Online funding sites pique interest

April 3, 2011 at 12:00a.m.

Chicago Tribune

CHICAGO

At first blush, crowd-funding may sound like just another attempt to raise money online by getting as many visitors as possible to donate to a cause.

But a growing number of startups see the landscape differently. They see the potential that social networks have to raise money in ways that align with how younger generations practice philanthropy.

They saw the power of crowd-funding work for Barack Obama in his 2008 presidential campaign. On a smaller scale, they also saw it work for online microcredit lender Kiva, which channels money to entrepreneurs in developing countries. Kiva, which was launched in 2005, has processed more than $200 million in loans and gotten accolades from Oprah Winfrey.

“There’s no reason people shouldn’t give small amounts of money throughout their life,” said Desiree Vargas Wrigley, the co-founder and CEO of Chicago-based GiveForward, which raises money for out-of-pocket medical expenses. “There’s very much a mentality of ‘everyone can chip in a little bit.’”

GiveForward is one of dozens of companies in the crowd-funding space, which is becoming segmented as new entrants look for fund-raising niches. New York-based Kickstarter is geared toward artists, for example, while Grow VC connects entrepreneurs with early-stage investors.

“All of those [Web] tools, all that Internet diffusion, when you connect it with that natural human energy to make change or support something, it’s altogether different,” said Josh Tetrick, the founder of 33needs, which raises money for social ventures. “Crowd-funding takes advantage of the tools of the social Web and the natural human need to feel connected.”

Meanwhile, crowd-funding success stories are drawing the attention of investors. GiveForward recently raised $500,000 in venture capital. EduLender, a Chicago-based comparison-shopping site for student loans that also allows users to raise money for tuition or debt repayment, announced this month that it has raised $1 million.

Schaumburg, Ill., resident Mandy Burgos, 28, set up a GiveForward page for her younger sister, Stacy Karlo, who is fighting Hodgkin’s lymphoma and will undergo a stem-cell transplant in May. Burgos said she and her cousins decided to organize an online fundraiser because many friends and family members were asking if they could give money to help. Karlo, 27, will be out of work for three months after the surgery.

“I feel better knowing that people know her story,” said Burgos, who updates the fund-raising page with news of her sister’s health. The family has raised more than $6,000 of its $10,000 goal. “She hates attention, so it’s been tough for her. ... This is our way that everyone’s trying to help.”

One challenge for crowd-funding sites is that because they rely on social Web tools and personal connections to spread awareness, they have to compete with an overstuffed online diet, from mundane daily musings on Facebook to viral YouTube videos.

The young industry also risks exhausting the generosity of donors who are bombarded with constant fundraising pitches.

Crowd-funding sites also face skepticism over their revenue model, where the basic principle is to take a percentage of money collected. Kickstarter puts an all-or-nothing twist on the concept, meaning groups that don’t hit their goal before the deadline receive no funding and donors’ credit cards don’t get charged. IndieGoGo allows users to keep whatever they raise but charges a higher commission of 9 percent if the total falls short of the goal, while successful campaigns are charged 4 percent. GiveForward takes 7 percent, which covers processing fees.

EduLender does not charge members who use its fund-raising feature, which founder and CEO Sue Khim said makes the site more of a tuition gift registry.