Bullied bus monitor: Karen Klein case shows power of crowdfunding

Websites have since sprouted like mushrooms across the Internet, with hundreds of new sites seeking to connect donors and philanthropists, investors and companies, or music lovers and musicians. IndieGoGo and its competitor KickStarter remain among the largest and most publicized endeavors. Underscoring the growth in investor interest in the crowdfunding industry, IndieGogo earlier this month received a $15 million injection of venture capital, the largest single investment in a crowdfunding enterprise.

IndieGoGo says it has hosted more than 100,000 campaigns, in one of 28 categories ranging from “transmedia” and “theater” to “food” and “animals.”

“It may herald, be a mark of a coming change in how we go about philanthrophy. It’s a new model,” says Michael Nilsen, spokesman for the Association of Fundraising Professionals, a Virginia-based group that represents development officers and philanthrophy officials mainly in the US. “People want to get involved and if we’re not giving them that, we’re ultimately going to miss out as we transition from traditional donors to younger donors. It’s not enough to just write a check anymore.”

While “cause-related” or “donation” campaigns like that for Karen Klein have received much publicity, another development earlier this year stands to yield a further explosion in interest in crowdfunding. Legislation signed into law by President Obama in April included a provision that allows small start-ups to seek out equity investment using crowdfunding.

Some see the extension of crowdfunding into equity investing as a natural progression. Others, however, say the potential for financial fraud and chicanery makes it ill-advised.

“For its part, donation crowdfunding works precisely because the donor doesn't really care much about getting a product or making personal gain: most of the donors immediately write off their donation – either financially or psychologically, or both. Expectations of return are minimal at best,” wrote Daniel Isenberg, a business professor with Babson College in Wellesley, Mass., in a recent edition of the Harvard Business Review.

“Buying stock is a very different story. It’s a claim or asset forever. That’s a very different relationship,” he says. 

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