Donation-based crowdfunding

Donation-based crowdfunding can be appealing for small entities such as ECs for several reasons: it can help raise your profile, engage a large number of citizens in a worthy cause and doesn’t require a lot of work.

CEES Partners found the first two to be true but ultimately had to admit that staff time – and therefore costs – can be quite heavy. While many different forms exist, a fundamental principle of donation-based crowdfunding is the expectation that “individuals [will] donate small amounts to meet the larger funding aim of a specific charitable project while receiving no financial or material return.”¹

Most donors, however, do like to feel that their contribution will support tangible actions and are particularly drawn to actions that improve something within their own community. They may also appreciate being made aware of a problem they didn’t know existed, in which case fundraising can subtly shift public perception and knowledge.

Energy poverty gaining visibility — and public support

While energy poverty might previously have been ‘hidden’, the current energy crisis has affected the vast majority of households in Europe. As such, engaging people in efforts to show energy solidarity are particularly relevant.

Still, ECs need to consider multiple factors when determining whether donation-based crowdfunding is a viable option for a given energy solidarity project. Three of the most critical include:

Legal aspects of donation-based crowdfunding
Leveraging diverse donation options, and
Choosing the best tools to execute a campaign.

Legal aspects of donation-based crowdfunding

Legal frameworks for collecting donations are often very strict and may vary widely among Member States. To promote social engagement, many countries offer substantial tax benefits on donations. In France, for example, citizens receive a 66% credit on tax returns, meaning that each donation of €100 actually costs only €44. Often, however, such benefits apply only when the donation is made to certain types of legal entities such as charitable organisations, non-profit associations, foundations or endowment funds.

Almost all CEES partners encountered barriers in this regard. As they are registered as businesses, cooperatives or social enterprises, the incentive of a tax benefit to donors often does not apply. ECs keen to attract donors using the tax credit incentive typically have two options to consider.

Partner with an existing entity with the eligible legal status: This might be a foundation, charity or non-profit association.

Establish a second, separate entity with the right legal status: ECs might find it worthwhile to set up a separate non-profit association or registered charitable organisation that can take donations. Depending on national legislation and other factors, it can be a heavy burden to set up and maintain, particularly as it is likely to require separate administrative systems and reporting. It is thus critical to weigh the advantages and disadvantages in relation to broader objectives.

Leveraging diverse donation options

Placing a ‘Donate’ button and/or a QR code prominently on your website is a straightforward way to make it easy for people to contribute through an online form or using their smartphones. Typically, a variety of payment mechanisms exist ‘behind’ the button. ECs need to ensure that what they choose supports a secure transfer of funds for both the donor and the recipient. As most have fees, it is important to compare the costs and levels of services provided.

ECs should give donors the choice to have their names shown or remain anonymous. To recognise large contributions, ECs may want to consider having a recognition (or ‘Thank you for the support’) page and attaching a status to different levels. Also, while raising donations, it can be motivating to have a ‘tracker’ or to periodically report on the amount raised. This can build on momentum and encourage those who have not yet participated become part of the solidarity community by doing so.

Over the longer term, a donate button can facilitate a steady flow of contributions that are not tied to a specific campaign. Critically, as mentioned above, ECs need to clearly state whether their legal status supports tax benefits.

With multiple things to consider, a related blog dives into the aspect of choosing the right tools to execute a donation-based campaign!

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¹ https://single-market-economy.ec.europa.eu/access-finance/guide-crowdfunding/what-crowdfunding/crowdfunding-explained_en#