Mayor Tom Menino and Massachusetts Gov. Deval Patrick set up the One Fund to quickly get money to victims. The fund has raised more than $31 million for victims.
When a disaster happens, fraudulent websites and charities pop up immediately within just hours, says Allan Bachman, education manager for the Association of Certified Fraud Examiners. He advises using caution about donating to unfamiliar people, websites, and charities, as well as providing financial information to them. "You don't know what's going to happen to your money and whether it's really going to be passed on," he says. "There are no guarantees."
A number of crowdfunding sites now work closely with nonprofits and charities. GoFundMe and Indiegogo, for instance, allow campaign organizers to contribute the money directly to a nonprofit 501(c)(3) organization. Fundly, too, also works directly with large charities to help them create campaigns.
When it comes to backing individual campaign organizers, Fundly's CEO Boyce suggests checking people out and trusting your gut. If a person's friends aren't giving to them, then you probably shouldn't either. The crowdfunding campaigns typically tie to a bank account to a person's Facebook page to offer more accountability. "It's policed by the Internet," he says. "The Internet is actually more effective at policing than any agency could be."