CrowdfundingImagine having a personal cause that you want to promote. In the past, you might have been limited to asking friends, family and maybe neighbors and coworkers for support, but today with crowdfunding websites, like GoFundMe, Kickstarter, Indiegogo and more, you can reach out to thousands of people instantly. Due to its effectiveness, crowdfunding has grown in popularity within the last decade and blossomed into a multi-billion dollar industry. But like almost everything else, there’s a dark side to crowdfunding — scams. Last year the FTC began cracking down on crowdfunding scams, which it considers a growing problem. Although this is a somewhat new type of scam, which means there aren’t a lot of statistics, experts worry that the number of scams on crowdfunding platforms is only set to increase as the industry becomes larger and more profitable. Read on to find out what you need to know about crowdfunding and the scams that may appear on crowdfunding websites.

What is crowdfunding?

Crowdfunding is part of an up-and-coming industry dubbed the “sharing economy,” a term used to describe an economic and social activity, where customers join an open-source community to receive goods or services from their peers. Crowdfunding companies act similar to other share economy services, like Airbnb or Uber, in that they provide a space for individuals to exchange money and services. In the case of crowdfunding, an individual can either promote a cause or an idea that requires funding. In return donations, donors may receive gifts based on how much they donated or just have the satisfaction in knowing that they donated to the cause.

While crowdfunding has contributed to some helpful causes and projects – from paying for sick children’s medical expenses to funding independent documentaries to supporting the creation of some consumer products – the availability of the sites and ease of us have developed a platform for scammers to post phony causes and ask for money. Although each site has its own policies, there usually isn’t not much in the means of vetting posters aside from any independent research that a pledging donor is willing to conduct themselves. What’s more, since many of these crowdfunding companies aren’t affiliated with the individuals posting on their site, their terms of usage often absolve them of any obligation to provide refunds for abandoned or (even worse) outright fraudulent campaigns, which makes it an ideal platform for scammers. While the majority of campaigns funded through these sites are usually legitimate, there’s always the chance that some campaigns are either frauds or duds abandoned by their creators.

How can I avoid crowdfunding scams?

If you choose to support campaigns on crowdfunding platforms, there are some steps you should consider in order to protect your identity and your wallet. Here are these steps:

1. Vet all crowdfunding listings. Even if you don’t visit popular crowdfunding sites, like the ones we detailed above, it’s very likely you’ve seen campaigns from these sites on your social media feeds, as people often share campaigns that they’re passionate about. If you feel compelled to donate to a crowdfunded cause or campaign, you should extensively look into the listing, as you would with any charity that you’d consider donating to. Even if you know the person who made the post or shared the post on social media, you should verify both the beneficiary of the donations and how the money will be used. If the text describing the campaign isn’t clear, it might be a sign that the poster isn’t being as transparent as they should be, which should be a red flag that you might be getting scammed.

2. Read the terms of service. There are dozens of crowdfunding sites, each of them with their own unique rules around their service. Before you donate money, you should know what the platform’s expectations are for people who post campaigns to its site. Does the site filter or evaluate people who request donations or does it rely on users to report fraud? Are there rules or provisions around refunding donors who were scammed? If you don’t like the provisions in the terms of service for the platform you’re visiting, then you should definitely steer clear of any campaigns posted on that site.

3. Consider contacting any relevant parties directly. There can be cases where a cause is legitimate, but you should be aware that fraudsters have appropriated donations for their own benefit before. As such, if a post mentions specific people, you can try and contact them directly to see if they’re aware of, or affiliated with, the crowdfunding post that mentions them. You should probably cross-reference any contact information provided on the crowdfunding site with information elsewhere like Google, if possible. However, if there is no clear contact information on the posting or you aren’t getting clear responses after you contacted the poster, it might be an indication that something’s off.

4. Think twice before you register for a site. It can be fun supporting interesting projects and creators online, but you should be aware of some of the risks involved with crowdfunding. Last year users of Patreon, a crowdfunding site dedicated to supporting various types of artists, were hacked. About 2.3 million users – both artists and donors alike – had 15 gigabytes of their addresses, conversations and other private details leaked. Luckily, tax forms, credit card information and other more sensitive financial details were stored on a different server that was not affected by the hack, according to the company. Still, the Patreon hack illustrates what the worse-case scenario might look like should the unthinkable happen to crowdfunding users and should serve as a lesson to everyone. If you’re going to donate money to someone through a crowdfunding platform, it might make sense to simply do a one-time donation without subscribing or signing up for the service, assuming the former is a possibility. If you do decide to sign up for the site, avoid storing any payment details or addresses on your profile, as it may make you more vulnerable in the event the site is hacked. While most major crowdfunding sites provide quality security protections for both pledgers and creators, no online system is immune from data breaches.

5. Be skeptical. When you’re reading someone’s story on a crowdfunding page, it’s easy to assume that what they’re saying is true, but the unfortunate reality is that it may just be an attempt to get your money. Scammers will say anything to get you to fall for their scam, which is why it’s important for you to be skeptical of every post you come across. If a company is promising you a huge payback like a car or expensive product for a small donation, it’s likely a scam. Similarly, if the story you’re reading seems a little too good or sad to be true, do a little Google search, as you may be able to find a news story that confirms the story. Arming yourself with skepticism is the best thing you can do when you’re face-to-face with a potential scammer.

For more information about avoiding scams while using the Internet, keep reading our scams blog.