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Crowdfunding and the downside of helping needy strangers

03/07/2015 11:00 EST | Updated 05/07/2015 05:59 EDT
It's become an increasingly common occurrence: Someone is so moved by another's story of hardship that he or she decides to spontaneously start an online fundraising campaign in that person's name.

The examples are legion and diverse, from campaigns to raise money for the victim of a hit-and-run accident in Vancouver to a Cincinnati family whose house burned down to a group of Minnesota students seeking funds for a trip to Toronto.

Compared to more conventional charitable giving, the beauty of crowdfunding is that it creates "a tribal connection between the cause and the people that are supporting it," says Steve Croth, CEO of FlipGive, a Toronto company that built an app that allows people to raise charitable funds through online shopping.

But while crowdfunding has made it possible to directly improve the life of another person – and to feel good about it – Croth says it hasn't necessarily made donors smarter about charitable giving.

"Crowdfunding can drive unequal distribution of funds, people that are just overfunding some campaigns while ignoring others – and potentially ignoring the more worthy causes," Croth says.

He also warns that if a campaign becomes too successful and overshoots its stated funding goal, it can lead to uncomfortable questions about how to spend the excess money, not to mention issues of personal safety for the lucky recipient, who may be hounded by self-interested parties.

A crowded decade

Crowdfunding has been going on for about a decade, with sites such as Kickstarter, Indiegogo and Kiva helping people secure funding from friends and strangers for a variety of projects, from fledgling businesses to artistic endeavours to civic initiatives.

Anyone interested in starting a campaign can do so by choosing a crowdfunding site, writing a brief description of the cause, setting a fundraising goal and then sharing a link to the campaign on email or social media.

The sites usually charge a credit-card processing fee and take a percentage of about four to five per cent of the final amount raised.

Many of the highest-profile campaigns are funding drives for people who have experienced hardship, a perceived injustice or some life-altering event.

In the last few weeks, crowdfunders raised more than $20,000 for Rania El-Alloul, a Quebec woman who went to court to retrieve her seized vehicle but was dismissed by the judge because she was wearing a hijab; and over $100,000 for the funeral of Elijah Marsh, the three-year-old Toronto boy who died in the cold after wandering from his grandmother's apartment.

James Robertson's car

One of the most memorable recent examples was a campaign created on GoFundMe in February to purchase a car for James Robertson, a Detroit man who walks 33 kilometres to and from work every day.

The campaign was initially pegged to raise $5,000 US to buy Robertson a new car, but the heartbreaking story garnered international attention and gathered over $300,000.

Recently, however, Detroit police reported that Robertson had moved out of his boarding house, saying he felt threatened after his unexpected windfall.

Rather than demonstrate the power of human generosity, the campaign reveals the problems with "flash giving," says Croth.

"People are emotional, they've heard the story, they feel compassionate, and rather than using their logic to support or give, they let their emotion crowd their judgment."

Daryl Hatton, CEO of crowdfunding site FundRazr, is more blunt about Robertson's case. He calls it "a media circus."

"We have to be careful not to let reality television take over crowdfunding," says Hatton, who also sits on the board of directors for the National Crowdfunding Association of Canada.

While he doesn’t question Robertson's hardship, Hatton says one of the problems with crowdfunding initiatives is that one especially compelling – and well-promoted – story can dominate the media at the expense of thousands of other, equally captivating cases.

Fraud reviews

Hatton also warns of the potential for fraud.

Crowdfunding sites are acutely aware of this possibility, and many have protocols to ensure their campaigns are legitimate.

Hatton says executives at FundRazr conduct a regular "fraud review" that includes meeting with officials at PayPal, their payment partner, and keeping a blacklist of known charlatans.

Indiegogo has "stringent trust and safety procedures that include a dedicated team of experts, automated algorithms and other procedures," according to a company spokesman.

David King, CEO for the Atlanta-based fundraising consulting firm Alexander Haas, is well aware of the risks inherent to crowdfunding, but hesitates to overstate them.

"I hate to say there's danger in it, because anytime people are trying to do something good for other people — especially when there's so much going on in the world that's the opposite of that — I think we should applaud the effort," he says.

His larger concern is that while these platforms "empower smaller organizations and individuals to get into the fundraising game," the proliferation of charitable crowdfunding campaigns might lead to a general desensitization.

"There are so many coming down the pike that we've become sort of numb to them," says King.

The result, he feels, is that "not only does crowdfunding slow down, but other kinds of philanthropic activity slow down, because people are sort of overstimulated or overexposed to it."

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