Top 3 Tips for Avoiding Crowdfunding Scam

Worried Woman Looking at Phone Due to Crowdfunding Scam

Have you ever been asked to help with a friend’s medical bills? Or to raise money for your child’s teacher, or pitch in to help someone who wants to start their own small business? If you’ve received an online invitation to do any of these things, you’ve been asked to take part in crowdfunding.

Crowdfunding websites connect people looking to raise money with people willing to pitch in. Donating to a friend’s cause or investing in a new business venture is as easy as clicking a link.

On the surface, it’s a great idea. Who doesn’t like helping someone out of a pinch? Or getting in on the ground floor of investing in a product that could take off? But before you jump in, it’s good to be aware that a crowdfunding request could be a scam.

Crowdfunding Basics

Crowdfunding is a convenient way for people to raise funds online.  Sites like Kickstarter and Indiegogo help match investors with people who need funds to start a company or launch a new product. Funds donated are considered an investment, and investors expect to get part of the profit if the venture eventually makes money.

Personal crowdfunding is something people turn to when they need to raise money. GoFundMe is the best-known site for personal fundraising. It helps users raise money for themselves or others to achieve their goals or make it through difficult times. For instance, friends of cancer patients have used GoFundMe to raise money for medical treatments and other costs. Some students use it to ask for help with college tuition. Other people ask for donations to help them get back on their feet after a job loss, to pay for a pet’s surgery, or to fund a personal project.

When used properly, crowdfunding can be a great community resource – but it can also be an easy way for thieves to get your money. If you are tempted to give money online to a crowdfunding campaign, be careful. Here are some red flags to watch out for and ways to help protect yourself from getting scammed.

Know Who You Are Supporting

Is the organizer or recipient of the funding someone you know and trust? If not, ask yourself if this is the best use of your money. Many crowdfunding appeals are so moving that strangers feel compelled to contribute. But if you don’t personally know and trust the people asking for money, you may be taking a risk.

Crowdfunding sites do take steps to make sure campaigns are honest. But it’s easy for anyone to start a campaign, so thieves can get online and ask for your money despite these efforts.

Ask Plenty of Questions About Business Crowdfunding

It can be exciting to get in on the ground floor of a new product or business. Just remember, if it seems too good to be true, it probably is. 

Look for new products that have a working model and a demonstration video. Don’t settle for artistic drawings or digitally altered images of what the finished product “should” look like. Serious people will already have a working model in hand before they ask for money.

Insist on open communication with the requestor before you decide to fund their project. How often they update their page is a good indication of how active the project is. Ask to see the project budget. Since you’re helping finance the effort, you’re within your rights to ask how your investment would be spent. If they won’t share that with you, it is a red flag that this is likely not a very organized investment, or worse, a possible scam.

Post questions on the project page, and pay attention to the questions others have asked. If there are few or vague responses, the investment may not be a good idea.

Most importantly, never give in to pressure to invest in a project. Give it time. Check the page often and make sure you trust the person behind the project. Only consider investing if and when you feel comfortable and confident that a project is legitimate.

Be Wary of Donating to Strangers

Sadly, as long as there are tragedies, there will be scammers looking to take advantage of them. Before giving to a fundraiser for an individual or family, consider how well you know the people involved. If they are strangers, you could be putting yourself at risk, no matter how important the need appears. Scammers often use photos of sick children, for example, to trick kindhearted people out of donations.

Be particularly diligent about making donations after a tragedy or natural disaster.  If you don’t know the people involved, it may be best to make your donations through a trusted organization like the Red Cross, UNICEF, or Doctors Without Borders.

What if you feel strongly that you want to give to a stranger’s fundraiser? Look closely at the campaign to determine if it’s trustworthy. Make sure to find out how the campaign organizer is related to the supposed recipient. Be sure you understand how the money will be used. If the intended recipient isn’t the one receiving the money, why is that?

Finally, take a look at the comments. If the campaign is on the up-and-up, direct family should be making donations and adding comments. Look for clues that at least some donors know the people involved in real life.

Conclusion: Donate With Care

Crowdfunding is a great idea, but it can be risky if you aren’t sure what you are getting into. Remember that it’s your money, and only you get to decide where you spend it. If you want to help those in need, your best bet may be donating to a trusted, registered charity. They will make sure your donations reach those in need.