It was just a few years ago when the Federal Trade Commission settled its first case involving crowdfunding, a way for individuals and businesses to finance a project or venture that involves raising funds from numerous donors, typically through online platforms. Since that first case, many crowdfunding scams have been uncovered and prosecuted, though donors must remain vigilant before donating to causes via crowdfunding campaigns.
Many crowdfunding efforts are legitimate. However, consumers should still take a cautious approach and exercise due diligence before donating to such ventures.
Confirm credentials prior to donating. Consumer Reports notes that crowdfunding sites verify that page creators have Facebook pages. However, the existence of those pages alone does not mean a crowdfunding effort is legitimate. In addition, the Better Business Bureau notes that some crowdfunding platforms do a better job of vetting projects and postings than others. When visiting a creator’s Facebook page, look for potential red flags. A page with a limited history that seems to have been created right before the crowdfunding effort was started is a red flag.
Learn more about the creator. A legitimate crowdfunding effort that’s worthy of your donation should be transparent. Creators should be forthcoming about their backgrounds and their expertise in the field. Little or no experience is not necessarily a sign of a potential scam, but donors may want to support operations that have the best chance at being successful, so inexperience on the part of the creator should not be downplayed.
Beware of emotional appeals. The BBB notes that scammers often rely on emotional appeals, and these appeals imply a sense of urgency indicating money is needed right away. Donors should be wary of such appeals and conduct their due diligence even if the page says the situation is urgent.
Donate via specialized crowdfunding websites. The BBB notes that some crowdfunding sites are dedicated to specific types of fundraising efforts, such as medical funding or projects focused on raising money for education. According to the BBB, these sites are more likely to sniff out scams than general crowdfunding sites that may have trouble keeping up with the volume of new efforts and pages posted each day.